Bank bosses set for Downing Street summit amid windfall tax fears
Bank bosses will meet the Chancellor later this week amid fears the Treasury is drawing up plans to ramp up taxes on the sector.
According to a report in the Daily Mail, Rachel Reeves has summoned the bosses of the UK’s largest banks to a meeting on Thursday alongside Andrew Bailey, Governor of the Bank of England.
The main subject for discussion will likely be the Basel regulations, which govern the amount of capital banks have to hold. The Bank is expected to publish its “near final” interpretation of the latest round of Basel reforms on the same day.
However, the bank CEOs are likely to be just as nervous about the prospect of any windfall taxes which could be announced in October’s Budget.
The UK’s largest banks have been seen as likely targets for a tax raid given the extent to which they have benefited from a higher interest rate environment.
The Big Four banks—Lloyds, HSBC, Barclays, and Natwest—together posted around £44.2bn in pretax profit last year, up 41 per cent from £31.4bn in 2022.
Treasury officials eager to squeeze some extra cash out of the banking sector have a range of options to choose from, but senior industry figures think the most likely outcome is to increase the bank surcharge.
The bank surcharge, which lenders pay on top of corporation tax, was introduced back in January 2016.
The tax was cut to three per cent from eight per cent last April, but the cut was offset by a wider increase in corporation tax. This brought banks’ total tax rate up to 28 per cent, from 27 per cent.
Benjamin Toms, an analyst at RBC Capital Markets, estimates that a three per cent increase in the surcharge could add roughly £1bn per year to the Treasury’s coffers.
Raising the surcharge would also be much simpler than cutting the amount of interest that commercial banks receive on reserves held at the Bank of England, an option frequently discussed during the election campaign.
A Treasury spokesperson did not rule out the prospect of tax rises.
“The Chancellor has been clear that difficult decisions lie ahead on spending, welfare and tax to fix the foundations of our economy,” they told City A.M.
“Decisions on how to do that will be taken at the Budget in the round,” they added.