John Healey is set to clobber banks with higher taxes – despite hailing them as a ‘jewel in the crown of the British economy’.
Industry figures fear he will hike the levy from the current level of 3 per cent to 8 per cent – despite warnings it will push up the cost of borrowing for businesses and mortgage borrowers and hit the economy.
There are also concerns that a windfall tax could encourage international banks to shift their London and UK operations overseas.
Speaking on the sidelines of the International Monetary Fund meetings in Bangkok, the Chancellor said banks are ‘a big contributor to the economy’ and ‘an important part of our business’.
The comments sparked hopes he may resist calls from unions and Labour MPs to hammer lenders with higher taxes in the Budget this month.
However, he refused to rule out such a move, leaving the City on edge ahead of his maiden Budget on October 28.
And speculation is mounting that he will increase the levy banks pay on their profits over and above corporation tax, as he faces intense pressure to balance the books.
John Healey (centre) with Lars Klingbeil, Vice-Chancellor of Germany (left), and Jim Chalmers, Treasurer of Australia, at the IMF annual meetings in Bangkok
UK Finance, the trade body for the banking sector, said banks already make a ‘major contribution to the public finances and already face a materially higher total tax rate in the UK than in other leading financial centres.’
It warned further increases to bank taxes ‘would weaken the UK’s competitiveness, discourage investment and job creation, and work against the government’s ambition to deliver growth in every postcode.’
Shares in UK banks fell in early trading, with Lloyds Banking Group down nearly 2 per cent, NatWest 0.22 per cent lower and Barclays slipping 0.16 per cent.
‘My observations on the banks are just that people too often see them as big distant financial institutions, when they are hardwired into the economic fabric,’ Healey said at the IMF.
‘That said, I’ve got decisions to take in the Budget, and I’ll set those out in two weeks’ time.’
The Trades Union Congress has called for ‘a windfall tax on bank profits to fund cuts to energy bills for everyone on low and middle incomes’.
But the industry has warned against such a move, suggesting it will push up the cost of doing business and in turn the cost of borrowing for millions of households and businesses.
In a hard-hitting letter to the Chancellor last week, a coalition of influential business groups warned a tax raid could backfire by sparking an exodus from Britain.
‘As well as weakening investor confidence and damaging UK attractiveness, a higher tax burden may not necessarily generate higher tax receipts if capital, people and businesses move elsewhere,’ the letter said.
It echoed comments from JP Morgan boss Jamie Dimon, who said he would scrap the bank’s plans to build a £3 billion HQ in Canary Wharf.
The surcharge on banks was cut from 8 per cent to 3 per cent under Rishi Sunak at the same time that corporation tax was raised from 19 per cent to 25 per cent.
It is thought returning the surcharge to 8 per cent could raise around £2billion a year.
As well as praising the banks, Healey sought to calm jitters on the bond markets that have pushed UK government borrowing costs to the highest level for 28 years in recent weeks.
He insisted he will ‘meet’ the fiscal rules ‘in full’ while also hinting at support for families and businesses in the Budget.
‘I’ve been very clear, also, the Prime Minister talked about recognising the cost of business, not just the cost of living,’ said Healey.
‘And so, I want the Budget to be a Budget that gets Britain a bit of breathing space. But also, reinforces the strength of our fiscal plans.’
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