Chancellor John Healey is under pressure to raise taxes to fund Prime Minister Andy Burnham's spending pledges, which include a VAT cut on electricity bills, a £2 cap on bus fares, a pub business rates cut, and plans to end rough sleeping. These measures alone will cost £1.5 billion, with additional needs of £4.7 billion for defence and potentially tens of billions for council house building and social care reform. In total, Burnham has committed to spending between £46 billion and £63 billion by the end of the decade, according to Capital Economics.
Labour's Spending Plans and Debt Concerns
Labour's spending plans for this parliament amount to an extra £650 billion, lifting the national debt from a record £3 trillion to £3.5 trillion. Healey may fiddle with fiscal rules to borrow even more, and there is talk of a new land tax, a 10% inheritance tax surcharge, and huge capital gains tax hikes. However, one tax could prove popular: a surcharge on banks.
The TUC's Proposal for Bank Taxes
The Trades Union Congress has called for a 16% tax surcharge on banks, claiming it would raise £24 billion over four years, and has even mooted a 35% windfall tax that could raise £60 billion. Barclays recently posted a £3.3 billion quarterly profit, and HSBC made £10.1 billion, making banks a lucrative target.
Risks of the Tax Raid
Critics argue that such a tax raid would backfire. Big banks already pay a 3% tax surcharge, lifting their corporation tax from 25% to 28%. The TUC's plans would push the rate to either 41% or 60%. This would be among the highest marginal tax rates for businesses, similar to the 78% tax on North Sea profits for oil and gas giants like BP and Shell, which have already led BP to pull back from the North Sea and raised suggestions that both could abandon the UK.
UK banks already face a marginal tax rate of around 46.5%, one of the highest in the world, according to PwC. Last year, they contributed £43.3 billion in total tax to public finances, according to UK Finance. Banks might protect their margins by cutting savings rates, hiking mortgage rates, and reducing staff and investment, leading to falling shares. Millions of Britons are invested in banks through pensions and Stocks and Shares ISAs, so they would feel the impact.
Impact on the City of London
The City of London employs 2.5 million people, two thirds of them outside the capital. A heavy tax grab could send a disastrous message that Britain is no place to do business, risking the golden goose of the UK economy. The article concludes that bashing the banks is good sport, but it could end up making everyone poorer.
