Barclays has become the latest banking giant to send a firm warning to Rachel Reeves to avoid bank tax hike as the Chancellor scrambles to maintain her wafer-thin fiscal headroom.
The FTSE 100 giant’s boss CS Venkatakrishnan, known as Venkat, said the government’s mission for growth would not align with slapping a tax increase on banks – or other important sectors of the economy.
“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.”
The banking chief named pharma and tech among other crucial sectors that serve as a conduit for economic prosperity.
Venkat argued lenders were already “among the biggest tax payers in this country”.
This follows Natwest chief Paul Thwaite saying “strong economies need strong banks” as he argued he would rather use the bank’s capital for loans to boost growth “for the good of the country”.
Lloyds’ chief Charlie Nunn has also stated increasing taxes on lenders “wouldn’t be consistent” with helping boost the economy.
The calls come as Rachel Reeves looks to maintain her waning fiscal headroom after a series of government U-turns and a costly Spending Review.
Economists have already projected Reeves would have to make a near £20bn top up to her headroom due to poor growth figures and government spending splurges.
Banks on tax watch
Deputy Prime Minister Angela Rayner re-introduced the prospect of a bank tax raid earlier this year after a leaked memo revealed Starmer’s second-in-command proposing a £700m hike on the sector.
Rayner called for the surcharge on banks, which sits on top of corporation tax, to be raised to five per cent.
The proposition received fierce backlash, with banking industry body UK Finance arguing the sector already makes a “significant contribution” to the UK’s tax base, with its most recent report estimating total tax contribution to be £44.8bn in the 2023/24 financial year.
Speculation mounted ahead of the 2024 Autumn Budget that Reeves would use lenders for a quick cash grab.
A report UK Finance submitted ahead of the budget revealed the sector’s total tax rate in London was 45.8 per cent for 2024. This dwarfed European rivals 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.”