Shares in Britain’s biggest banks rose on Thursday morning amid reports lenders would be spared from higher taxes in the upcoming Budget.
Chancellor Rachel Reeves is said to want to support major lenders and avoid piling further pressure on a sector that is vital for economic growth, the Financial Times reported.
The tax burden faced by domestic lenders is already high by international standards.Â
Banks pay a 28 per cent corporation tax rate, more than the 25 per cent paid by most UK firms, as well as a separate levy charged at up to 0.1 per cent of a bank’s balance sheet.
But speculation had been mounting that Reeves would target banks for even higher taxes at her November Budget, as the Chancellor scrambles to fix Britain’s fragile finances.
Britain’s four biggest lenders, which are on track for another bumper year after making £46billion in 2024, had grown increasingly vocal in their pleas for mercy to the Chancellor, with NatWest boss Paul Thwaite even warning of a potential bond market meltdown.
Reprieve: Lenders are set to be spared a Budget tax raid, according to reports
Shares in NatWest, HSBC, Barclays and Lloyds were among the biggest risers on the FTSE 100 in early trading, adding between 1 and 1.5 per cent each.
However, Shore Capital analyst Gary Greenwood warned in a note on Thursday that there will likely be a catch for lenders – and their shareholders.
He said: We think the quid pro quo is likely to be that the big banks, which to be clear would have likely borne the brunt of any additional bank taxes, will need to demonstrate a willingness to grow even faster than they are doing in order to support the economy – rather than just harvesting the benefits of higher interest rates and so profitability for their shareholders in the form of juicy dividends and share buybacks.
‘Furthermore, to drive faster lending growth they may need to reinvest more into pricing, in order to create additional demand for credit.
‘So, while there is a win here from the avoidance of an additional tax, it may not be the case that this benefit flows straight to the bottom line but instead gets gobbled up by keener pricing.’
But Greenwood said the removal of the Budget tax threat is positive, adding that it is ‘encouraging that the trend of bank bashing under former governments seems to have stopped’.
He said: ‘We view this as a positive development at the margin but, let’s be clear, this should not just be seen as a free lunch for banks and their shareholders.’
DIY INVESTING PLATFORMS
AJ Bell
AJ Bell
Easy investing and ready-made portfolios
Hargreaves Lansdown
Hargreaves Lansdown
Free fund dealing and investment ideas
interactive investor
interactive investor
Flat-fee investing from £4.99 per month
InvestEngine
InvestEngine
Account and trading fee-free ETF investing
Trading 212
Trading 212
Free share dealing and no account fee
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.
Compare the best investing account for you
#Banks #spared #Rachel #Reeves #Budget #tax #raid
