Britain’s leading financial and business lobby groups are stepping up their campaign against a planned tax raid on the banking sector, days before the chancellor John Healey is due to meet bank chiefs in person for the first time. Sky News has learnt that UK Finance, the Association of Financial Markets in Europe and TheCityUK have been circulating a letter for the chancellor, with the Confederation of British Industry also involved in circulating the draft.
Warning that higher taxes may raise nothing
The core of the argument is that a higher tax burden on banks will not necessarily generate higher receipts if capital, people and businesses leave Britain instead. A draft seen by Sky News reads: “While we recognise the challenging fiscal pressures facing government, it is important to note that our industry already faces a higher tax burden than our key international competitors.”
It goes on: “Further increasing that burden through any additional sector-specific measures would make it harder to channel finance and liquidity into businesses trying to invest and grow in the UK. As well as weakening investor confidence and damaging UK attractiveness, a higher tax burden may not necessarily generate higher tax receipts if capital, people and businesses move elsewhere.”
The letter warns this could reduce the availability of finance and protection for households and businesses, and undermine the growth agenda both the chancellor and the prime minister have set out as central to the country’s long-term success.
Unions pushing the other way
The business groups are moving against a headwind. Trade unions have been calling on the chancellor to raise billions of pounds from the industry to fund government commitments elsewhere, at a point when the UK’s biggest banks have reported bumper profits. Bankers’ bonuses and shareholder payouts have become a politically potent subject, and unions argue the sector can afford to contribute more.
Within the industry itself, the lobbying has not been entirely united. UK Finance, whose members include Barclays, HSBC, Lloyds Banking Group and NatWest Group, has already written to the chancellor in recent weeks to protest at the prospect of a windfall tax or a significant increase to the bank corporation tax surcharge. Earlier in the week, Sky News revealed that a dozen mid-tier banks, including Revolut and Monzo, had instead urged Healey to raise the threshold at which the surcharge applies, a measure that would spare them while hitting the largest lenders hardest.
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Why it matters
Bank profits effectively underwrite a large share of UK government revenue, and the surcharge on them has repeatedly proved to be an attractive-looking target for chancellors under fiscal pressure. If the industry is right that higher rates simply relocate activity to rival jurisdictions, the Treasury ends up with neither the revenue nor the jobs.
For households, the argument matters because bank lending flows through to mortgages, business loans and deposit protection. Any retreat by banks from the UK market would show up first in the cost and availability of credit.
What happens next
Healey meets bank bosses on Tuesday, though he is not expected to discuss industry-specific tax rises directly. None of the business groups contacted by Sky News would comment on the letter. The decision will be set out in this month’s Budget, when the chancellor’s options on the bank surcharge become clear.
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