Banks expect higher taxes in Healey’s Budget

Senior banking executives expect the sector to face higher taxes in Chancellor John Healey’s Budget in two weeks, as the government weighs how to raise revenue without deterring investment and growth. [1]

The UK’s four largest banks made about £15bn in combined profit in the first six months of the year. Unions and others have called for additional taxes, while Healey has not ruled out a higher levy on the sector, despite describing banks as among the “crown jewels” of the economy. [1]

Banks already pay corporation tax at 25%, a 3% surcharge and a levy on their balance-sheet assets. The sector contributed nearly £40bn to the Treasury last year when income tax paid by employees is included; the bank levy raised £1.4bn and the surcharge £1.2bn. [1]

One option would be to restore the surcharge to 8%, its level before it was cut under then-chancellor Rishi Sunak. The BBC reports that this could raise about £2bn a year. Another proposal, discussed with Treasury officials, would temporarily prevent banks from using past losses to reduce their tax bills. Analysts and executives estimate that this could bring in an extra £1bn a year. [1]

UK Finance, the sector’s trade body, says further tax rises would weaken competitiveness, discourage investment and job creation, and undermine the government’s growth ambitions. Banks have previously argued that higher taxes could make the UK less attractive than other jurisdictions and reduce their ability to lend. [1]

A temporary restriction on using past losses could affect banks differently from a broad tax rise. Lloyds has used losses dating from the financial crisis to reduce tax bills, while the BBC reports that the proposal could spare foreign banks from an additional charge. But banking leaders say a rise that applies to UK banks while exempting foreign banks operating in Britain would be difficult to reconcile with the government’s support for British business. [1]

Jamie Dimon, chief executive of JP Morgan, has warned that the UK already has one of the world’s highest tax burdens on banks and that further sector-specific taxes could deter investment and damage competitiveness. [1]