The boss of Britain’s largest mortgage lender has warned Rachel Reeves that increasing taxes on banks in her autumn budget would damage Labour’s plan for the City of London to power an economic recovery.
Charlie Nunn, the chief executive of Lloyds Banking Group, said a rise in bank taxation “wouldn’t be consistent” with the chancellor’s overtures as the government pushes to reboot growth.
Against a backdrop of mounting speculation that Reeves could use her autumn budget to announce a fresh round of tax rises, his comments came as the high street bank reported a 17% jump in second-quarter profits.
Nunn told journalists on Thursday the bank had not had any discussions with the government about a potential tax rise, and acknowledged that it was ultimately a “political decision”. However, he said that targeting the financial services sector with higher taxes would mark a stark reversal by the chancellor, who last week announced a raft of changes to cut regulation and boost growth across the sector.
He noted that Reeves had made the case for a “strong financial services sector” to support the UK economy, and had highlighted that the industry had a “huge role to play” to support households and businesses.
“We definitely believe that’s an important thing to focus on, and obviously, therefore, [it] wouldn’t be consistent with a tax rise,” Nunn said.
He added that the UK already had “the highest tax regime on the financial services sector of any major economy”. Banks face the 25% headline rate of corporate tax, as well as a 3% bank surcharge, and a further bank levy which is a charge on a portion of balance sheet assets.
However, the Conservatives cut the levy from 8% in April 2023 in a measure opposition MPs decried as a costly giveaway. Earlier this month, analysts at Deutsche Bank speculated that Reeves could reverse the cut to raise about £1.5bn.
Labour has placed financial services among its eight important sectors to receive government backing in its industrial strategy, while industry lobbyists have warned the chancellor that extra help is required to boost the City after Brexit.
Estimates by lobby group UK Finance and PwC suggest that, when also accounting for employment taxes and VAT, banks in the UK are paying a total tax rate of about 45.8%. That compares with 38.6% in Frankfurt, and 27.9% in New York.
“We’re proud of being one of the or the biggest taxpayer in the UK as Lloyds Banking Group,” Nunn said. “So we are completely comfortable with that. But it is important when you look at the competitiveness of the City of London and the financial services sector that we remain a competitive tax regime.”
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Raising taxes on banks would also add to costs at a time when many lenders – including Lloyds – are bracing for a hefty compensation bill over the car finance commission scandal. A supreme court ruling is widely expected within the next week. Lloyds has put aside £1.2bn in provisions to cover potential costs.
Updating the City on its second-quarter performance, the bank reported a 17% rise in pre-tax profits to nearly £2bn, up from £1.7bn last year, driven in part by higher fees from its pension, insurance and investments business.
When asked whether he shared Reeves’ view, expressed during her Mansion House speech last week, saying that regulation was acting like a “boot on the neck” of business, Nunn replied: “That’s very much for the chancellor to use that language.”
However, the bank boss said he believed there was a “real opportunity to align regulation, increasingly, with competitiveness and growth.”
Among the proposals welcomed by the Lloyds boss are plans in the coming months to review ring-fencing rules, which are the post-financial crisis regulations meant to protect consumer cash from a bank’s riskier business activities. Bank bosses, including Nunn, had lobbied for ring-fencing to be abolished, arguing the rule is redundant as a result of other safeguards brought in after the 2008 banking crisis.