Banks have seen their shares sink lower amid mounting speculation the Chancellor is planning to hike taxes on the sector in his upcoming Budget.
Lloyds Banking Group and NatWest led falls on the FTSE 100 Index, both down 2% in morning trading on Friday, with Barclays shares slipping lower as well after reports that John Healey is eyeing a raid on lenders.
The Chancellor is seeking ways to raise revenue and keep the UK’s budget deficit under control in the face of soaring Government borrowing costs.
The Chancellor will deliver his Budget this month (Annabel Lee-Ellis/PA)
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One option he is considering is reversing former Tory chancellor Jeremy Hunt’s reduction in the surcharge banks pay on their profits from 8% to 3%, according to a report in the Guardian newspaper.
The boss of the Trades Union Congress (TUC) backed the move, saying the tax rise on the “bumper profits” of bank would raise £2.25 billion a year, but the trade body for the banking sector, UK Finance, warned it would “weaken the UK’s competitiveness”.
TUC general secretary Paul Nowak 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.
TUC General Secretary Paul Nowak (Stefan Rousseau/PA)
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“The Treasury has already lost £6 billion in revenue from the Tories’ senseless bank tax cut – now it’s time to make sure banks pay their fair share.”
The TUC called for an even bigger surcharge increase, to 16%, saying that could raise £24 billion in tax revenues over four years.
Trade unions and think tanks have repeatedly lobbied for heavier taxation for banks.
The Institute for Public Policy Research this week recommended generating £1 billion from a temporary surcharge on commercial banks’ windfall profits among a package of measures to raise an extra £16 billion to help struggling households.
The think tank, which has been influential in Labour policy-making, said the proposals would help rebuild the Chancellor’s fiscal buffer which it estimated has dropped by up to £15 billion since the spring.
General view of Canary Wharf in London (Matt Crossick/PA)
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But the Conservatives and City groups have warned that targeting banks would stifle investment and damage Britain’s competitiveness as a financial centre.
A UK Finance spokesperson said: “A strong banking sector is essential to a strong UK economy.
“An increase in bank taxes at the Budget would weaken the UK’s competitiveness, discourage investment and job creation, and work against the Government’s ambition to deliver growth in every postcode.”
Louise Hellem, chief economist at the Confederation of British Industry, said the Budget should “avoid measures that would undermine competitiveness or weaken incentives to invest”.
“With the business tax contribution already at a record share of receipts, that means avoiding further sector-specific taxation, including on a banking sector already facing a higher tax rate than competing international financial centres.”
Tory shadow chancellor Andrew Griffith added: “Britain needs growth. But a raid on the financial services sector will stifle it. Labour should be backing businesses and wealth creators, not making their lives even harder.”
A Treasury spokesperson said: “As has always been the case, decisions on tax are a matter for the Chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals.”
Mr Healey has warned the public to be prepared for a tough Budget on October 28.
He and Prime Minister Andy Burnham have promised to help families and businesses with cost-of-living pressures, even as Government borrowing costs have soared due to fears over inflation driven by the US’s war with Iran.
Meanwhile, Mr Healey was criticised for an upbeat online video showing him and Foreign Secretary Ed Miliband tasting Thai snacks in a tuk tuk in the Thai capital less than two weeks before a challenging fiscal event.