John Healey is set to raise taxes on banks when he delivers his first Budget at the end of the month, according to new reports.
The Chancellor has faced fierce lobbying from the left of the Labour party and trade unions to slap higher taxes on the sector following the bumper profits reaped by industry this year.
Healey is now understood to have decided to target the sector for a cash raid as he looks to balance the books on 28 October, The Guardian has reported.
The simplest lever available to Healey would be an increase to the banking surcharge that sits on top of corporation tax. The surcharge currently sits at three per cent after being reduced from eight per cent under Jeremy Hunt’s Chancellorship in 2023.
A reversal of that move is understood to be under discussion, which would raise around £2bn a year.
But some have urged the Chancellor to go even further with a windfall tax on the profits of lenders. Activists at Positive Money say such a move could raise £19bn from the coffers of Natwest, Lloyds, Barclays and HSBC alone.
Speaking to reporters in Bangkok for the IMF summit, Healey said: “My observation on the banks is that people too often see them as big, distant financial institutions, when they are hardwired into the economic fabric of this country and our future prospects.”
He added there was “decisions to take in the budget”.
In a separate interview with Bloomberg Television, Healey described banks as “a part of the jewel … in the British economic crown”.
Healey set for bank tax row with City
Any announcement is set to spark uproar in the City, whose efforts to shield the sector from a tax raid appear to have gone unheeded. Industry bosses have raised concerns that banks already face an outsized tax rate when compared with competitors overseas. 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.
A cohort of City bosses – including the chiefs of TheCityUK, CBI and UK Finance – warned Healey in a letter last week that “a higher tax burden may not necessarily generate higher tax receipts if capital, people and businesses move elsewhere”.
Tory leader Kemi Badenoch joined the defensive ranks against a bank tax earlier this week after firing a warning shot to Healey during a visit to Edinburgh.
Shadow chancellor Andrew Griffith said: “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.”
The top bosses of HSBC, Lloyds, NatWest, Barclays and Santander were called in for a meeting with Healey last week, where the Chancellor remained tight-lipped on fiscal policy but warned of the “challenging” fiscal landscape.
Economists have forecast Healey’s £24bn in headroom has more than halved following the surge in borrowing costs tied to the inflationary impact of the US-Iran war.
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.”