City chiefs warn Healey bank tax hike could drive businesses out of UK

Leading finance executives have cautioned Chancellor John Healey that raising taxes on the banking sector during the upcoming Budget could force businesses and investment away from the UK. Representatives from major industry bodies, including UK Finance, TheCityUK, and the Confederation of British Industry (CBI), have penned a letter to Healey urging him to refrain from increasing the tax rate on banks.

The group stressed that "Tax decisions should be assessed not simply by the revenue they are expected to raise in the short-term, but by their effects on investment, competitiveness and the capacity of firms to support households and businesses."

Healey recently met with top executives from Britain's largest banks as speculation mounts that the industry could be targeted for a quick cash infusion to address budgetary constraints resulting from the Iran war. Economists predict that the £23.6 billion fiscal buffer established by former Chancellor Rachel Reeves in the Spring Statement may have been reduced by half due to higher borrowing costs following the conflict.

Some of the nation's biggest banks have revised their earnings projections upward, expecting interest rates to remain elevated for a longer period. The industry leaders expressed concern that banks already face a significantly higher tax burden compared to their international counterparts. According to PwC, total taxes on UK banks account for 46% of profits, whereas the rates in Amsterdam, Frankfurt, Dublin, and Cork are 42%, 39%, 29%, and 28%, respectively.

Banks in the UK are subject to a sector-specific surcharge of three percent on top of the standard corporation tax. Some have proposed raising the surcharge to eight percent to generate additional revenue, but other stakeholders have called for a more aggressive approach, such as implementing a windfall tax. The coalition of City advocates warned that a higher tax burden might not generate more tax receipts if capital, talent, and businesses relocate to more tax-friendly jurisdictions.

The signatories of the letter include Miles Celic of TheCityUK, Chris Hayward of the City of London Corporation, David Postings of UK Finance, Rain Newton-Smith of the CBI, and Adam Farkas of AFME. Former Chancellor Jeremy Hunt, who reduced the surcharge in 2023, expressed similar concerns, stating that increased bank taxes could lead to less investment, lower growth, and fewer job opportunities.