LONDON — Britain’s bankers fear Andy Burnham could be about to hit them with a massive tax bill.
The new U.K. prime minister has taken office with gaps of billions of pounds in depleted government coffers, huge ambitions to revitalize Britain’s industry, and little space to borrow more on the financial markets.
Given that squeeze, the City of London worries a new team in the Treasury under Chancellor John Healey could find the sector a tantalizing prospect for a tax raid to try to balance the books.
More than half a dozen industry executives told POLITICO they’re starting to panic about the idea appearing in the fall budget. At an industry drinks event last week, one bank lobbyist described it as “the question on everyone’s lips.” A financial services consultant said it is a “big issue.”
“This chancellor faces the same fiscal pressures as his predecessor that might tempt him to look to the financial services sector for increased tax revenue,” said Matthew Conway, financial services and public policy partner at FGS Global.
There are obvious political reasons to go after the banks.
The British public aren’t fans of big banks, amid longstanding resentment over poor service, misselling scandals and long memories of the financial crash. And banks are making hay with bumper profits from higher interest rates, making them potentially ripe for a windfall tax.
Yet raiding bank profits would also set Burnham’s government on a very different course with the City, which is a core engine of the U.K. economy, compared to the friendly relationship with the Square Mile under ex-Chancellor Rachel Reeves.
Why the worry?
The City had initially breathed a sigh of relief at Healey’s arrival, having feared a potential left-wing lurch under Ed Miliband in No. 11. Healey in contrast is seen as a safe pair of hands, and the return of Emma Reynolds — a former City lobbyist — and Lucy Rigby — a pro-business City minister — to his team also calmed nerves.
Rigby was a popular City minister for almost a year before being promoted a couple of months ago under Keir Starmer’s government. Her return to the role has been particularly welcomed by the financial services industry, with hopes she will see through reforms put forward under Reeves, including controversial changes to the financial ombudsman.
Rigby comes back with a pay bump, as her role as economic secretary to the Treasury now falls under the higher bracket as a minister of state under Burnham’s government, a roughly £10,000 difference from its previous classification as a parliamentary secretary.
That pay rise sends a strong signal to the industry: the City minister will have almost complete control over financial services policy. That will mean continuity on the nitty gritty regulation side of things — a relief for the sector — but it may also free up new chancellor Healey up to focus on the fiscal side of things.
“The chancellor has big issues to consider over this parliament which may mean he spends less time on financial services reforms and policy than his predecessor,” Conway said. “If that’s true, Lucy Rigby may have more autonomy in her role as City minister.”
The main fear for finance executives is that the government could hike the bank surcharge, a specific tax on banks’ profits. The Trades Union Congress, which has been pushing for a windfall tax and has been in close contact with Burnham’s team on the issue, estimates a 16 percent surcharge would raise £24 billion over four years, while a 35 percent surcharge would raise £60 billion. It currently stands at 3 percent.
Those colossal sums would be more than welcome for the chancellor and his team will need to find mounds of cash to fill giant holes in public finances, as the new prime minister has ambitious goals to make a dent in the U.K.’s cost-of-living crisis.
But Britain’s banks argue they already pay more than their fair share of tax — JP Morgan boss Jamie Dimon has been particularly vocal — and any increase could dent London’s attractiveness as a financial center.
“U.K. banks pay higher total tax rates than almost any of their major international counterparts. In a world of cut throat competition for investment, Britain needs to remain competitive,” said Miles Celic, chief executive of TheCityUK. “Our industry is a major contributor to tax revenue, paying more corporation tax than any other sector.”
“To compete globally, U.K. firms rely on a business environment that encourages investment, and yes, that means a competitive tax landscape,” said Chris Hayward, policy chairman at the City of London Corporation.
A Treasury spokesperson noted Healey gave a speech in the City on day three of his role, adding: “The city is important for the UK economy and jobs, and the Chancellor is mindful of that.”
Bumper profits
It’s not the first time the City has got itself in a tizzy about tax.
The City wasn’t sure whether to believe Labour when it promised not to come after its profits before the last general election. But under Reeves, the banks found a solid ally, who previously refused to countenance a tax hike despite pressure from the left of the party, including former Deputy Prime Minister Angela Rayner.
With lenders set to benefit from higher interest rates for longer — amid an expected jump in energy prices driven by U.S. President Donald Trump’s war in Iran — bankers fear they might not get the same unconditional backing under Healey.
There are also other options. Some corners of the City fear a financial transactions tax could bubble back up the priority list. Or there’s billions at stake from changing how banks are remunerated for reserves at the Bank of England.
With Burnham’s first budget in the fall, banks will have three months to convince the new chancellor they’re best left alone.
James Fitzgerald and Elliot Gulliver-Needham contributed reporting.