The UK's banking industry body, UK Finance, has intensified its lobbying efforts, urging the government to address 'anaemic' economic growth and bolster the financial services sector. A new report from the organization, which represents around 300 firms, presents a nine-point plan calling for 'clear sequencing, strong accountability, and sustained collaboration between government, regulators, and industry.'
Criticism of Regulatory Caution
David Postings, chief executive of UK Finance, told an audience of industry leaders on Monday: 'For the best part of twenty years we have seen regulatory tightening and risk aversion become the norm. The result? Anaemic growth.' He argued that even a 'relatively small increase' in regulators' risk appetite could 'allow significant growth,' urging them to 'be bold and positive.'
Tax Burden on Banks
The report also highlights the UK's uncompetitive tax regime for banks. London's total tax rate for the banking sector stands at 46.4%, significantly higher than Amsterdam (42.2%), Frankfurt (38.9%), Dublin (28.9%), and New York (27.9%). Last year, the sector paid approximately £43.3 billion in tax, accounting for 4.3% of total government receipts. The report argues: 'A competitive tax environment is inseparable from a pro-growth regulatory framework. The UK is unusual in applying both a corporation tax surcharge and a balance sheet levy – broader and more permanent in design than in most peer jurisdictions.' UK banks face an effective total tax rate of 28%, compared to the standard 25% for other businesses.
Angela Rayner, former deputy leader of the Labour Party, proposed raising the surcharge to 5% to avoid cutting welfare spending, sparking months of speculation about potential tax hikes on banks ahead of the Budget. Although Chancellor Rachel Reeves did not target banks last year, renewed chatter suggests a windfall tax or hike could be on the horizon as banks forecast higher income due to elevated interest rates from the Iran war. UK Finance calls for the government to commit to avoiding sector-specific tax increases, warning that 'stable and predictable jurisdictions attract inward investment and further increases would undermine that position.'
Capital Requirements Under Fire
Postings also criticized 'twenty years of caution' that allowed capital to 'build up and increased regulatory burden.' He noted that 'a real change, which translated into capital reductions at individual bank level, would send a signal that it is OK for a small rebalancing of risk appetite.' However, he insisted he would 'never push for some large swing back to 2007.'
The Association for Financial Markets in Europe (AFME), representing over 150 global banks including the UK's Big Four, recently warned that current capital requirements are misaligned with actual risk. Industry criticism focuses on rules requiring at least three-quarters of a bank's tier one capital to be composed of the highest-quality regulatory capital (CET1). Giants argue that lenders to unstable startups should not be held to the same standards as those holding only government bonds and cash.
Government Response
City Minister Lucy Rigby, speaking at the UK Finance event, described the financial services sector as a 'critical enabler of growth.' She briefly referenced the Labour government's local elections disaster, acknowledging they have not 'yet done enough,' and pledged that the Treasury would go further to enhance the financial sector.
