Senior banking executives have told the BBC they expect the sector to face additional taxation when the chancellor announces his Budget in two weeks. Chancellor John Healey has described banks as part of the UK economy's "crown jewels" but has refused to rule out raising taxes on them. The country's biggest four banks made around £15bn profit in the first six months of this year, prompting calls from trade unions for additional taxation.
UK Finance, the banking sector trade body, 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 biggest banks currently pay a surcharge of 3% on top of a baseline 25% corporation tax rate, plus a levy on their balance sheet assets. The sector contributed nearly £40bn to the Treasury last year when income tax on employees is included.
The chancellor has several options to raise more money from banks. The 3% surcharge was previously 8% and could be returned to that level, potentially raising around £2bn a year. Alternatively, the government could modify rules allowing banks to use past losses to offset current profits, a practice that could yield an estimated extra £1bn annually if temporarily suspended.
JP Morgan chief executive Jamie Dimon has warned that the UK already has one of the highest tax burdens on banks globally, and that further sector-specific taxes could discourage investment. Bank leaders say any tax rises hitting UK banks while exempting foreign banks' UK operations would contradict the government's commitment to backing British business.