Treasury ‘tells Healey’ to consider tax on banks and oil
Chancellor John Healey has been presented with a plan to tax oil firms and banks further as bosses in the sectors have posted huge profits, according to reports.
Healey may look to tax businesses at this year’s Budget in order to rebuild a partly-eroded £22.7bn fiscal buffer, and fill spending pledges for defence and the cost of living.
It was reported in Bloomberg that Treasury officials believe windfall taxes on banks and oil companies could be “low hanging fruit” for increasing government receipts.
The mooted plan could put City bosses on edge in the two-month run of lobbying and speculation ahead of this year’s Budget.
Citigroup boss Dame Jane Fraser warned Healey against a new banking tax while industry officials at UK Finance have written to the Chancellor to warn of the risks of hitting the financial services sector.
Healey is tasked with finding £4.7bn in extra government revenue over four years to fund the defence investment plan as well as another £10bn in cuts across departments.
His fiscal buffer has also partly eroded, according to economists. The Resolution Foundation believes it could be as low as £8bn, which would be a narrow margin and leave public finances more exposed to shocks from higher energy prices.
Tax hikes loom
New public sector pay rise pressures could also be loaded on the government.
According to The Sunday Times, Andy Burnham has agreed to give train drivers on Avanti – the train line that connects London to Manchester – a pay rise of around 3.6 per cent.
The Aslef union, which represents some drivers on over £70,000 a year, secured a deal with Burnham that would prevent disruption on the train line that is key for the Prime Minister when he is travelling between Number 10 Downing Street and Number 10 North in Manchester.
Drivers on the east coast operator LNER could meanwhile get a 12 per cent pay rise over four years, reports suggested.
The squeeze on public finances could limit the freedom for Healey and Burnham to provide “breathing space” to households and businesses.
City economists do not expect the Budget on 28 October to break too far from the previous government’s economic plans, with vast expansions in public spending or further borrowing not to be expected.
The government has already said it would leave a decision to raise defence spending to three per cent of GDP to the middle of next year when a government spending review is scheduled to take place.
Barclays economist Jack Meaning said he believed the fiscal statement would represent “continuity” from Rachel Reeves, with Healey likely to rely more heavily on re-allocating budgets across government departments.
A Treasury spokesperson said: “The Chancellor is fully focused on his priorities to boost business, help with the cost of living and support people in every postcode, underpinned by fiscal discipline and a commitment to meeting the fiscal rules with a buffer against uncertainty.
“The Office for Budget Responsibility will publish its updated forecast alongside the Budget in October and we will not comment on rumour, speculation or proposals about its contents ahead of then.”