A union chief has called for a tax hike on the “bumper profits” of banks amid speculation that Chancellor John Healey is planning a raid on the financial services sector in the Budget.
The Chancellor is seeking ways to raise revenue and keep the UK’s budget deficit under control in the face of soaring government borrowing costs. One option he is considering is reversing former Tory chancellor Jeremy Hunt’s reduction in the surcharge banks pay on their profits from 8% to 3%, the Guardian reported.
TUC backs surcharge increase
Trades Union Congress (TUC) general secretary Paul Nowak backed the move, which his union calculated would raise £2.25 billion a year. He said: “Britain’s big four banks are making a billion pounds a week, while bonuses have hit a post-crash record.”
“These are bumper profits – driven by high interest rates and households’ mortgage misery. The Treasury has already lost £6 billion in revenue from the Tories’ senseless bank tax cut – now it’s time to make sure banks pay their fair share.”
The TUC called for an even bigger surcharge increase, to 16%, saying that could raise £24 billion in tax revenues over four years. Trade unions and think tanks have repeatedly lobbied for heavier taxation for banks.
Think tank proposals and warnings
The Institute for Public Policy Research this week recommended generating £1 billion from a temporary surcharge on commercial banks’ windfall profits among a package of measures to raise an extra £16 billion to help struggling households. The think tank, which has been influential in Labour policy-making, said the proposals would help rebuild the Chancellor’s fiscal buffer, which it estimated has dropped by up to £15 billion since the spring.
But the Conservatives and City groups have warned that targeting banks would stifle investment and damage Britain’s competitiveness as a financial centre. Louise Hellem, chief economist at the Confederation of British Industry, said: “The financial services sector is vital to driving investment, innovation and business growth across the economy. Government has set the right direction through its Financial Services Growth and Competitiveness Strategy and the Leeds Reforms – the priority now is delivery.”
“The autumn Budget should set the agenda for a competitive and predictable environment that turns those reforms into tangible progress, unlocking domestic investment, deepening UK capital markets and helping more firms to scale and grow. It should also avoid measures that would undermine competitiveness or weaken incentives to invest. With the business tax contribution already at a record share of receipts, that means avoiding further sector-specific taxation, including on a banking sector already facing a higher tax rate than competing international financial centres.”
Political reactions and Budget outlook
Tory shadow chancellor Andrew Griffith said: “Britain needs growth. But a raid on the financial services sector will stifle it. Labour should be backing businesses and wealth-creators, not making their lives even harder.”
A Treasury spokesperson said: “As has always been the case, decisions on tax are a matter for the Chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals.”
Mr Healey has warned the public to be prepared for a tough Budget on October 28. He and Prime Minister Andy Burnham have promised to help families and businesses with cost-of-living pressures, even as Government borrowing costs have soared due to fears over inflation driven by the US’s war with Iran.
Speaking to the BBC from the International Monetary Fund meeting in Bangkok on Thursday, the Chancellor said: “It’s a tough time. People can people can see the global economic conflicts, they know the pressure it’s putting on them, they understand it’s putting pressure on the Government.”
He also suggested Government departments may not be given extra cash to cover pay rises for doctors and nurses, saying: “Where we want to do things, we have to make sure that we can pay for them within the budgets that we’ve got and control spending.” Meanwhile, he was criticised for an upbeat online video showing him and Foreign Secretary Ed Miliband tasting Thai snacks in a tuk tuk in the Thai capital less than two weeks before a challenging fiscal event.
