UK bank shares rose sharply on Tuesday amid growing expectations that Chancellor Rachel Reeves will spare the industry from further tax increases in this week's Budget. Lloyds Banking Group climbed 3.8%, NatWest rose 3.7%, and Barclays added 2.3% following reports that the Treasury had asked banks to issue supportive statements about the Budget, signalling a reprieve from a potential new levy.
Speculation about a bank tax hike had been fuelled by the IPPR think tank in August, which argued that Reeves should impose a new tax to claw back profits lenders earn from the Bank of England's quantitative easing programme. However, the banking industry lobbied heavily against such a move, warning that a tax rise could force them to curb lending and undermine the government's own regulatory reforms aimed at boosting growth.
The Financial Times reported overnight that the Treasury had requested positive soundings from banks, easing fears of a tax raid. Dan Coatsworth of AJ Bell noted that intense lobbying appeared to have paid off, though he cautioned that U-turns remain a feature of UK politics. As recently as last week, some banks feared a sector-specific tax was back on the table after the Treasury abandoned plans to increase income tax rates.
Despite the apparent reprieve, Labour MPs and campaign groups continue to push for a windfall tax on bank profits. Positive Money has gathered nearly 69,000 signatures supporting a 38% charge, similar to the energy windfall tax, which it claims could raise over £14 billion. Simon Opher, Labour MP for Stroud, urged the government to listen to public calls for fairer taxation to fund public services.
