Budget tax increases on banks' radar, as bank executives caution Reeves of potential consequences.
Headline: UK Finance Chief Warns Against Budget Raid on Banking Sector
The head of UK Finance, David Postings, has issued a warning to Chancellor of the Exchequer Rachel Reeves, urging her to reconsider any plans for a budget cut in the banking industry. This comes amidst renewed speculation about increases to banks' tax burden.
Anxiety about higher personal and corporate taxes has gained momentum due to the weak outlook for public finances. However, Postings argues that further tax rises on the banking sector would not be consistent with boosting the UK economy and fostering a strong financial services sector.
This disparity is driven by the permanence of sector-specific taxes in the UK, unlike in other EU jurisdictions where comparable arrangements have been phased out. UK Finance analysis shows that the UK's total tax rate for model corporate and investment banks is already notably higher than other major financial centres such as Amsterdam, Frankfurt, Dublin, and New York.
Last year, the UK banking industry made a record tax contribution of approximately £45bn. Postings highlighted this contribution, stating that a further tax on the banking industry could undermine the international competitiveness of the sector. He further emphasized that such a tax would run counter to the government's aim of supporting the financial services sector and make the UK less competitive internationally, potentially driving capital and investment to other jurisdictions.
The warning was sent in a letter to Reeves earlier this week. The timing of Postings' letter underlines the heightened anxiety in the banking sector following the sharp recovery in its profitability in recent years. Shares in large UK banks, including Barclays, Lloyds Banking Group, and NatWest Group, have slid amid fears of a renewed tax raid on the sector.
Postings also emphasized the need for an agenda of regulatory reform that allows for an appropriate adjustment in risk appetite. He rejected the notion that the recovery in bank profitability was unreasonable, stating that UK banks' net interest margins have only returned to historically more normal levels and are far from excessive.
The warning was not the only one sent this week. Liam Byrne, chairman of the Labour Party, sent a letter to Reeves urging her to avoid a budget cut in the banking industry as it would endanger her goal of promoting sustainable economic growth. This was in response to a proposal by the Institute for Public Policy Research (IPPR) think-tank, which suggested that the chancellor use her November budget to impose an additional levy on bank profits. This proposal prompted an investor sell-off of shares in the main UK lenders.
However, UK Finance declined to comment further on the letter when contacted by our website. The chancellor has yet to respond publicly to the warnings.
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