Budget whiplash: How bank shares were hit by the Treasury’s ‘hokey cokey’ leaking
Last week the House of Commons speaker reprimanded the Treasury for what he called a “hokey cokey” Budget.
“Can I just say it isn’t normal for a Budget to be put in the press,” Sir Lindsay Hoyle said in his dressing down of ministers.
“One minute it’s in, next minute it’s out.”
Few sectors have been ‘shaken all about’ on the road to 26 November more than banking – an industry which Reeves had spent months currying favour with.
Yet despite her soft spot for the banks, the back-and-forth leaks from the Treasury have left lenders on edge, with top bank stocks see-sawing as investors were rocked by a flurry of conflicting tax rumours.
“Government messaging has been inconsistent in recent weeks, with mixed briefings and shifting tones around potential tax measures,” Vadim Romanoff, corporate tax partner at law firm Charles Russell Speechlys, said.
He added a hike to the bank’s surcharge – which sits at three per cent – remained a “live option” with some estimates suggesting it could be raised as high as eight per cent.
Former Deputy Prime Minister Angela Rayner had supported an increase to the levy in her leaked memo to Reeves ahead of the Spring Statement, calling for it to be raised to five per cent.
Romanoff said such a move “could generate meaningful revenue while being framed as a correction rather than a raid”.
It’s not just the surcharge that’s been ripe for Budget speculation, with Reeves facing calls from think tanks and political opposition to launch a raid on the profits of City banks.
With less than 24 hours to go until Reeves takes to the dispatch box, fresh reports from the Financial Times have indicated banks will be spared from a cash grab but bosses are being urged to back the Chancellor’s fiscal package.
Shares in UK banks rose on the news with Lloyds up 2.84 per cent to 89.86, whilst Barclays rose 1.8 per cent to 407.95.
Natwest caught in briefing back-and-forth
The relentless in-and-out ahead of the Budget has left bank shares volatile despite being able to notch a few records.
Banking juggernaut Natwest re-entered full private ownership on 30 May, but its path forward has been bumpy after getting caught in the briefing frenzy.
The firm shed five per cent in a single trading session at the end of August after the left-leaning Institute for Public Policy and Research (IPPR) called for an annual £8bn tax on the sector targeting profit “windfalls” from quantitative easing.
The losses wiped nearly £2.5bn off Natwest’s market value, with a total £8bn loss in the FTSE 100’s Big Five banks, including Lloyds, Barclays, HSBC and Standard Chartered.
An upbeat third-quarter update on 24 October helped Natwest’s share price spring to a 15-year high, with a further rally coming from reports that the Treasury was hesitant to tax the banks.
The Financial Times reported on 6 November that sources familiar with the matter referred to a bank tax as “a long way down the list”.
Natwest shares rose two per cent on the news 600.80p. Meanwhile, the lender’s domestic-leaning peer Lloyds rose nearly 1.8 per cent to 91.14p.
But the rally came crashing down days later as reports of a U-turn on the mooted income tax rise emerged.
Reeves had primed Brits up for a manifesto-breaking tax raid, only for rogue briefings to reveal the plans had been “ripped up”.
The FTSE 350 bank index lost 2.17 per cent on the news, as a bank sell-off hit the index.
“UK banks found themselves hit by a perfect combination of global growth worries and UK-specific concerns around the Budget,” Chris Beauchamp, chief market analyst at IG, told Morning Wire.
Days later, the banks were thrown back into the middle of the ‘hokey cokey’ after the Telegraph reported a hike to the surcharge was back on the table, sending stocks tumbling once more. Natwest fell 2.31 per cent.
UK banks tax rate widens
The Chancellor has faced calls to avoid a raid with warnings it would contradict the Treasury’s mission for financial services to power its economic growth mission.
Natwest boss Paul Thwaite has warned “strong economies need strong banks” adding he would rather use capital to lend “for the good of the country”.
The boss of banking industry group UK Finance has also urged Reeves to consider the sector’s international competitiveness as she weighs up how to raise cash for the public purse.
As part of its lobbying efforts the group published a report with PwC revealing London lender’s total tax rate rose 0.6 per cent to 46.4 per cent in 2025.
This dwarfed that of overseas rivals and has spiked concerns about the City’s attractiveness on the global stage. In New York, the tax rate remained unchanged year-on-year at 27.9 per cent, almost two-thirds below that in London.
After weeks of the ‘hokey cokey’ banks will be more than ready for the music to stop.
And with signs pointing towards lenders lying on the “out,” it’s a Budget they’re set to be all about – even if that is just at the Chancellor’s behest.