Lloyds and Natwest flaunt social credentials as fears grow of Burnham tax grab
Lloyds and Natwest are flaunting their community credentials and pledging a raft of new social investment initiatives as fears grow that Prime Minister Andy Burnham will launch a punishing tax raid on the sector with the government’s first Budget.
The two lenders are among a group of top UK banks looking to prove they can help facilitate the Prime Minister’s community and cost-of-living agenda, analysts have suggested.
Earlier this month, the government introduced a relief package for drought-hit farmers in a bid to mend ties with the sector following former Chancellor Rachel Reeves’ controversial inheritance tax changes in 2024, which triggered protests and widespread backlash. It came days after Natwest revealed it would increase support for agricultural customers who were impacted by the prolonged dry weather.
Farming minister Stephen Morgan heaped praise on Natwest for “stepping up support… at a critical time”.
Meanwhile, just last week, Lloyds revealed a mammoth £100m investment to help young people gain the skills needed to get into work.
It came weeks after Burnham pledged “fundamental changes” to the education system to help students “get the skills [they] need and be given the respect [they deserve]”.
Will Howlett, financials analyst at Quilter, told Morning Wire: “UK banks are becoming more vocal about their contribution to society and the wider economy at the same time speculation around higher bank taxes is re-emerging ahead of the Budget at the end of October.”
Burnham this week said he wouldn’t be “unrealistic” about the state of the public purse when pressed about potential tax rises accompanying his spending plans.
Researchers at the left-leaning Resolution Foundation have forecast the £22bn in fiscal headroom left in last year’s Budget could have sunk beneath £8bn following the impact of the US-Iran war.
The tightening fiscal conditions have coincided with UK banks expecting to pocket higher revenues on the back of elevated interest rates from the conflict in the Middle East.
Banks tout devolution credentials
Chancellor John Healey will deliver his maiden Budget on 28 October. Howlett said the fresh initiatives from Lloyds and Natwest “all fit a wider effort by the sector to demonstrate its economic value and social contribution as the political debate shifts”.
One senior UK banking source: “Ultimately, banks are in the business of improving and enabling the economy – they’re not primarily social beings… the banks shouldn’t have to justify their existence and try to protect themselves against any potential taxation by saying: ‘oh, aren’t we good?’”
They added: “If you tax the profits of banks, then they’re going to have less to lend, and if they lend less, then that’s going to cause them to harm the economy.”
Ahead of last year’s Budget, analysis from RBC pegged Natwest and Lloyds as most vulnerable to a shift in the bank tax rate.
Previous lobbying campaigns have focused on Reeves’ headline message of growth, which she pledged to put financial services “at the heart” of.
But under Burnham, banks have played to the devolution agenda touted by the former Manchester Mayor. HSBC’s Georges Elhedery took the opportunity following second quarter results – where profit jumped 60 per cent – to stress the group’s presence in all parts of the country.
The bank has “operations all over the UK,” Elhedery said, pointing to data centres in Sheffield, HSBC UK’s headquarters in Birmingham and its biggest call centre in Swansea.
Natwest’s Paul Thwaite also shared a stage with Andy Burnham at the Great North Investment Summit in May just before he made his return to Parliament. Thwaite announced a fresh £20bn of lending in the north as part of a regional growth effort.
Gary Greenwood, equity analyst at Shore Capital, told Morning Wire banks are “definitely trying to protect themselves from any unwanted attention but the reality is that their retail banks are making very high returns at present”.
A spokesperson for banking industry body UK Finance said: “Banks always provide a wide range of support to their customers and the communities they serve. The lending they do and the wider support they provide is vitally important to the whole UK economy.”
Natwest said the new package reflects its ongoing commitment to the UK farming sector. Lloyds said its skills initiative was building on previous developments.
Wall Street gets louder on UK tax
The approach of UK banks has contrasted with a volley of warnings from top US bankers who have threatened to pull investment out of Britain if its tax regime becomes uncompetitive.
Dame Jane Fraser, the Scot who leads US giant Citigroup, emphasised the bank’s growth across the UK on a recent trip though denied it was Burnham’s Downing Street driving the bank’s expansion.
“We’re growing here, and not just because we have the new PM,” she said on a visit to London earlier this month.
She pointed to the bank’s Northern presence “growing quite a bit” and its “huge business” opportunity in Belfast.
Fraser was even more direct regarding a new tax on the sector, warning “money votes with its feet” and there were “very viable” alternatives to London.
Quilter’s Howlett said: “For international banks, the debate is increasingly about competitiveness, reflecting the fact they can choose where to deploy capital, jobs and investment.”
London’s bank tax rate dwarfs that of its rivals overseas at 46.4 per cent, raising concerns about the City’s attractiveness. In New York, the rate sits at 27.9 per cent, almost two-thirds below that in London.
UK banks paid an estimated £43.3bn in total tax contributions for the year ending March 2025.
One city source said banks will “always be seen as an easy target” for tax hikes with it being politically palatable across the aisle.
Fraser’s Wall Street peer Jamie Dimon – well-regarded as one of the most influential names in finance – issued a warning to Healey in a phone call shared last week, stressing the importance of “getting public policy right”.
In a letter seen by Morning Wire the boss of UK Finance David Postings last week wrote to Healey with a major tax rise warning.
“Banking reaches every part of the economy and every region of the country, providing credit to households and SMEs, supporting investment, and acting as the UK’s gateway to global markets,” he wrote.
He added: “The debate needs to recognise both the significant tax contribution already made and the wider economic importance of sustainable profitability.”