Banks expect to be hit in Budget tax raid
Senior banking executives have told the BBC they expect to be "on the menu" in a Budget tax raid later this month.
Banks expect to be hit in Budget tax raid
Senior banking executives have told the BBC they believe the sector will be "on the menu" when the chancellor unveils his Budget in two weeks' time.
John Healey has called the banks part of "the crown jewels" of the UK economy, but has stopped short of ruling out a raid on the sector.
The four biggest banks together made about £15bn profit in the first six months of this year, prompting calls from trade unions and others for extra taxes.
But the banking sector trade body, UK Finance, warned that "further increases in bank taxes would weaken competitiveness, discourage investment and job creation, and work against the government's ambition to deliver growth in every postcode".
The UK's largest banks and building societies currently pay a 3% surcharge on top of the 25% baseline corporation tax rate, as well as a levy on assets held on their balance sheets.
If income tax paid by employees is included, the sector contributed nearly £40bn to the Treasury last year.
The bank levy brought in £1.4bn last year, while the surcharge added another £1.2bn.
There are several ways the chancellor could raise more money from the sector.
The 3% surcharge was cut from 8% by Rishi Sunak when he was chancellor, at the same time as he increased corporation tax from 19% to 25%. Restoring the surcharge to its former level could bring in about £2bn a year.
The bank levy currently applies a charge of 0.1% on outstanding short-term loans and 0.05% on longer-dated loans, although mortgages are excluded from the calculation.
Banks have long argued that higher taxes would make the UK less competitive than other jurisdictions and reduce their ability to lend, making such measures anti-growth.
In reality, banks were relieved not to be targeted in the last Budget, given the huge profits they have been posting in recent years. Higher interest rates have widened the gap between the rate at which they lend to customers and the rate they pay savers.
Another possibility has been discussed with Treasury officials. At present, banks can offset profits with losses from previous years, reducing their tax bill in any given year. Lloyds in particular has benefited from this, as losses from the financial crisis have been used to cut tax bills ever since.
Some analysts and bank executives have suggested a moratorium on this practice for a few years, which would raise an estimated extra £1bn a year for the Treasury. One bank executive said that would deliver a windfall while being "a lot more bearable".
It would also avoid hitting foreign banks, including JP Morgan, whose chief executive Jamie Dimon has warned that the UK already has one of the highest tax burdens on banks in the world. He said that adding more sector-specific taxes could deter investment and harm competitiveness.
But industry leaders say any tax rise that affects UK banks while exempting foreign banks' operations in the UK would be difficult to reconcile with the government's drive to support British business.
Whatever form it takes, banks believe the chancellor now has a much stronger appetite to take a bigger share of their profits.