Conservative party leader Kemi Badenoch has again warned Chancellor John Healey against raising taxes on Britain’s banks.
The Chancellor believes that asking the banks to forfeit some of the huge profits they are currently making will play well with voters who are being asked to tighten their belts.
The UK’s four largest banks – HSBC, NatWest (RBS), Barclays and Lloyds Banking Group – have generated £200 billion in pre-tax profits over the past five years as they have benefited from rising interest rates.
Mr Healey, who will deliver his first budget on 28 October, is seeking ways to raise money that will protect public services and help struggling households and small firms.
He is understood to be considering a reversal of cuts to the bank surcharge made by Tory Chancellor Jeremy Hunt, according to The Guardian, a move that would raise upwards of £2bn a year.
His predecessor Rachel Reeves was wary of hiking taxes on banks because of fears it would deter investment. Opposition leader Ms Badenoch has been making similar warnings and during a visit to an RBS accelerator hub in Edinburgh she repeated her concerns.
Asked by Daily Business if it would be reasonable for banks to pay a little more tax, she replied: “Not if the banks reduce their activity.
“It is the same argument with the energy profits levy. Taxes are there to make sure we can fund public services but they also can reduce economic activity. We have to get the balance right.
“I don’t think increasing taxes on business will get the economy growing. We have look at how we can cut spending. If you tax banks there is less capital for the sort of businesses I have been speaking to today.”
However, pressure is growing on the Chancellor to target those with the deepest pockets and broadest shoulders.
Paul Nowak, the general secretary of the TUC, said: ‘Britain’s big four banks are making a billion pounds a week, while bonuses have hit a post-crash record. These are bumper profits – driven by high interest rates and households’ mortgage misery. It’s time to make sure banks pay their fair share.”
Speaking to journalists in Bangkok, where the International Monetary Fund has praised the UK’s progress towards balancing the books, Mr Healey praised the banks as crucial to supporting economic growth.
“People too often see them as big distant financial institutions, when they are hardwired into the economic fabric of this country and our future prospects,” he said.
Despite acknowledging the banks’ role in stimulating the economy he is believed to be seriously considering the surcharge banks pay on their profits, over and above corporation tax. Industry sources say it could see the surcharge return to 8%, from 3% at present.
However, the Treasury is facing strong lobbying from the banking sector. JP Morgan chief executive Jamie Dimon said in May he could scrap plans for a new £3bn London headquarters if the UK government became hostile towards banks. Even so, there is said to be an acceptance of a tax hit.
Ms Badenoch’s visit to Edinburgh had been in the diary for some time as she was making a private visit. She combined the trip with a meeting at the refurbished branch and accelerator in Princes Street where she met those advising growth firms, as well as Iain Morrison Royal Bank’s managing director for commercial mid-market.
On Friday she is visiting a haulage firm in Paisley to discuss fuel duty.
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