John Healey is poised to tax Britain’s banks in his 28 October budget to help offset the damage inflicted on the public finances by war in the Middle East, the Guardian understands. The chancellor is in Bangkok, where the International Monetary Fund has praised the UK’s progress towards balancing the books, urging him to “stay the course”. To keep the Treasury’s deficit reduction plans on track in the face of rising government borrowing costs, the Guardian understands Healey has decided to tap the financial sector for additional revenue.
One option understood to be under discussion – reversing cuts to the bank surcharge made by Jeremy Hunt – would raise upwards of £2bn a year. Lenders have been logging strong earnings on the back of rising interest rates, with the UK’s four largest lenders – HSBC, NatWest, Barclays and Lloyds Banking Group – alone having generated £200bn in pre-tax profits over the past five years. Healey has repeatedly been urged by thinktanks and trades unions to tax Britain’s banks more heavily: an option considered but rejected by his predecessor, Rachel Reeves, who was wary of deterring future investment.
Paul Nowak, the general secretary of the TUC, said: “Britain’s big four banks are making a billion pounds a week, while bonuses have hit a post-crash record. These are bumper profits – driven by high interest rates and households’ mortgage misery. It’s time to make sure banks pay their fair share.” Speaking to journalists in Bangkok, Healey praised the banks as crucial to supporting economic growth.
But he is nevertheless believed to be minded to increase the surcharge banks pay on their profits, over and above corporation tax. Industry figures believe that will probably mean raising the surcharge back to 8%, from 3% at present. The UK’s cost of borrowing has risen sharply in recent weeks, alongside that of other big economies, as bond markets have responded to the prospect of higher inflation as a result of the Middle East conflict.
Analysts have suggested that could as much as halve the £24bn cushion Reeves had built up against Labour’s fiscal rules at the time of spring forecast in March. Healey is understood to be willing to accept a narrower “headroom” – but is also keen to convince bond markets he is wedded to deficit reduction. Bank bosses have been lobbying intensively against tax rises since narrowly escaping higher levies during last year’s budget.
UK bosses of lenders including HSBC, Lloyds, NatWest, Barclays and Santander met Healey last week but were given no reassurance that bank tax hikes had been ruled out. Their lobby groups – including UK Finance and TheCityUK – wrote to Healey days later, saying that on top of “weakening investors confidence and damaging UK attractiveness”, higher taxes would force them to move staff and business out of the country. That echoed warnings by the chief executive of JP Morgan, Jamie Dimon, who said in May he could scrap plans for a new £3bn London headquarters if the UK government became hostile towards banks.
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