Shares in major British lenders dropped sharply on Friday after reports emerged that UK finance minister John Healey plans to raise taxes on banks in his October 28 budget.
Lloyds Banking Group (LYG) fell 2.3% and NatWest (NWG) declined 2.05% as of 04:40 ET, reflecting investor anxiety over the proposed fiscal changes.
The Guardian reported that Healey wants to offset damage to public finances stemming from the Middle East war and keep deficit-reduction plans on track as borrowing costs rise.
One option under consideration is reversing cuts to the bank surcharge previously made by former Chancellor Jeremy Hunt, a move that could raise more than £2 billion per year.
The surcharge is an additional tax levied on bank profits on top of the standard corporation tax rate already applied across industries.
Industry figures believe the surcharge will likely rise to 8% from its current rate of 3%, a significant increase that banks have privately been bracing for.
One industry source said banks expected a rise to 8% but no further, suggesting the sector is drawing a firm line on how much additional burden it is prepared to absorb.
The Trades Union Congress has lobbied for a rate of 16%, which it argues could raise £24 billion over the next four years, far exceeding what a more modest increase would generate.
TUC General Secretary Paul Nowak said the big four banks were making “a billion pounds a week,” pointing to the £200 billion in pre-tax profit that HSBC, NatWest, Barclays, and Lloyds Banking Group collectively generated over the past five years as interest rates rose.
Healey, speaking to reporters in Bangkok, praised the banks as crucial to supporting economic growth, saying they are “hardwired into the economic fabric of this country and our future prospects.”
Bank bosses met Healey last week and were given no assurance that tax rises were ruled out, raising alarm across the financial sector about the direction of government policy.
Their lobby groups, UK Finance and TheCityUK, subsequently wrote to Healey warning that higher taxes would force them to move staff and business operations out of the country.
JP Morgan (JPM) Chief Executive Jamie Dimon said in May he could scrap plans for a £3 billion London headquarters, which would house more than half of its 23,000 UK staff, if the government became hostile towards banks.
Specialist banks including Revolut and Shawbrook have separately called for the profit threshold triggering the surcharge to be raised from £100 million to £500 million.
Borrowing costs have risen sharply in recent weeks, which analysts said could as much as halve the £24 billion cushion that Rachel Reeves, Healey’s predecessor, built against fiscal rules in March.
