Britain's high street banks are preparing to announce stronger third-quarter profits even as they face the prospect of a significant tax increase in the autumn Budget. Lloyds Banking Group, HSBC, NatWest Group and Santander will report their financial results next week, with the announcements falling on the same week that Chancellor John Healey delivers his Budget statement on Wednesday 28 October. The Chancellor is widely thought to be considering raising the surcharge on bank profits from 3% to 8%, reversing a tax cut for the sector introduced by former Conservative chancellor Jeremy Hunt.
Barclays, which reported its third-quarter results first, announced pre-tax profits of £2.3 billion, up 12% compared with the same quarter last year. The bank's chief executive CS Venkatakrishnan said a potential tax increase would be "bearable", noting that Barclays makes substantial profits outside the UK. Barclays also announced plans to cut 5,000 staff this year, equivalent to about 5% of its total workforce, as part of wider cost savings. Lloyds Banking Group, the UK's largest mortgage lender, is forecast by analyst consensus to nearly double its third-quarter pre-tax profit to £2.3 billion from £1.2 billion a year earlier, though last year's figures were affected by a £1.95 billion provision related to the Financial Conduct Authority's compensation scheme for customers mis-sold car loans.
NatWest is expected to report an operating pre-tax profit of £2.2 billion, flat compared with a year ago, while HSBC is forecast to report a significant jump in earnings to a pre-tax profit of £7.3 billion (9.7 billion dollars), up from £5.5 billion (7.3 billion dollars) previously. Richard Hunter, head of markets for Interactive Investor, warned that raising the bank surcharge could reduce earnings by a possible 6% and "decrease global competitiveness given that its rates of corporation tax are already among the highest to be found globally". He noted that domestic banks Lloyds and NatWest could be most affected by such a change.
Hunter added that Lloyds has been building alternative sources of income through insurance, credit cards and wealth management, which could reduce reliance on traditional income streams. NatWest, meanwhile, is "enjoying a new lease of life", Hunter said, pointing to recent shareholder returns and acquisitions including the £2.7 billion purchase of Evelyn Partners. For UK savers, borrowers and investors, a higher bank profit tax could potentially reduce the returns banks can offer on savings accounts and increase pressure on lending margins.