The head of Britain’s main banking lobby group has issued a warning to the chancellor regarding a potential budget raid on the industry. David Postings, the chief executive of UK Finance, expressed concerns that such a move could hinder the goal of achieving sustainable economic growth. In a letter addressed to Rachel Reeves and obtained by Sky News, Postings highlighted the negative impact that speculation about increased taxes on banks could have on their international competitiveness.
The letter from Postings comes in the wake of a recent drop in the stock prices of major UK banks like Barclays, Lloyds Banking Group, and NatWest Group, fueled by fears of a looming tax raid on the sector. Postings emphasized the importance of creating an environment that allows the UK’s financial services sector to remain globally competitive, as outlined in the Leeds Reforms. He stressed the need for certainty for banks operating in the UK to support international competitiveness and economic growth.
A recent report from the Institute for Public Policy Research (IPPR) proposed the imposition of an additional levy on bank profits in the upcoming November budget. This suggestion led to a sell-off of shares in UK banks, adding to the anxiety surrounding potential tax hikes for both individuals and corporations due to the challenging state of the public finances. The government faces the task of addressing a significant budget deficit to adhere to its fiscal rules, sparking concerns within the banking sector.
While Treasury insiders have downplayed the likelihood of immediate tax increases during discussions with bank executives, Postings’ letter underscores the industry’s apprehension following a notable recovery in profitability in recent years. He argued against further tax rises on the sector, noting the substantial contribution banks already make to public finances. Postings emphasized the importance of regulatory reform to adjust risk appetite appropriately, rather than imposing additional taxes.
Postings defended the recovery in bank profitability, stating that net interest margins have returned to normal levels and are not excessive. He highlighted the industry’s significant tax contribution of approximately £45 billion last year, pointing out that the UK’s total tax rate for corporate and investment banks is already higher than other major financial centers like Amsterdam, Frankfurt, Dublin, and New York. Postings warned that further taxes on the banking industry could diminish the UK’s international competitiveness, potentially driving capital and investment to other jurisdictions and impeding growth, innovation, and productivity within the UK economy.
UK Finance chose not to provide further comments on the matter when contacted by Sky News. The emphasis remains on fostering a pro-growth, stable operating environment to generate sustainable tax revenues, retain talent, and stimulate investment across the economy.
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