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City Of London Tries To Divert Hunt From Tax Raid On Banks

Jeremy Hunt has said he would raise corporation tax to 25% from April, reversing Kwasi Kwarteng’s plans to freeze it at 19%.

City of London Tries to Divert Hunt From Tax Raid on Banks
City of London Tries to Divert Hunt From Tax Raid on Banks

Concerns are mounting in the City of London about higher taxes being imposed on banks as the UK government seeks to fill its funding black hole.

Chancellor Jeremy Hunt’s assertion that nothing “is off the table” when considering windfall taxes has sparked alarm among banks. Industry figures sought clarification on the Treasury’s plans for the industry, but didn’t receive reassurance, two people who asked not to be identified speaking about private discussions. 

Hunt has said he would raise corporation tax to 25% from April, reversing Kwasi Kwarteng’s plans to freeze it at 19%. Banks are also paying an 8% surcharge on their profits. Unless Hunt reduces the surcharge, lenders will be taxed at 33%, up from 27% now.

City Of London Tries To Divert Hunt From Tax Raid On Banks

Adding in other employment taxes, UK banks may pay a higher rate than other financial centers which compete with London, such as Frankfurt and New York, according to an analysis by PwC for UK Finance. 

Shares in Lloyds Banking Group Plc, NatWest Group Plc and Barclays Plc all fell at Wednesday’s open.

Read More: UK Bank Shares Fall After Report Hunt Targets Windfall Tax

The Treasury has said it will give more details on bank tax in its fiscal event, now scheduled for October 31. A Treasury spokesperson declined to “comment on specific speculation,” adding that “the Chancellor and PM have been clear that difficult decisions will be required to restore economic stability, and no options are off the table.”

The Financial Times reported earlier that Hunt is weighing raising taxes on lenders and energy firms, citing allies of the new Chancellor.

“Banks only have themselves to blame,” said Edward Firth, an analyst at Keefe Bruyette & Woods. “We’ve seen interest rates move up 200 basis points and they have passed on very little to customers. For a sector that was ultimately a key beneficiary of the economic bailouts during the crisis, and is still getting cheap funding from the BOE, this was playing with fire.”

What Bloomberg Intelligence Says

Plans by new UK Chancellor Jeremy Hunt to impose some form of windfall tax on UK banks, as the Financial Times reports, are likely to be realized, with consensus 2022-23 pretax profit for the big four -- Lloyds Banking Group, HSBC, Barclays and NatWest -- up £10 billion this year. An increased bank-tax surcharge, from 8%, and reduced interest on paid desposits held at the Bank of England are two looming threats. 

Jonathan Tyce, BI banking analyst

(Adds analyst quote in last paragraph.)

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