Barclays has joined the ranks of major banks issuing a stark warning to Rachel Reeves against increasing bank taxes as the Chancellor strives to preserve her precarious fiscal leeway.
The FTSE 100 heavyweight’s chief, CS Venkatakrishnan, commonly known as Venkat, expressed that the government’s growth ambitions would be at odds with imposing higher taxes on banks – or any other vital sectors of the economy, as reported by City AM.
“I think growth is the important objective of the UK economy, and we want good quality growth, which is fuelled by the important sectors of the economy – banks are one of them,” he stated.
Venkat highlighted pharmaceuticals and technology as other key industries that act as channels for economic success.
He contended that financial institutions are already “among the biggest tax payers in this country”.
His comments follow Natwest head Paul Thwaite’s assertion that “strong economies need strong banks”, suggesting he prefers to utilise the bank’s capital for loans to stimulate growth “for the good of the country.”
Similarly, Lloyds’ CEO Charlie Nunn has remarked that raising taxes on banks “wouldn’t be consistent” with efforts to enhance the economy.
These appeals emerge as Rachel Reeves attempts to safeguard her diminishing fiscal buffer amid a spate of government reversals and an expensive Spending Review.
Economists have forecasted that Reeves might need to find nearly £20bn extra to bolster her fiscal margin due to lacklustre growth figures and government expenditure excesses.
Banks on tax watch
Deputy Prime Minister Angela Rayner revived the possibility of a bank tax raid earlier this year following a leaked memo that disclosed Starmer’s second-in-command suggesting a £700m increase on the sector.
Rayner advocated for the surcharge on banks, which is imposed in addition to corporation tax, to be elevated to five per cent.
The proposal faced strong opposition, with banking industry body UK Finance contending the sector already makes a “significant contribution” to the UK’s tax base, with its most recent report calculating total tax contribution to be £44.8bn in the 2023/24 financial year.
Conjecture intensified ahead of the 2024 Autumn Budget that Reeves would utilise lenders for a swift cash grab.
A report UK Finance presented before the budget disclosed the sector’s total tax rate in London was 45.8 per cent for 2024.
This overshadowed European competitors Amsterdam (42 per cent), Frankfurt (38.6 per cent) and Dublin (28.8 per cent).
David Postings, chief executive of UK Finance, previously told City AM: “The tax environment has an important bearing on investment decisions and growth. To make the UK’s approach to bank taxation globally competitive, we think the government should phase out the bank corporation tax surcharge and the bank levy over time.”
