‘Twenty years of caution’: Banking industry ramps up efforts to fix ‘anaemic’ UK growth
The UK’s industry body for banking has stepped up its lobbying efforts for the government to improve “anaemic” growth figures and bolster the financial services sector.
A new report published by UK Finance – the body representing around 300 firms that provide UK banking services – has issued a nine-point plan, which calls for “clear sequencing, strong accountability, and sustained collaboration between government, regulators, and industry”.
David Postings, the body’s chief executive, told an audience of industry bigwigs on Monday: “For the best part of twenty years we have seen regulatory tightening and risk aversion become the norm.
“The result? Anaemic growth.“
He added even a “relatively small increase” in the risk appetite of regulators could “allow significant growth… I urge them to be bold and positive.”
UK banks face ‘unusual’ tax system
The report addresses issues across regulatory bodies and the pursuit of an economic growth, as well as renewing calls for the UK to improve its tax regime.
London’s total tax rate for the banking sector came in at at 46.4 per cent in the last year, sitting well above Amsterdam (42.2 per cent), Frankfurt (38.9 per cent), Dublin (28.9 per cent) and New York (27.9 per cent). Last year, the sector paid around £43.3bn in tax, according to UK Finance, making up around 4.3 per cent of total receipts.
“A competitive tax environment is inseparable from a pro-growth regulatory framework,” the report argues.
“The UK is unusual in applying both a corporation tax surcharge and a balance sheet levy – broader and more permanent in design than in most peer jurisdictions.”
Banks in the UK are subject to the usual taxes levied on businesses as well as an additional surcharge, which sits on corporate tax, effectively taking the sector’s total rate to 28 per cent, as opposed to the standard 25 per cent.
Angela Rayner, Labour’s former deputy leader and potential candidate for Labour’s top job should Sir Keir Starmer be ousted, proposed last year the surcharge be raised to five per cent in a bid to avoid cutting welfare spending. This also led to months of tax speculation ahead of the Budget as to whether banks would be targeted as Rachel Reeves looked to balance the books.
Whilst the Chancellor did not turn to the banks for a cash raid last year, chatter has since renewed on the prospect of a windfall tax or hike as banks forecast higher income on the back of elevated interest rates from the Iran war.
UK Finance called for the government to commit to avoiding sector specific tax increases, arguing in the current “geopolitical environment, stable and predictable jurisdictions attract inward investment and further increases would undermine that position”.
Banks hit by ‘twenty years of caution’
Postings also sounded off on “twenty years of caution” which he said had allowed capital to “build up and increased regulatory burden”.
“A real change, which translated into capital reductions at individual bank level, would send a signal that it is OK for a small rebalancing of risk appetite,” he added.
Despite the lobbying efforts, Posting insisted he would “never push for some large swing back to 2007”.
In response to the Bank of England’s review of capital requirements, the Association for Financial Markets in Europe (AFME) – which represents over 150 global banks, including the UK’s Big Four – last month warned that current rules are misaligned with actual risk.
Much of industry criticism centres around the rules that dictate at least three quarters of a bank’s tier one capital – a core measure of a firm’s ability to absorb losses – must be made up of the highest-quality regulatory capital, known as CET1.
Industry giants have argued those who lend money to unstable startups should not be held to the same standard as those holding only government bonds and cash.
City minster Lucy Rigby said in a separate address at the UK Finance event that the financial services sector was a “critical enabler of growth”.
She briefly referenced the Labour government’s local elections disaster, adding it showed they have not “yet done enough” as she pledged the Treasury would go further to enhance the financial sector.