Banking Stocks Rally Ahead of Budget Announcement
Shares in Britain's major high street banks experienced a significant boost at Tuesday's market opening, climbing more than 2% as confidence grew that Chancellor Rachel Reeves would shield the sector from additional taxation in this week's budget. The surge came amid reports that the Treasury had requested supportive statements from banking institutions about Wednesday's fiscal announcement, fueling expectations of a tax reprieve.
Market Reaction and Industry Lobbying
Dan Coatsworth, head of markets at AJ Bell, commented: "Reports that UK banks might get a reprieve in this week's budget from previously floated new tax measures helped give the likes of Lloyds, Barclays and NatWest a lift and underpinned the FTSE 100's rise on Tuesday." He noted that intense industry lobbying appeared to have paid off, though banking executives might not breathe completely until Reeves concludes her budget speech on Wednesday afternoon.
The banking sector has been vigorously opposing potential tax increases, arguing that UK banks already face a total tax rate of approximately 45.8% when employment taxes and VAT are considered. This compares unfavourably with 38.6% in Frankfurt and just 27.9% in New York, creating competitive disadvantages for British financial institutions.
Political Pressure and Windfall Tax Campaigns
Speculation about bank tax increases has circulated for months, reignited in August when the IPPR thinktank advocated for a new levy to recoup money commercial lenders earn from Bank of England policies, particularly the quantitative easing programme established after the 2008 financial crisis.
However, campaign groups continue pushing for higher banking taxes. Positive Money has gathered 68,749 signatures supporting a windfall tax on bank profits, claiming that a 38% charge similar to that applied to energy companies could generate over £14 billion for Treasury coffers.
Simon Opher, Labour MP for Stroud, who is delivering the petition to Downing Street, stated: "This week's budget is an opportunity to restore the public services that form the backbone of our society. Recouping the huge payments being made from the public to the banking sector is a fair and commonsense way to fund this."
Banking leaders have countered that additional taxation could force them to reduce lending and undermine the benefits of the chancellor's Leeds reforms, designed to spur economic growth by reducing regulatory burdens across the financial sector.
