A coalition of influential business groups has warned Chancellor John Healey that increasing taxes on banks could trigger an exodus of talent, business, and capital from the United Kingdom. In a letter submitted less than three weeks before the Budget, the organizations cautioned that such a move might backfire by causing a stampede out of the UK, potentially weakening investor confidence and damaging the nation's attractiveness.
The letter, coordinated by the Confederation of British Industry and trade body UK Finance, also includes the City of London Corporation, TheCityUK, and the Association for Financial Markets in Europe. It highlights that a higher tax burden may not necessarily generate increased tax receipts if capital, people, and businesses relocate.
This warning follows a meeting earlier in the week where Healey summoned the heads of Britain's largest banks to Downing Street, citing a "challenging fiscal picture" and fueling fears of a tax raid. The promptness of the business groups' letter suggests the meeting did not alleviate concerns within the City.
Banks are viewed by the Labour party and its union backers as a potential source of additional tax revenue, particularly amid bumper profits driven by high interest rates. The Trades Union Congress has advocated for a windfall tax on bank profits to fund reductions in energy bills for low and middle-income households.
The business groups argued in their letter that a "strong and internationally competitive" finance industry is crucial for achieving the government's growth objectives. They emphasized the need for stable and competitive tax and regulatory frameworks. Decisions on taxation, they stated, should consider not only revenue generation but also the impact on investment, competitiveness, and banks' capacity to lend to businesses and households.
According to the letter, UK lenders already face a higher tax rate of approximately 46.5 percent compared to rival financial centers like New York (27.9 percent) and Frankfurt (39 percent). Imposing further tax increases would contradict a global trend of countries reviewing regulations to enhance bank competitiveness.
Such a move, the groups warned, would "send a different signal and make it harder to channel finance and liquidity into businesses trying to invest and grow in the UK." They also cautioned that increased taxation risked reducing the availability of finance and insurance for households and businesses, thereby "undermining the growth that both you and the Prime Minister have rightly identified as the key to the country's long-term success." The coalition urged the government to provide greater certainty by pledging against further taxes on banks. They concluded by stating that with the appropriate regulatory policy and taxation framework, the UK's financial and related professional services sector could significantly contribute to investment, prosperity, and resilience across the nation, making its protection essential if economic growth is the government's priority.