Labour Party's financial shortcomings might be addressed through a new tax on banks, as suggested by Rachel Reeves.
In the lead-up to the Autumn Budget, Labour's Shadow Chancellor, Rachel Reeves, has suggested a new tax on banks to help bridge spending gaps caused by policy switches. This proposal, according to research by Positive Money, could potentially generate up to £8 billion for the government.
The banking sector, however, has expressed concerns about the implications of a sector tax hike. HSBC's boss, Georges Elhedery, has cautioned that a bank tax could dent growth and erode investment capacity. Similarly, Charlie Nunn, the chief of Lloyds, stated that such a tax wouldn't be consistent with the government's growth agenda.
Economists have warned that further rises would be inevitable to maintain Reeves' "iron clad" fiscal rules. UK Finance, an industry body representing the Big Four British banks - Natwest, Lloyds, Barclays, and HSBC - has advocated for the abolishment of the bank corporation tax surcharge to make the country more competitive.
The bank levy proposed by Reeves would target net income from domestic retail banking above a threshold of £800m. The bank corporation tax surcharge, on the other hand, is proposed to be increased from three percent to five percent, generating £700m in annual revenue for the Treasury.
Analysts at JP Morgan predict that the Chancellor could aim to raise up to £30bn in taxes later this year. This prediction comes as the government faces a fiscal headache due to U-turns and the requirement for a top-up of around £20bn.
The shrinking of the economy in the last two months, with a 0.1% contraction in May and 0.3% in April, has added to the pressure. Yael Selfin, chief economist at KPMG UK, stated that if growth falls in line with forecasts, the government would require a top-up of around £20bn.
It's worth noting that banks are among the biggest tax payers in the country. However, the shrinking of the economy following Reeves' 2024 budget tax hikes, including a 1.2% hike to employer's national insurance contributions, has raised concerns about the impact of additional taxes on the banking sector.
Amsterdam, Frankfurt, and Dublin have lower sector average tax rates than London, with rates of 42%, 38.6%, and 28.8% respectively. UK Finance submitted a report to the Treasury highlighting the disparities in global banks' tax rates, with London's sector average being 45.8% for 2024.
As the Autumn Budget approaches, the proposed bank tax by Rachel Reeves is one of several measures being considered to raise government revenue. The exact details of the tax are yet to be revealed, but it aligns with wider speculation around new tax measures, including potential wealth taxes and reforms targeting financial and property sectors.
- Rachel Reeves' proposal for a new tax on banks, which could potentially generate up to £8 billion for the government, has been met with concerns by the banking sector.
- HSBC's boss, Georges Elhedery, has cautioned that a bank tax could dent growth and erode investment capacity.
- Analysts at JP Morgan predict that the Chancellor could aim to raise up to £30bn in taxes later this year, a figure that has been necessitated by the government's fiscal headache due to U-turns and the requirement for a top-up of around £20bn.
- It's worth noting that banks are among the biggest tax payers in the country, but the shrinking of the economy following Reeves' 2024 budget tax hikes has raised concerns about the impact of additional taxes on the banking sector.
- As the Autumn Budget approaches, the proposed bank tax by Rachel Reeves is one of several measures being considered to raise government revenue, aligning with wider speculation around new tax measures, including potential wealth taxes and reforms targeting financial and property sectors.
