The head of Britain’s main banking lobby group has warned the chancellor against a budget raid on the industry, arguing that it would undermine her aim of delivering sustainable economic growth.
In a letter to Rachel Reeves seen by Sky News, David Postings, the chief executive of UK Finance, said renewed speculation about increases to banks’ tax burden risked undermining their international competitiveness.
Mr Postings’ letter was sent earlier this week, just days after shares in the largest UK banks – including Barclays, Lloyds Banking Group and NatWest Group – slid amid fears of a renewed tax raid on the sector.
“Both the financial services sector and the wider investor community have… strongly welcomed your clear emphasis – most recently through the Leeds Reforms – on ensuring that the UK’s financial services sector has the right environment to be internationally competitive,” he told the chancellor.
“As you said in launching those reforms, it is vital to deliver certainty for banks operating here and ensure that UK banks can compete internationally and drive economic growth.
A report published last week by the Institute for Public Policy Research (IPPR) think-tank proposed that the chancellor use her November budget to impose an additional levy on bank profits – prompting an investor sell-off of shares in the main UK lenders.
Anxiety about higher personal and corporate taxes has gained momentum in recent weeks because of the weak outlook for the public finances, with Ms Reeves needing to fill a multibillion pound black hole to ensure the government meets its own fiscal rules.
Treasury insiders have sought to play down the prospects of such a move during private discussions with bank executives in recent days, but the timing of Mr Postings’ letter underlines the heightened anxiety in the sector following the sharp recovery in its profitability in recent years.
“As many of our members have recently noted, efforts to boost the UK economy and foster a strong financial services sector would not be consistent with further tax rises on the sector, which already makes a substantial contribution to the public finances,” Mr Postings wrote.
“The emphasis should be on continuing to implement an agenda of regulatory reform that allows for an appropriate adjustment in risk appetite.”
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Mr Postings denied that the recovery in bank profitability was unreasonable, saying: “UK banks’ net interest margins have only returned to historically more normal levels and are far from excessive.”
He added that the industry had made a record tax contribution of approximately £45bn last year.
“UK Finance analysis shows that the UK’s total tax rate for model corporate and investment banks is already notably higher than other major financial centres such as Amsterdam, Frankfurt, Dublin, and New York,” Mr Postings told Ms Reeves.
“This disparity is driven by the permanence of sector-specific taxes in the UK, unlike in other EU jurisdictions where comparable arrangements have been phased out.”
He added that a further tax on the banking industry “would run counter to the government’s aim of supporting the financial services sector and make the UK less competitive internationally, potentially driving capital and investment to other jurisdictions”.
“It would also risk undermining the sector’s ability to drive growth, innovation, and productivity across the UK economy.
“A pro-growth, stable operating environment is the best way to deliver strong and sustainable tax revenues, retain talent and underpin investment across the economy.”
UK Finance declined to comment further on the letter when contacted by Sky News.
