The head of the UK’s financial services trade association has advised against increasing taxes on banks in the upcoming Budget. David Postings, CEO of UK Finance, expressed concerns that London’s banking sector might lose its competitive edge compared to European counterparts if additional taxes are imposed.
As reported by City AM, Postings highlighted during a dinner for City executives at the Guildhall that the current effective tax rate for banks at 46.6%. He explained that a typical bank faces a base corporation tax of 25%, with additional surcharges and levies specific to the banking industry, all before national insurance and other employment costs, including irrecoverable VAT.
Postings acknowledged the emotive nature of bank taxation but argued that a robust banking sector generates quality employment, citing 369,000 jobs. He noted that banks and their employees contribute £1 in every £25 of tax revenue, equating to £120 million daily. With the Chancellor facing difficult decisions on the 26th, Postings urged a careful consideration of taxation, akin to deliberations on capital.
Postings’ comments emerge as the UK’s major banks face potential tax increases, with Chancellor Rachel Reeves contemplating a levy on lenders’ profits. Although banks were expected to avoid tax hikes due to Reeves’ support for the financial services sector, the government is reportedly considering raising the surcharge on top of corporation tax.
Furthermore, Postings encouraged the Chancellor to enable the financial sector to expand its risk appetite to foster economic growth. He questioned the incentives for firms to take additional risks, linking this to the UK’s weaker-than-desired economic growth and rising financial exclusion.
While advocating against a drastic shift to a high-risk environment or reduced regulatory standards, Postings called for a data-driven debate on the current capital and regulatory regime, which he suggests is limiting lending and growth. He concluded by emphasising the need to unlock the UK’s potential, starting with capital considerations.
