Bank Shares Fall Amid Speculation of Increased Tax Surcharge
Chancellor poised to deliver Budget this month as industry warns against economic consequences of potential profit tax hike.
Carla Rooney
Shares in major UK banks dropped on Friday amid widespread speculation of an impending tax hike.
The proposed tax targets the surcharge banks pay on their profits, a levy Jeremy Hunt previously cut from 8% to 3%. The TUC demands an increase in this surcharge to 16%, projecting it could generate £24 billion in tax revenues over four years.
Rachel Reeves, during her tenure as chancellor, rejected such a tax rise. She cited concerns it would deter investment from Britain. Industry chiefs claim the move would push up interest rates on mortgages and corporate loans, reducing lending and investment, potentially costing the economy £20 billion over the next decade.
Britain needs growth. But a raid on the financial services sector will stifle it. Labour should be backing businesses and wealth-creators, not making their lives even harder.
Shares in Britain’s biggest banks reacted sharply to the prospect of a tax raid. Lloyds fell as much as 2.7 per cent. NatWest dropped 2.4 per cent. Data from IG shows the number of short trades across the big four UK banks increased by 58% week on week.
Andrew Griffith stated, "Britain needs growth. But a raid on the financial services sector will stifle it. Labour should be backing businesses and wealth-creators, not making their lives even harder." A UK Finance spokesperson added that an increase in bank taxes "would weaken the UK’s competitiveness, discourage investment and job creation."
The UK Government faces significant fiscal pressures. The Institute for Public Policy Research claims the Chancellor's fiscal buffer has dropped by up to £15 billion since the spring. The Institute for Public Policy Research also recommended generating £1 billion from a temporary surcharge on commercial banks’ windfall profits to help struggling households.
UK banks currently face a tax rate of 46.5 per cent once employment levies and VAT are factored in. This figure significantly exceeds the 39.1 per cent in Frankfurt and 27.9 per cent in New York. Unspecified claims suggest a windfall tax could encourage international banks to shift their London and UK operations overseas.
The Treasury has already lost £6 billion in revenue from the Tories’ senseless bank tax cut – now it’s time to make sure banks pay their fair share.
The International Monetary Fund advised the UK to consider targeting savings on pensions and welfare rather than taxing banks. Helge Berger stated, "I think that’s where you would put the emphasis, rather than the tax that you mentioned."
Paul Nowak, TUC general secretary, argued, "The Treasury has already lost £6 billion in revenue from the Tories’ senseless bank tax cut – now it’s time to make sure banks pay their fair share." The Treasury spokesperson maintained that "decisions on tax are a matter for the Chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals."