British banks are reportedly ramping up their lobbying efforts to stave off potential tax hikes, as the newly elected Labour government prepares to unveil its first budget. According to senior industry sources who spoke to Reuters, the financial sector is on high alert, anticipating that the government may target banks to help fill a significant gap in public finances.
While neither Prime Minister Keir Starmer nor Finance Minister Rachel Reeves has explicitly confirmed any plans to increase bank taxes, Starmer’s recent comments hinting at the need for those with “broader shoulders” to bear more of the financial burden have heightened industry concerns.
Over the past few years, banks in the UK have enjoyed robust profits, largely due to the environment of higher interest rates. However, the upcoming budget, set for October 30th, could potentially see these profits subject to increased taxation.
In particular, the industry is bracing for a possible increase in the existing surcharge that banks already pay. The sources indicated that this would be a more straightforward approach for the government than other options, such as reducing the interest banks earn on reserves held at the Bank of England. This move could disrupt the Bank’s monetary policy.
Adding to the speculation, JP Morgan Chase’s CEO Jamie Dimon is scheduled to meet with Reeves in London this week, further fueling concerns that the Labour government may be considering a significant fiscal shift. JP Morgan operates one of its largest non-U.S. branches in the UK, making it a key player in discussing potential tax changes.
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Market Impact Of Speculated Tax Changes
While the Treasury has refrained from commenting on what it calls “speculation about tax changes outside of a fiscal event,” industry insiders remain on edge. The uncertainty has already impacted the stock market, with British bank shares dipping briefly last week following a report by the Financial Times that quoted a former government official advocating for a “sensibly crafted” levy on banks.
The bank levy, initially introduced in 2011 in the aftermath of the global financial crisis, was designed to curb excessive risk-taking and encourage financial stability. Despite the sector’s efforts to build up capital reserves since then, the levy has remained in place, and no government has seriously attempted to phase it out.
UK Finance, the trade body representing British banks, acknowledged the growing concerns and is preparing to submit a pre-budget appeal to the Treasury. The submission, due by September 10th, is expected to argue for the phasing out of both the bank levy and the corporation tax surcharge, citing the already high tax rates that UK banks pay compared to their counterparts in other global financial centers like New York.
However, the potential tax increase has garnered support from some quarters. Simon Youel, Head of Policy and Advocacy at the campaign group Positive Money, told Reuters that any hike in the banking surcharge or levy should be seen not as a tax increase but rather as a reversal of the tax cuts granted to banks under the previous Conservative government.
Looking ahead, the conclusion of Labour’s budgetary planning could have significant implications for the UK’s financial sector. If the anticipated tax hikes materialize, they could reshape the competitive landscape of British banking, potentially deterring international investment at a time when the government is seeking to revive economic growth. As Starmer and Reeves prepare to host the UK’s annual investment summit next month, they will need to carefully balance fiscal responsibility with the need to maintain the country’s appeal as a global financial hub.
