Banks back in crosshairs as Labour eyes tax hikes
George Osborne’s likely payday from the sale of Robey Warshaw to US giant Evercore won’t be the first time he’s extracted money from the banking sector. In his inaugural 2010 Budget he announced a UK bank levy of 0.05 per cent on certain bank liabilities.
Conceived in the wake of the 2008 financial crisis, the levy was specifically designed to recoup some of the costs to taxpayers of bank bailouts while at the same time discouraging high-risk balance sheet behaviour.
The rate of the levy gradually increased over the following four years, raising several billion pounds a year for the exchequer. The rate was phased down from 2015 though it still exists in a narrower form. Meanwhile, the bank surcharge was introduced (also by Osborne) in 2015 as an additional rate of corporation tax – set at 8 per cent on profits above £25m.
This was deemed more palatable than the levy, which targeted balance sheet size rather than profit, and which applied globally to all UK headquartered banks. The surcharge focuses on UK profits, meaning London remained relatively competitive to international banks.
When the overall rate of corporation tax increased to 25 per cent in 2023, the bank surcharge was reduced to 3 per cent. All of this means the banking sector – including mid-sized and challenger banks – faces a unique tax regime in the form of a sector-specific squeeze.
Banks ‘already among biggest tax payers’
Now, as Labour scrambles around for new tax hikes, the banks are in the crosshairs once again.
Deputy Prime Minister Angela Rayner has advocated hiking the surcharge back up to 8 per cent in a move that’s seriously spooked bank bosses.
NatWest’s Paul Thwaite has warned that “strong economies need strong banks” while Lloyds’ boss Charlie Nunn said raising the surcharge “wouldn’t be consistent” with the government’s growth agenda. HSBC’s George Elhedery said yesterday “additional taxation on banks runs the risk of eroding our continued investment capacity” while Barclays CEO CS Venkatakrishnan pointed out last week that lenders were already “among the biggest tax payers in this country”.
This might sound like special pleading, and some may think the banks are fair game once again, but a raid on this golden goose sector would be a mistake, undermining the UK’s competitiveness as well as banks’ confidence and capacity to lend.
The painful but obvious truth is that there are no good tax-raising options for the Chancellor, and whatever emerges in October will be damaging to the economy and will serve as a reminder of just how poorly this government has handled the economy in its first 12 months in office.