Do You Know? The UK’s bank surcharge could reportedly be raised from 3% to 8%, a move the Trades Union Congress estimates could generate £2.25bn a year. The proposal has not been formally announced.
What happened
Chancellor John Healey is poised to raise taxes on Britain’s banks in his first budget on 28 October, according to The Guardian. The move is understood to be intended to raise additional revenue and help offset pressure on the UK’s public finances linked to war in the Middle East and higher government borrowing costs.
One option under discussion is reversing a cut to the bank surcharge introduced by former chancellor Jeremy Hunt. The surcharge is an additional tax on bank profits, paid on top of corporation tax.
How the proposed change could work
Industry figures cited by The Guardian believe the surcharge could be returned to 8%, from 3% at present. The Guardian said that would raise more than £2bn annually, while TUC analysis puts the potential increase at £2.25bn a year.
Specialist banks, including Revolut and Shawbrook, have also been making representations to raise the profit threshold at which the surcharge applies from £100m to £500m.
Why it matters
The possible tax increase comes as the government seeks to maintain its deficit-reduction plans while borrowing costs have risen. Analysts cited by The Guardian have suggested that higher borrowing costs could reduce the £24bn fiscal cushion Rachel Reeves had built against Labour’s fiscal rules at the time of the spring forecast in March.
The UK’s four largest lenders—HSBC, NatWest, Barclays and Lloyds Banking Group—have generated £200bn in pre-tax profits over the past five years, according to figures reported by The Guardian. The article linked strong lender earnings in part to rising interest rates.
A higher surcharge could affect banks’ post-tax profits. However, the source does not provide a confirmed government estimate of the final revenue or detail how any increase would affect individual lenders.
Banking industry response
Bank executives have lobbied against further tax increases. UK Finance and TheCityUK warned in a letter to Healey that higher taxes could weaken investor confidence and the UK’s attractiveness, and could lead banks to move staff and business out of the country.
Bank leaders from HSBC, Lloyds, NatWest, Barclays and Santander met Healey the previous week but were given no reassurance that tax increases had been ruled out, according to The Guardian.
“Britain’s big four banks are making a billion pounds a week, while bonuses have hit a post-crash record,” TUC general secretary Paul Nowak said, according to the source.
The Conservatives have opposed further increases. Shadow chancellor Andrew Griffith said a higher levy on financial services would damage growth, while Conservative leader Kemi Badenoch warned that the sector already faced a higher effective tax rate than in many other major financial centres.
What happens next
Healey is expected to set out his first budget on 28 October. The source indicates that the final treatment of the bank surcharge, including the rate and the threshold for payment, remains subject to the budget announcement.
The chancellor has also been listening to representations from specialist banks and is understood to be mindful of the need to maintain a positive environment for startup banks and their lending to small businesses.
Bottom Line
The government is considering using the banking sector to raise additional budget revenue, but the rate, threshold and final impact of any surcharge change will not be clear until the budget is announced.
Source
This report is based on information published by The Guardian Business.
