Rachel Reeves warned on bank tax by lobby group boss
Rachel Reeves has been hit with a firm warning from the banking industry to avoid taxes on the sector or risk harming economic growth.
The Chancellor has received a letter from the boss of UK Finance – a lobby group for the banking industry – which details the harm of tax on the sector.
David Postings, chief executive of UK Finance, praised Reeves’ recent regulation changes in the Leeds Reforms and plans to put the financial services sector at the heart of growth plans.
But Postings cautioned Reeves that tax hikes would harm the sector’s international competitiveness after the industry made a record tax contribution of near £45bn last year.
“UK Finance analysis shows that the UK’s total tax rate for model corporate and investment banks is already notably higher than other major financial centres such as Amsterdam, Frankfurt, Dublin, and New York,” he told the Chancellor in a letter seen by Sky News.
“This disparity is driven by the permanence of sector-specific taxes in the UK, unlike in other EU jurisdictions where comparable arrangements have been phased out.”
He said a new levy would “run counter to the government’s aim of supporting the financial services sector” and “risk undermining the sector’s ability to drive growth, innovation and productivity across the UK economy”.
‘Stupid f**king tax’
The warnings follows calls from the bosses of Britain’s Big Four banks – Lloyds, Barclays, HSBC and Natwest – that fresh taxes would harm their ability to invest in the UK.
One senior banking industry boss described the levy to CityAM this week as “a stupid f**king tax” that was “unethical.”
The Chancellor is expected to be to raise taxes by at least £20bn in the Autumn Budget to stay in line with her “non negotiable” fiscal rules.
A report from Capital Economics this week listed the two most likely tax hikes in the Budget to be at the expense of banks.
Ruth Gregory, deputy chief UK economist at Capital Economics, predicted banks would “bear the brunt of higher taxes”.
Banks back on Reeves’ radar
Speculation around a bank tax has fluctuated throughout the year but re-entered the conversation after a fresh report fro left-wing think tank the Institute for Public Policy Research (IPPR) proposed Reeves add a fresh levy to the lenders.
The report prompted a share sell-off that wiped £8bn off banks’ market value. Natwest’s stock alone lost over five per cent.
Deputy Prime Minister Angela Rayner – who currently is caught over tax hypocrisy – proposed a raise in the banks surcharge in a memo to the Chancellor earlier this year.
Starmer’s second-in-command suggesting hiking the surcharge – which sits on top of corporation tax – to five per cent from three per cent.
Following Rayner’s calls, Postings told CityAM: “The tax environment has an important bearing on investment decisions and growth. To make the UK’s approach to bank taxation globally competitive, we think the government should phase out the bank corporation tax surcharge and the bank levy over time.”