A recent analysis suggests that imposing a windfall tax on major banks in the UK could potentially generate over £11 billion for the Treasury. The pressure is mounting on Chancellor Rachel Reeves to consider tax hikes in the upcoming Budget to address the financial shortfall. One proposed solution is to increase levies on banks, especially considering their substantial profits due to high interest rates.
HSBC, the final of the “Big Four” banks to report half-year profits, recorded nearly £12 billion in profits globally, despite a 25% decrease compared to the previous year. Alongside HSBC, Lloyds Banking Group, NatWest, and Barclays collectively amassed £24 billion in just six months, projected to reach a record-breaking £48 billion for the year.
Positive Money, a think tank, advocates for a new surcharge of 38% on bank profits to align with the Energy Profits Levy on oil and gas companies. This move is estimated to bring in £11.3 billion from the Big Four banks this year, potentially covering welfare expenses and eliminating the two-child benefit cap. The think tank argues that banks’ profits have been further boosted by higher interest rates from the Bank of England.
Proposing a levy similar to Spain’s, targeting profits exceeding £800 million from banks’ domestic retail banking arm, Positive Money emphasizes the need to regulate excessive banking profits for the benefit of the wider economy.
Despite the calls for tax increases, bank executives caution against such measures, citing potential impacts on lending capacity and hindering economic growth. The banking industry highlights its crucial role in supporting customers and driving economic expansion.
While the Tories previously introduced a surcharge on bank corporation tax, Positive Money’s proposal for a new levy specifically targeting bank retail arm profits represents a distinct approach to regulating banking sector earnings.
UK Finance reports a significant increase in total tax contributions from the banking sector, reaching £44.8 billion for the financial year up to March last year. Moreover, the UK’s tax rate in London surpasses that of financial hubs like New York and Frankfurt.
In conclusion, the ongoing debate on bank taxation reflects the balancing act between ensuring fair contributions from profitable sectors and maintaining a conducive environment for economic growth and stability.
