Shares in major UK banks surged on Tuesday morning after reports emerged that lenders will be spared from a tax hike in Wednesday's Budget. Lloyds Banking Group, Barclays and NatWest were among the biggest risers on the FTSE 100, with share prices climbing about 2%. The relief comes after sustained lobbying from banking chiefs who argued higher taxes would contradict the government's growth agenda.
Banks had been in the firing line for a potential increase to the bank levy – an additional tax on the balance sheets of banks and building societies operating in the UK. The Institute for Public Policy Research said in August that hiking the levy on British banking giants could raise up to £8 billion a year for public services.
Instead, the Financial Times reported that the Chancellor is preparing to call on lenders to demonstrate how they plan to improve lending to first-time buyers and small businesses. The approach marks a shift from direct taxation to voluntary commitments aimed at supporting economic growth.
Banking sector lobbying
The decision follows intense pressure from bank chiefs and City leaders. CS Venkatakrishnan, the boss of Barclays, told the Financial Times in September that "the path to growth does not lie in taxing the sector even more". Lloyds chief executive Charlie Nunn also cautioned against tax measures that would reduce the competitiveness of the UK's financial services sector.
Gary Greenwood, an equity analyst for Shore Capital, said the "quid pro quo" for being spared tax rises is that big banks "will need to demonstrate a willingness to grow even faster than they are doing in order to support the economy". He suggested this could mean investing more into lowering pricing to "create additional demand for credit" rather than "harvesting the benefits of higher interest rates" by handing out more cash to shareholders.
Greenwood added that the market was "likely to breathe a sigh of relief" over the reports and the fact that the Chancellor was "recognising the importance of the banking sector to growing the economy". The Treasury has been contacted for comment.
Note: This article was created with Artificial Intelligence (AI).
