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UK Banks Brace for Possible Tax Rise as Budget Nears

Barclays and HSBC buildings are seen in London, Britain October 20, 2020. REUTERS/Matthew Childs
Barclays and HSBC buildings are seen in London, Britain October 20, 2020. REUTERS/Matthew Childs
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UK Banks Brace for Possible Tax Rise as Budget Nears

Barclays and HSBC buildings are seen in London, Britain October 20, 2020. REUTERS/Matthew Childs
Barclays and HSBC buildings are seen in London, Britain October 20, 2020. REUTERS/Matthew Childs

UK-based banks are stepping up lobbying efforts against possible tax hikes in the government's inaugural Budget on October 30, amid mounting worries it may tap the cash-rich sector to boost Britain's finances, senior industry sources told Reuters.
Finance minister Rachel Reeves is due to meet senior representatives of the banking sector in the coming days, where bankers expect a rise in taxes on lenders' profits will be discussed, two of the sources said.
So far neither Prime Minister Keir Starmer nor Reeves has said banks will be required to pay higher taxes, but Starmer's recent reference to the burden falling on those with “broader shoulders” has fueled concerns a policy change might be imminent, three sources said.
The sources, who declined to be named because of the sensitivity of the matter, said they anticipate the Treasury will seek to hike taxes by increasing an existing surcharge on profits that lenders already pay.
This plan would be easier for the finance minister to achieve than cutting the amount of interest UK banks earn on reserves parked at the Bank of England, a measure which could distort the effects of its monetary policy, the sources said.
HSBC, Britain's largest bank, posted a 78% rise in 2023 pretax profit to $30.3 billion pounds in February and domestic peers including NatWest Group and Barclays have posted similarly bumper returns.
According to the sources, UK banks are already taxed more aggressively than many other international rivals, and increasing the sector's costs via taxes could have an impact on the cost and availability of credit, the sources said.
The existing UK bank levy was introduced in 2011 to curb a crisis-era culture of excessive risk and reckless growth across the industry in the wake of the global financial crisis.
Shares in UK banks dipped briefly last week after the Financial Times quoted an unnamed former government official making the case for a “sensibly crafted” levy on banks that have enjoyed bumper profits on the back of higher interest rates.

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China Mulls Draft Law to Promote Private Sector Development

A Chinese national flag flutters on a financial street in Beijing. (Reuters)
A Chinese national flag flutters on a financial street in Beijing. (Reuters)
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China Mulls Draft Law to Promote Private Sector Development

A Chinese national flag flutters on a financial street in Beijing. (Reuters)
A Chinese national flag flutters on a financial street in Beijing. (Reuters)

Chinese lawmakers are deliberating a draft of the country's first basic law specifically focused on the development of the private sector, the country’s Xinhua news agency reported.

“The law will be conducive to creating a law-based environment that is favorable to the growth of all economic sectors, including the private sector,” said Justice Minister He Rong, while explaining the draft on Saturday during the ongoing session of the Standing Committee of the National People's Congress, the national legislature.

The draft private sector promotion law covers areas such as fair competition, investment and financing environments, scientific and technological innovation, regulatory guidance, service support, rights and interests protection and legal liabilities.

The draft has incorporated suggestions solicited from representatives of the private sector, experts, scholars and the general public, the minister said.

China left its benchmark lending rates unchanged as expected at the monthly fixing on Friday.

Persistent deflationary pressure and tepid credit demand call for more stimulus to aid the broad economy, but narrowing interest margin on the back of fast falling yields and a weakening yuan limit the scope for immediate monetary easing.

The one-year loan prime rate (LPR) was kept at 3.10%, while the five-year LPR was unchanged at 3.60%.

In a Reuters poll of 27 market participants conducted this week, all respondents expected both rates to stay unchanged.

Morgan Stanley said in a note that the 2025 budget deficit and mix are more positive than expected and suggest Beijing is willing to set a high growth target and record fiscal budget to boost market confidence, but further policy details are unlikely before March.

Last Friday, data released by the country's central bank said total assets of China's financial institutions had risen to 489.15 trillion yuan (about $68.03 trillion) by the end of third quarter this year.

The figure represented a year-on-year increase of 8%, said the People's Bank of China.

Of the total, the assets of the banking sector reached 439.52 trillion yuan, up 7.3% year on year, while the assets of securities institutions rose 8.7% year on year to 14.64 trillion yuan.

The insurance sector's assets jumped 18.3% year on year to 35 trillion yuan, the data showed.

The liabilities of the financial institutions totaled 446.51 trillion yuan, up 8% year on year, according to the central bank.

Separately, data released by the National Energy Administration on Thursday showed that China's electricity consumption, a key barometer of economic activity, rose by 7.1% year on year in the first 11months of the year.

During the period, power consumption of the country's primary industries increased by 6.8% year on year, while that of its secondary and tertiary sectors rose by 5.3% and 10.4%, respectively.

Residential power usage saw strong growth of 11.6% during this period, the administration said.

In November alone, power usage climbed 2.8% from one year earlier, according to the data.