Autumn Budget 2024: Reeves spares banks from tax raid after lobbying

The government has spared UK banks from a tax raid in its maiden Budget after lobbyists warned it could hurt the sector’s international competitiveness.

In Wednesday’s Autumn Statement, Chancellor Rachel Reeves decided to forgo raising existing taxes on banks or introducing a financial transaction tax.

The industry, which enjoyed record profits from interest rate hikes last year, was considered an easy target for a raid as Labour scrambled to fill an alleged £22bn “black hole” in the public finances.

The idea of a bank windfall tax has gained traction in recent months and sparked concerns among some of the country’s top bankers.

UK lenders have paid a bank levy, a tax on their balance sheet, since 2011. They also pay a a corporation tax surcharge on their profits, introduced in January 2016.

Since 2021, under the bank levy, short-term liabilities have been taxed at 0.1 per cent, down from 0.21 per cent in 2015. Long-term liabilities are taxed at 0.05 per cent, compared to 0.11 per cent in 2015.

The corporation tax surcharge was cut to three per cent from eight per cent last April. However, a rise in wider corporation tax to 25 per cent, from 19 per cent, brought banks’ total rate up to 28 per cent, from 27 per cent.

Reeves said on Wednesday that corporation tax would remain at 25 per cent. In total, she said her Budget raises taxes by £40bn, including hikes in capital gains tax and employers’ National Insurance contributions.

Ahead of the Budget, influential lobby groups UK Finance and TheCityUK urged the government not to raise taxes on banks over fears it could drag on the sector’s international competitiveness.

The groups have called for an end to the bank levy and corporation tax surcharge altogether, arguing this would bring Britain’s tax rate closer to rival jurisdictions.

Britain’s banking sector paid a record £44.8bn in taxes in 2023/24, according to an estimate by PwC.