Healey Set to Hit Banks With Major Budget Tax Raid Plans

John Healey is preparing to impose higher taxes on banks, despite describing the sector as a “jewel in the crown of the British economy”.

Industry leaders fear the bank levy could rise from its current 3 per cent rate to 8 per cent. They warn that such an increase would raise borrowing costs for businesses and mortgage holders, while placing further pressure on the wider economy.

There are also concerns that a windfall tax on banks could prompt international lenders to move parts of their London and UK operations abroad.

Speaking on the sidelines of the International Monetary Fund meetings in Bangkok, the Chancellor said banks were “a big contributor to the economy” and “an important part of our business”.

His remarks raised hopes that he might resist calls from trade unions and Labour MPs for tougher taxes on lenders in this month’s Budget.

However, Healey declined to rule out an increase, leaving City investors nervous ahead of his first Budget on October 28.

Speculation is growing that he could raise the levy banks pay on their profits in addition to corporation tax, as mounting pressure builds on him to balance the public finances.

UK Finance, the banking industry’s trade body, said lenders already make a “major contribution to the public finances” and face a “materially higher total tax rate” in Britain than in other leading financial centres.

It warned that any further increase in bank taxation would “weaken the UK’s competitiveness, discourage investment and job creation” and undermine the Government’s goal of delivering economic growth in every postcode.

Shares in major UK banks fell during early trading. Lloyds Banking Group dropped almost 2 per cent, while NatWest fell 0.22 per cent and Barclays slipped 0.16 per cent.

“My observations on the banks are just that people too often see them as big distant financial institutions, when they are hardwired into the economic fabric,” Healey said at the IMF.

“That said, I’ve got decisions to take in the Budget, and I’ll set those out in two weeks’ time.”

The Trades Union Congress has urged the Government to introduce “a windfall tax on bank profits to fund cuts to energy bills for everyone on low and middle incomes”.

The banking industry has strongly opposed the proposal, arguing that it would increase operating costs and ultimately make borrowing more expensive for millions of households and businesses.

In a strongly worded letter to the Chancellor last week, a group of prominent business organisations said a tax raid could have the opposite effect to that intended by triggering an exodus from the UK.

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“As well as weakening investor confidence and damaging UK attractiveness, a higher tax burden may not necessarily generate higher tax receipts if capital, people and businesses move elsewhere,” the letter said.

The warning echoed comments by JP Morgan chief executive Jamie Dimon, who said he would abandon the bank’s plan to build a £3 billion headquarters in Canary Wharf.

The bank surcharge was reduced from 8 per cent to 3 per cent under Rishi Sunak, alongside an increase in corporation tax from 19 per cent to 25 per cent.

Returning the surcharge to 8 per cent is estimated to raise about £2 billion a year.

As well as praising the banks, Healey sought to calm jitters on the bond markets that have pushed UK government borrowing costs to the highest level for 28 years in recent weeks.

He insisted he will ‘meet’ the fiscal rules ‘in full’ while also hinting at support for families and businesses in the Budget.

‘I’ve been very clear, also, the Prime Minister talked about recognising the cost of business, not just the cost of living,’ said Healey.

‘And so, I want the Budget to be a Budget that gets Britain a bit of breathing space. But also, reinforces the strength of our fiscal plans.’