Banks to Avoid Tax Hike in Rachel Reeves' Budget
The Chancellor's decision to spare banks from tax increases in this month's budget has sent UK bank shares soaring. According to reports, the high street bank NatWest saw a 2.5% rise in shares, while its rival Lloyds climbed 2.3%, making them top risers on London's FTSE 100.
Despite earlier speculation, Rachel Reeves has reportedly stated she has no plans to impose additional taxes on the UK banking sector, aiming to keep it competitive and support economic growth, according to the Financial Times. The current corporation tax rate of 28% includes a 3% surcharge on top of the standard 25% rate.
However, in August, the Institute for Public Policy Research thinktank called for a new tax on banks, estimating a potential £8 billion raise. This proposal aimed to recover the 'windfalls' banks received from quantitative easing, a post-2008 financial crisis economic policy implemented by the Bank of England. The industry has been lobbying against higher taxes, with UK Finance claiming UK banks' tax rates are already higher than those in other financial centers.
The UK banking sector's total tax contribution for the latest financial year was £43.3 billion, accounting for 4.3% of total UK government tax receipts, according to PwC. This represents a 33% increase since 2014, when the tax contribution was £33.4 billion.
The NatWest Group's CEO, Paul Thwaite, recently warned against tax hikes on banks, emphasizing the need for a balance between fiscal discipline and policies that foster stability and growth. He urged the Chancellor to consider the impact of higher taxes on international investors.
Equity analyst Gary Greenwood suggested that to avoid higher taxes, banks must demonstrate a commitment to rapid growth, supporting the economy rather than solely focusing on profit maximization through dividends and share buybacks.
