(Bloomberg) — Shares of UK lenders rose as worries eased that Rachel Reeves was planning to hike taxes on the UK’s biggest banks as part of Wednesday’s budget.
Barclays Plc, Lloyds Banking Group Plc and NatWest Group Plc all gained by around 3% in early trading Tuesday after the Financial Times said the sector would be spared from a tax raid. The Treasury has asked banks to publicly endorse the budget and talk up the economy, the paper said, citing unidentified people involved in the discussions.
Bank bosses have spent months arguing that imposing a further tax on the industry would run counter to Reeves’ commitment to ensuring the UK’s financial sector remains competitive on the international stage even as she looks to raise as much as £30 billion ($39 billion) to shore up the country’s finances.
With UK lenders already paying more than many of their European competitors, its vital that Reeves “stimulates the City economy, because the City economy, in turn, can deliver inclusive growth for the country,” Chris Hayward, policy chairman of the City of London Corporation, said on Bloomberg Radio. “We have the ability to potentially be the engine room for growth, providing we have the right conditions.”
Fears of an increase returned after Reeves shelved plans to raise income taxes, which would have broken vows to the UK electorate. Bank profits have surged in recent years, with lenders reaping billions of pounds from their so-called structural hedges — a balance-sheet exercise that reduces sensitivity to interest rate moves.
Lenders have paid some form of supplementary tax since 2011, when the Conservative government introduced a levy on balance sheets in the wake of the financial crisis. That was eventually lowered in favor of the surcharge on profits, which the Conservative government cut to 3% from 8% two years ago
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