Banking lobby issues warning ahead of Budget
With the UK's next Budget less than three months away, the country's banks have publicly cautioned the new Labour government against increasing sector-specific taxes. In a letter sent on Thursday, the lobby group UK Finance warned Prime Minister Andy Burnham's administration that “increasing the current levies placed on the sector would threaten to undermine Mr Burnham's plan to deliver 'growth in every postcode'."
The letter, reported by Birmingham Live and the Daily Express, stated that the group is “concerned that increasing taxes on banks would ultimately risk undermining the very tax base the Government seeks to protect and grow, as well as damaging the UK's international competitiveness." It added: “While fully recognising the fiscal pressures facing the Government, raising what are already high sector-specific taxes would run counter to the wider growth agenda.”
UK Finance also argued that, at a time when peer jurisdictions are improving their competitiveness, “it is vital that the UK's approach to both tax and regulation pull in the same direction, supporting investment and the sector's capacity to finance growth across the economy.”
Banking bosses weigh in
The warning was echoed by prominent figures. Sir Howard Davies, former chairman of NatWest, told The Telegraph last week that new bank taxes risked sending banking activities abroad, an argument UK Finance also made.
Jamie Dimon, boss of the US bank JP Morgan, issued a warning against a tax rise. The Daily Express reported that he specifically cited the potential for job losses, drawing on his experience in New York where he blamed the city's tax regime for a decline in finance roles. In July, Dimon had raised the possibility of further taxes on banks having “adverse consequences”, telling the Master Investor Podcast: “It would be one more negative on that bucket of things you got to think about.”
The JP Morgan chief's intervention carries particular weight given his history with UK policy. He was among the bank bosses who successfully lobbied against higher taxes in Rachel Reeves' budget the year before, and he announced plans immediately after to build a 3 million square foot tower in London's Canary Wharf district, with the caveat that a “continuing positive business environment in UK would be required.” In May, he reportedly said he could scrap those plans for the £3 billion tower, expected to serve as its UK headquarters, if a new Labour prime minister hostile to banks took over.
Unions push back
Paul Nowak, general secretary of the Trades Union Congress (TUC), condemned the warnings. As reported by the Daily Express, he said: “People are sick and tired of being told they have to tighten their belts while profits, dividends and bankers' bonuses hit record highs.” He also urged the Chancellor John Healey to “show working people he's on their side by asking banks to pay nine taxes to cover energy bills.”
The tension is clear: industry warns against tax rises on the grounds of competitiveness and growth, while the TUC says banks patient or can afford to contribute a fair share.
Campaigners say lenders can afford it
Amid the debate, campaigners have highlighted that UK lenders already pay a higher corporation tax rate than most businesses: 28% against a standard 25%, plus a separate levy on their UK balance sheets. They also stress the scale of lender profits. According to figures cited in the report, HSBC, NatWest, Barclays and Lloyds reported £29.2 billion in profits over the first six months of the year, with almost half, £13.7 billion, pledged to investors through dividends and share buy-backs.
On that basis, the campaign group Positive Money said banks could “easily shoulder a tax” that could ultimately raise £19 billion for spending plans at the October budget. Campaigners have estimated that a windfall tax on lenders could yield that amount.
Perspectives
UK Finance and banking sector: Industry argues that higher sector-specific taxes would undermine the growth agenda, damage the UK's tax base and international competitiveness, and risk relocating banking activities abroad. They call for tax and regulation to work together to support investment.
TUC (Paul Nowak): Financial workers are already enjoying record profits and bonuses while ordinary people are squeezed. He says banks should pay fair taxes to help cut household costs such as energy bills.
Positive Money: With record profits in the banking sector, lenders can absorb a modest tax rise that would bring significant benefit to government coffers.