Top City chiefs are launching last-ditch attempts to stop a punishing tax raid on banks at the Budget, warning the move will hurt jobs and growth outside of London.
Rain Newton-Smith, the chief executive of the CBI, is set to warn Chancellor John Healey that increasing taxes on banks would be an “own goal for our competitiveness”.
Speaking at the organisation’s Autumn Reception this evening, Newton-Smith is expected to say: “When London thrives, it creates jobs across the UK. The strength of London sustains supply chains, attracts investment and supports growth in every part of the country.”
“When London thrives, that benefits everyone.”
The intervention comes as Healey is poised to raise taxes on the banking sector in his forthcoming Budget. Banks are already charged at higher rates than other sectors in the face of the banking surcharge, which is levied 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 this move is expected to raise £2bn a year for the Treasury.
Writing in City AM today, UK Finance boss David Postings has called for the Chancellor to “keep bank taxes stable” at the Budget.
He added that banks make a “substantial contribution” to UK public finances, mainly from employment taxes generated from “highly skilled jobs” across cities outside of London including Belfast, Birmingham, Manchester and Leeds.
But Postings warned the trade body has been modelling the impact of increasing the surcharge and found it would “reduce the lending available… weaken international investment in the UK and thus the number of jobs created, and result in lost economic activity up and down the country”.
City plays into devolution agenda
The City has been on the defensive against tax speculation over the last few months following rallying calls to tax the banks from the Labour left and trade unions.
Economists forecast the government’s £24bn in fiscal headroom has more than halved following the surge in borrowing costs tied to the inflationary impact of the US-Iran war.
The latest defence plays into Prime Minister Andy Burnham’s mantra of “growth in every postcode” as the City’s booming finance sector pitches itself for the government’s devolution agenda.
Postings and Newton-Smith were signatories on a letter earlier this month that also included the chiefs of TheCityUK, AFME and City of London corporation. It warned Healey that “a higher tax burden may not necessarily generate higher tax receipts if capital, people and businesses move elsewhere”.
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 New York.
“We operate in an increasingly competitive environment for investment, jobs and activity and we can’t take our established strong position for granted,” Postings said.
During the IMF visit last week, Healey said banks were “part of the jewel in the British economic crown”.
When pressed on taxing the sector he said banks were “hardwired into the economic fabric of this country” but added broadly there were “decisions to take in the Budget”.
One City figure told City AM a tax on banks would be a “retrograde step”. They added that while there didn’t appear to be a “hostile agenda” the tax would not fit with the bullish comments made by the Chancellor.
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.”