Chancellor prepares to target lenders despite playing down fears of higher levies in the Budget
Daily Telegraph 15/10/26
John Healey is poised to launch a tax raid on banks despite describing financial institutions as “the jewel in the British economic crown”.
The Chancellor is preparing to target lenders in his Budget on Oct 28 as he faces pressure to repair Britain’s public finances.
It comes despite Mr Healey praising banks on Thursday in comments that raised hopes that the City would be spared.
Speaking in Bangkok at an International Monetary Fund (IMF) event on Thursday, the Chancellor said of banks: “They’re a big contributor to the economy.
“They’re an important part of our business. They’re a part of the jewel, if you like, in the British economic crown.”
The Chancellor is said to be considering raising a surcharge on bank profits above £100m from 3pc to 8pc. The move has been advocated by unions and Labour figures, including Angela Rayner, who argue it could raise £2bn for the Treasury.
However, banks have cast doubt on this estimate, warning that such a move would ultimately cost the economy £20bn.
In a letter sent to Mr Healey on Monday, lobby group UK Finance said raising the bank surcharge to 8pc would result in “around £6bn of UK output forgone over the five-year Budget forecast period, rising to nearly £20bn over 10 years”.
David Postings, the chief executive of UK Finance, wrote: “A near-term increase in tax revenue could come at the expense of the lending and investment needed to reindustrialise the economy and drive growth across the UK.”
Earlier this year, the IMF warned that Britain was reaching the point of peak taxation. It cautioned that the UK faced “economic realities” that left little room for further tax rises or borrowing.
The Chancellor’s plan to target banks, first reported by The Guardian, was met with alarm in the City.
An executive at one of Britain’s biggest banks said: “The impact of a bank tax has a longer burn impact than National Insurance. The impact of a bank tax is about international investability in Britain.”
Another senior banking executive said: “What happens if banks face higher costs? They’ll just pass those costs on.”
Treasury officials have sought to avoid speculation about Mr Healey’s first Budget, citing the turmoil in financial markets in the run-up to Rachel Reeves’s Budget last year.
Journalists and think tank staff have been given less access than usual to the Budget process, while senior Treasury officials have instituted military-grade IT security for staff working on Mr Healey’s statement.
However, Thursday’s apparent about-turn on bank taxes bucked the trend, despite attempts by Treasury sources to shut down speculation about the Chancellor’s plans.
Some officials have complained that the Budget-writing process has been conducted later than usual because of Mr Healey’s recent appointment to the Treasury and desire to ensure his decisions align with Andy Burnham’s priorities in No 10.
Speaking in Bangkok, Mr Healey warned that Britain faced a “tough time” before the Budget amid rising borrowing costs and slowing growth.
He was speaking after official figures showed the UK economy grew by just 0.1pc in August, slowing from 0.4pc in July.
The Chancellor promised to deliver more “breathing space” for households and businesses on Oct 28. However, he cautioned that the economic backdrop limited what was possible.
Mr Healey told the BBC: “It’s a tough time ... People can see the global economic conflicts. They know the pressure it is putting on them. People recognise these times are tough for everyone.”
Heavy spending on AI was the only thing that saved the economy from contracting in August, according to official data published on Thursday. However, AI companies have been hit by a sell-off of their stocks and bonds in recent days, underlining the risks to this boom.
Andrew Griffith, the shadow chancellor, said: “Britain needs growth. But a raid on the financial services sector will stifle it. Labour should be backing businesses and wealth-creators, not making their lives even harder. Rather than hiking taxes yet again, Labour should cut spending.”
Higher inflation and borrowing costs since the outbreak of the war in Iran have put pressure on the public finances, with Mr Healey expected to run down some of the £24bn buffer his predecessor, Rachel Reeves, built last year to help to balance the books.
The Chancellor reiterated his commitment to abide by the fiscal rules set by Ms Reeves, and signalled that it was the “job” of government departments to play their part by tightening their belts.
Mr Healey said: “There are pressures on departments… but it’s important that they do manage within what they’ve got, it’s part of the job. You have to reprioritise if you want to do fresh things or more of the same.”
The Chancellor made the remarks after Andy Burnham rejected pleas from Yvette Cooper, the Health Secretary, to top up NHS budgets.
Mr Healey added: “I’ve said from day one and week one, and I’ve had Andy Burnham in lockstep alongside me: I will meet those fiscal rules in full.”
Asked whether he would offer more support with the cost of living in the Budget, the Chancellor highlighted that the Government had already taken VAT off energy bills.
“It doesn’t remove the cost pressure,” he said. “It recognises those pressures and says, look, where we can, we’re a government that will act to try and give people a bit of breathing space.”
The Chancellor is drawing up plans for fresh energy support for struggling households, as well as tax cuts for high-street businesses.
Mr Healey said the Government recognised that support was needed for “the cost of business, not just the cost of living”.
He added: “I want the Budget to be a Budget that gives Britain a bit of breathing space, but also reinforces the strength of our fiscal plans and the strength of our resilience of our economy for the future.”
A Treasury spokesman said: “As has always been the case, decisions on tax are a matter for the Chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals.”
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