Treasury's Budget Strategy Unveiled
The Treasury has reportedly asked major banks to publicly endorse Chancellor Rachel Reeves' Budget after she decided against imposing higher taxes on the sector. This development comes as Ms Reeves prepares to unveil her latest fiscal package amid growing political pressure.
Market Reaction and Political Fallout
Shares in major UK banking institutions saw significant gains on Tuesday following reports that the Chancellor would spare them from tax increases. Lloyds Banking Group, Barclays and NatWest were among the biggest risers on the FTSE 100, with their share prices climbing by approximately 2 per cent during Tuesday morning trading.
The chaotic pre-Budget period, which included a U-turn on plans to raise income tax rates, has raised fresh questions about the Chancellor's political future. As Ms Reeves works to strengthen her position, officials have been seeking prominent public support from financial institutions for her economic policies.
The Banking Sector's Response
According to the Financial Times, Treasury officials have been encouraging lenders to make positive statements about Ms Reeves' actions. One leading City figure revealed that the Chancellor had asked financial services bosses to adopt an optimistic tone, with government officials expressing frustration that positive economic messaging was being undermined by critical commentary.
However, Government officials have denied any formal 'deal' with the banking sector, despite the Chancellor's decision to avoid increasing bank levies. The Institute for Public Policy Research (IPPR) had previously suggested that hiking taxes on banking profits could raise up to £8 billion annually, but Ms Reeves has instead chosen to focus on encouraging improved lending to first-time buyers and small businesses.
Gary Greenwood, an equity analyst at Shore Capital, described the situation as a 'quid pro quo' arrangement. He noted that in exchange for being spared tax rises, major banks 'will need to demonstrate a willingness to grow even faster than they are doing in order to support the economy'. This could involve investing more in lowering pricing to stimulate credit demand rather than distributing excess cash to shareholders.
The market appears relieved by the Chancellor's approach, with analysts suggesting the government is finally recognising the banking sector's crucial role in driving economic growth.
