- Highlights
- Guardian reports chancellor poised to tax banks in October 28 Budget
- Analysts see 3 per cent surcharge rising, possibly back to 8 per cent
- Banks and UK Finance warn hike would hurt growth and investment
- Healey vows to meet fiscal rules as headroom shrinks
CHANCELLOR John Healey has described Britain’s banks as central to the country’s economic future, but he refused to rule out raising taxes on their profits in his first budget on October 28.
Speaking to reporters in Bangkok, where he is attending the International Monetary Fund’s annual meetings, Healey said the public too often saw banks as remote institutions. In fact, he said, they are “hardwired into the economic fabric of this country”.
He then added that he had budget decisions to take and would take them, and stressed that his remarks should not be read as a signal either way.
Shortly afterwards, the Guardian reported that Healey was poised to tax banks, with reversing previous cuts to the bank surcharge among the options under consideration. The report did not say whether a final decision had been made.
Banks currently pay a 3 per cent surcharge on profits on top of standard corporation tax, raising just over £1 billion a year. City analysts have pencilled in an increase.
Options include a return to the previous 8 per cent rate or a smaller rise of two to three percentage points. Analysis by EY puts the revenue from doubling the surcharge to 6 per cent at around £1bn.
Banks against tax hike
The sector has lobbied hard against any rise. JPMorgan chief executive Jamie Dimon reportedly phoned Healey to warn that higher bank surcharges could push jobs out of the UK, and the heads of UK Finance and the CBI were among signatories of a letter urging the chancellor not to raise bank taxes.
UK Finance said on Thursday (15) that an increase would hurt competitiveness, investment and growth.
Unions are pushing in the other direction. The TUC says raising the surcharge to at least 8 per cent would bring in £9bn over four years to help households with the cost of living.
The chancellor faces a tight fiscal position. EY estimates his headroom against the fiscal rules has more than halved since March to £11.3bn, largely because of rising gilt yields. Higher inflation and global interest rates are expected to squeeze his room for manoeuvre further.
Healey insisted he would meet the fiscal rules, saying prime minister Andy Burnham was “in lockstep” with him. He added that he wanted a budget that offered some breathing space while reinforcing the government’s fiscal plans.
The IMF this week singled out Britain for praise among advanced economies for beginning to cut its deficit. The goal is to balance day-to-day spending with tax revenue by 2029/30.
