The boss of FTSE 100 juggernaut HSBC has renewed calls for Rachel Reeves to avoid raising taxes on banks over fears it would harm economic growth.
Georges Elhedery, HSBC’s chief executive, said on Wednesday banks’ further financial pressures on lenders could spark trouble for the UK economy.
“Additional taxation on banks runs the risk of eroding our continued investment capacity in the business and in supporting our customers, and ultimately in delivering growth for the UK,” Elhedery argued.
This follows calls from his fellow ‘Big Four’ banking chiefs that a levy on banks would not align with the Chancellor’s growth agenda.
Paul Thwaite, NatWest’s chief executive, said “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”.
Meanwhile, Lloyds’ chief Charlie Nunn declared increasing taxes on lenders “wouldn’t be consistent” with helping boost the economy.
Weak fiscal position raises tax fears
The possibility of a tax hike on banks was heightened after a leaked memo revealed Deputy Prime Minister Angela Rayner recommending a series of revenue-raising measures to Reeves.
One of which included raising the surcharge on banks, which sits on top of the corporation tax, to five per cent – effectively setting the banks rate at 30 per cent.
The comments from banking bosses follow first-half earnings season for UK lenders.
Ahead of reports, Bank of America analysts warned the “worsening fiscal position in the UK” would raise questions “around the possibility of bank taxes”.
Banks are already subject to an outsized rate in the UK when compared to their overseas counterparts.
The sector’s total rate in 2024 sat at 45.8 per cent, dwarfing European rivals Amsterdam (42 per cent), Frankfurt (38.6 per cent) and Dublin (28.8 per cent), according to a report UK Finance submitted ahead of the 2024 Autumn Budget.
But the slimming fiscal headroom of Rachel Reeves has led to elevated concerns she will turn to the banking sector for an easy tax raid.
Economists estimate the Chancellor may face a £20bn shortfall in the Autumn after a series of government U-turns across welfare and winter fuel allowances and costly £190bn Spending Review.