Unpopular opinion: Banks are taxed enough already
Is Angela Rayner influencing the Budget from beyond the political grave? The former deputy PM and housing secretary was famously in favour of increasing the additional tax burden faced by banks.
Ahead of this year’s Spring Statement, Rayner was riding high. With a confidence that turned out to be misplaced, she inserted herself into debates around economic policy, with a leaked memo making the case that Rachel Reeves should target dividends, AIM shares, pensions and banks for a sugar rush of fresh tax revenue.
At the time, the Chancellor was still clinging to the view that no further tax rises were needed and Rayner was told to keep to her lane. Fast forward 6 months and Rayner is – according to reports – readying herself in the event that a vacancy opens up in No 10, while Reeves appears to have dispatched an aide to retrieve the Rayner memo from the bin.
With a ‘smorgasbord’ of tax rises now firmly on the cards, the banks are worried. This time last week it seemed the sector had successfully lobbied its way out of a fresh tax raid but events move quickly, and with income tax hikes now seemingly off the table, Treasury attention appears to have turned back to the banks. It’s all to play for.
Banking sector pays for half of Whitehall
On Tuesday night, the banking sector’s top brass gathered for the annual UK Finance dinner, where the industry group’s chief executive, David Postings, told an audience that included the City minister that the sector already generates enough tax revenue to pay for 7 government departments, including the Treasury.
He also reminded the minister, Lucy Rigby, that the industry currently operates under an effective rate of 46.6 per cent, well above that of New York (28 per cent), Frankfurt (38 per cent) and Dublin (29 per cent). Banks in the UK pay the base level of corporation tax is 25 per cent, then “there is…a surcharge added just because it is a bank, and then a further levy just because it is a bank.”
National insurance and other costs take the overall tax rate to a level that many feel makes the UK unattractive. Postings concluded his remarks with a direct appeal to the government: “We need growth in living standards and GDP to provide enduring prosperity, rather than short term quick fixes.”
He’s quite right; a further raid on this golden goose sector would be a counterproductive mistake, undermining the City’s competitiveness as well as banks’ confidence and capacity to lend.