Healey to clobber banks with higher taxes - after hailing them as 'jewel in the crown of the British economy'

John Healey is set to clobber banks with higher taxes - despite hailing them as as a ‘jewel in the crown of the British economy’.

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

The comments sparked hopes he may resist calls from unions and Labour MPs to hammer lenders with higher taxes in the Budget this month.

However, he refused to rule out such a move, leaving the City on edge ahead of his maiden Budget on October 28.

And speculation is mounting that he will increase the levy banks pay on their profits over and and above corporation tax.

Industry figures fear he will hike levy from the current level of 3 per cent to 8 per cent - despite warnings it will push up the cost of borrowing and hit the economy.

‘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 called for ‘a windfall tax on bank profits to fund cuts to energy bills for everyone on low and middle incomes’.

But the industry has warned against such a move, suggesting it will push up the cost of doing business and in turn the cost of borrowing for millions of households and businesses.

In a hard-hitting letter to the Chancellor last week, a coalition of influential business groups warned a tax raid could backfire by sparking an exodus from Britain.

‘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 surcharge on banks was cut from 8 per cent to 3 per cent under Rishi Sunak at the same time that corporation tax was raised from 19 per cent to 25 per cent. 

It is thought returning the surcharge to 8 per cent could raise around £2billion 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.’