Bank stocks tumble as Hunt plots tax raid
BANKING stocks slipped yesterday amid fears Britain’s lenders could be hit with extra taxes.
The UK’s biggest banks face a higher corporation tax bill, and a windfall tax on the interest they gain from deposits stored at the Bank of England.
The prospect of new levies comes as Chancellor Jeremy Hunt tries to claw back £40bn through tax hikes and spending cuts to fill the black hole in the public purse.
His plans prompted mixed reactions. While some economists believe the extra charges on banks would be relatively painless, when compared to drastic Government spending cuts or tax hikes on households, other analysts said it could make them reluctant to lend and even damage the UK’s competitiveness. Gary Greenwood, a banking analyst at Shore Capital, said higher banking levies would be ‘dangerous as it could push up the cost of capital, which could affect the ability and willingness of banks to lend’.
It could also be harder for banks to pull in extra cash from investors if needed when the economic downturn causes loans to sour. Currently banks pay corporation tax at 27pc – the standard 19pc rate plus a 8pc surcharge introduced following the 2008 financial crisis.
under rishi Sunak, who planned to raise corporation tax to 25pc next year, the top-up would have dropped to 3pc, putting the overall rate at 28pc.
Kwasi Kwarteng abandoned the corporation tax rise and left the extra charge at 8pc. But Hunt has reinstated the corporation tax hike and made no move to reduce the surcharge, meaning banks could be left paying a total tax bill of 33pc.
Treasury officials said Hunt has not yet made a decision, but is expected to have an answer for banks in his ‘fiscal plan’ at the end of the month. The windfall tax is more complex. Lenders hold reserves at the Bank of England – and this sum has risen as a result of its money-printing programme, designed to put cash into the economy in the pandemic.
Initially those reserves yielded little return but now, as the Bank has raised interest rates to fight inflation, they are being paid an estimated £10bn a year.
The Treasury is understood to be targeting these payments. Julian Jessop, an economist who has advised Prime Minister Liz Truss, said: ‘The banks would hate it, but I would support not paying interest on some or all of central bank reserves.’
Natwest and Lloyds shares fell by 2.4pc and 4.7pc respectively. HSBC and Barclays slid by 1.8pc and 2.2pc respectively.