UK bank bosses and John Healey set for tax showdown
When banking lobbyists geared up for an offensive ahead of the 2025 Budget, a tax cut barely made the wishlist.
Modest in their ambitions, advocates were preparing to settle for anything that didn’t see their already eye-wateringly high tax bill rise. That is until, City AM understands, officials advised them to make a cut a top priority in order to balance out the fierce calls for a hike.
UK Finance and TheCityUK would both go on to call for the banking surcharge – which sits on top of corporation tax – to be “phased out” in their 2025 submissions.
Under Rachel Reeves tenure in the Treasury, the surcharge never went up. But in just over four weeks, her successor John Healey will deliver his first Budget – and banks may have a less favourable friend in No.11.
Top bosses have been handed a prime opportunity to make their case on Tuesday. The meeting, first reported by Sky News, will feature leaders from Barclays, Natwest, HSBC, Lloyds, Nationwide and Santander.
It’s the second such in-person meeting bank bosses have had with the new Chancellor, following a gathering at Bloomberg in July, City AM understands. In her two-and-a-half year stint as Labour’s finance aficionado, Reeves maintained a close relationship with the sector, nurtured by the lack of tax hikes and promise of deregulation.
She regularly called in top chiefs for summits on all things from investment and growth to the Iran war and is understood to have delivered a blistering dressing down to the IPPR, a left-leaning think tank, when it produced a market-moving report calling for a bank tax.
But with Healey in No.11 times have changed – and the City has been told as much. Treasury officials have told senior figures in the financial services sector they shouldn’t expect the same kind of relationship with Healey as they enjoyed with Reeves, City AM understands. While engagement is expected to stay strong, they are likely to see less of Healey in the Square Mile, compared to Reeves who sought to push through reforms on everything from ISAs and pensions to listing rules.
The room where it happens
For those attending Healey’s summit, tax is expected to be at the forefront.
“Fears are now widespread that the Chancellor is set to increase the tax burden for the sector with a potential exemption for the UK operations of international banks,” John Cronin, independent banking analyst, said.
Cronin said domestic lenders would “rightly be furious” if such a move comes to fruition, and argued there could be more “sophisticated suggestions which could raise substantial additional fiscal revenues”.
British banks argue they already face an outsized rate. It’s a point echoed by former Chancellor Jeremy Hunt this week, who was responsible for reducing the surcharge to its now three per cent, from eight per cent. Figures from PwC show total taxes on UK banks amount to 46 per cent of profits, compared to 42 percent in Amsterdam, 39 per cent in Frankfurt, 29 per cent in Dublin and 28 per cent in Dublin.
Some in the City have feared Healey could go even further and implement a windfall tax on banks. Activists at Positive Money say such a move could raise £19bn from the coffers of Natwest, Lloyds, Barclays and HSBC alone.
It is no secret the backdrop the Healey and bank bosses showdown takes place in. UK Finance chief David Postings has already penned a message to the Chancellor with a firm warning around bank tax.
“At a time when peer jurisdictions are seeking to improve 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,” Postings wrote in a letter seen by City AM.
Healey in ‘listening mode’
A source close to the Chancellor said he would be in “listening mode” as part of the meeting, adding it was a part of “normal stakeholder work [the Treasury does] in the run-up to the Budget”.
Some in the industry have been reassured by the appointment of Emma Reynolds, the former CityUK executive, to the Treasury. Reynolds enjoyed a short stint as City minister under Sir Keir Starmer’s premiership before being promoted to environment secretary. She returned to the Treasury under Burnham in July. At the Labour party conference, the Cabinet minister said her previous role at the industry body helped her “see things from the point of view of big financial institutions”.
It may not all be dreary news – even if a tax hike could be on the cards. Healey may sweeten the sector with a reward for mid-sized banks, which have been fierce champions of small business lending.
A cohort of specialist and challenger banks wrote to Healey calling for the threshold at which banks are hit with the surcharge. The group, which includes the likes of Revolut, Investec and Shawbrook, urged the allowance to be raised to £500m, from £100m.
“I expect there to be some success in their lobbying effort,” Cronin said, though he added he was “not sure Healey will go all the way to £500m”. While the increase would elicit a cheer from the FTSE 250 stars, the blue-chip bosses meeting Healey on Wednesday would likely be less enthusiastic.
All banks attending the meeting were contacted for comment. The Treasury declined to comment.