Key facts
- British bankers are concerned about a potential bank tax under Prime Minister Andy Burnham's new government.
- The Treasury, led by Chancellor John Healey, faces significant fiscal pressures and may look to the financial services sector for increased tax revenue.
- Industry executives are worried about a potential tax hike, with some estimating a 16% bank surcharge could raise £24 billion over four years.
- Banks argue they already pay substantial taxes and that further increases could negatively impact London's financial center status.
- The government is considering options such as increasing the bank surcharge, implementing a financial transactions tax, or altering remuneration for bank reserves.
Britain's financial sector is bracing for potential tax increases under the new government led by Prime Minister Andy Burnham, with bankers fearing a significant tax raid to fill depleted government coffers. The City of London is particularly worried that Chancellor John Healey and his team might target the financial services sector for increased revenue, especially given the government's ambitious plans to revitalize British industry and address the cost-of-living crisis.
Industry executives have expressed growing panic about the possibility of a new bank tax appearing in the fall budget. The primary concern centers on a potential hike to the bank surcharge, a tax on banks' profits. Estimates suggest a 16 percent surcharge could generate £24 billion over four years, while a 35 percent surcharge could yield £60 billion, a substantial sum for the Treasury. Currently, the bank surcharge stands at 3 percent.
Banks, however, argue they already bear a heavy tax burden compared to international competitors and that any increase could diminish London's attractiveness as a global financial hub. Figures like Jamie Dimon of JP Morgan have been vocal on this issue, and Miles Celic, CEO of TheCityUK, emphasized that the UK's competitive tax landscape is crucial for attracting investment.
Despite these concerns, the return of Lucy Rigby as City minister has provided some reassurance, as she is seen as a pro-business figure who may ensure continuity in financial services regulation. Her promotion to minister of state also suggests she will have significant autonomy over policy. However, this continuity on regulatory matters might free up Chancellor Healey to focus more intensely on fiscal issues, potentially increasing the likelihood of tax hikes.
Beyond the bank surcharge, some in the City also fear the re-emergence of a financial transactions tax or changes to how banks are remunerated for reserves held at the Bank of England. Banks will have a three-month window before Burnham's first budget to lobby the new government against these measures.