Shares in UK banks fell at the start of trading on Friday after reports that Chancellor John Healey plans to raise taxes on the sector in his 28 October Budget. Banks are pushing back, warning that higher taxes would hurt competitiveness and investment.
Lloyds Banking Group was the top faller on the FTSE 100, down around 1.9%, while NatWest dropped 1.6%. Investors were reacting to the Guardian's report that Healey is poised to increase the tax take from Britain's banks.
Senior banking executives told the BBC that Healey is planning to increase taxes on the bank sector, and that they expect the sector to be a target at the Budget. Separately, RBC cut its target price for Lloyds, citing increased competition in the UK deposit market.
Surcharge could return to 8%
The UK's biggest banks and building societies currently pay a surcharge of 3% on top of the baseline 25% rate of corporation tax. Returning the surcharge to its previous level of 8% could raise around £2bn a year, the BBC reports.
Industry figures believe a rise back to 8% is the probable outcome, the Guardian says. The BBC also describes a second option: a moratorium on using past losses to offset profits, which would yield an estimated extra £1bn per year.
UK Finance and the CBI oppose higher bank taxes
The trade body UK Finance warned that "further increases in bank taxes would weaken competitiveness, discourage investment and job creation", according to the BBC. The Confederation of British Industry also suggested Healey should avoid further sector-specific taxation.
Trade unions have called for additional taxes on the biggest four banks, which collectively made about £15bn profit in the first six months of this year. Angeline Ong, senior technical analyst at IG, said a UK bank tax risk is now a base case, and that Lloyds and NatWest would likely be hit hardest.
Sources: BBC News, The Guardian
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