Labour Re-think Windfall Tax On Banks

May 31, 2024

Labour has reportedly decided against imposing a windfall tax on bank profits if it wins the general election on 4 July, in a bid to garner support from the City of London. According to Bloomberg News, the party does not plan to increase the surcharge on bank profits or introduce a financial transaction tax. A spokesman for shadow chancellor Rachel Reeves confirmed that there are “no plans” for additional taxes on banks.

In a recent speech, Reeves appeared to rule out any new tax hikes beyond those already proposed by Labour. This development comes as Labour attempts to assure the financial sector, amidst concerns that the party might target bank profits instead of increasing personal or other business taxes.

Influential groups like TheCityUK have expressed strong opposition to a windfall tax, arguing that it would reduce Britain’s competitiveness by deterring business and investment. The UK’s largest banks—Lloyds, HSBC, Barclays, and Natwest—posted a combined pretax profit of around £44.2 billion last year, a 41 per cent increase from £31.4 billion in 2022, largely due to interest rate hikes from the Bank of England.

Earlier this month, data from the Treasury Committee revealed that major banks earned over £9 billion in interest on their Bank of England reserves in the previous year, a 135 per cent increase from 2022. Positive Money, a non-profit advocacy group, suggested in February that a windfall tax on the Big Four banks could generate between £3.5 billion and £14 billion. Bloomberg analyst Tomasz Noetzel estimated the figure to be between £2 billion and £3 billion, considering that total levies paid by the sector could triple to approximately £4.2 billion.

Last April, then-Chancellor Rishi Sunak reduced the tax surcharge on the banking sector from eight per cent to three per cent to balance an increase in corporation tax, which banks pay in addition to the surcharge.

Labour’s attempts to court the City saw a boost when 120 business leaders signed a letter of support, criticizing the current economic climate as one of instability and stagnation, and describing the upcoming election as an opportunity for change.

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