Britain's largest lender, Lloyds Bank, has appealed to the Chancellor not to extend a recently imposed surcharge on banks, arguing that the United Kingdom requires a "stable and predictable" tax regime. The surcharge, amounting to £1.5 billion, was doubled to 6 percent in the latest budget, with the Chancellor stating the levy hike would be temporary and last for 15 months.
Despite these assurances, concerns remain that the tax increase could be prolonged if cost of living pressures and high energy costs persist. William Chalmers, Lloyds' finance chief, stated that the bank accepts the surcharge "for what it is" but "sincerely hope[s] it is limited." Speaking after reporting a doubling of pre-tax profits to £2.3 billion in the latest quarter, Chalmers highlighted the importance of the UK banking sector being able to provide services cost-effectively to businesses and households. He also stressed the need for the sector to be internationally competitive to promote UK growth, noting that additional factors make these objectives more challenging to achieve.
"We therefore very much hope that yesterday’s tax increase is indeed a temporary measure," Chalmers said, adding, "We do think the tax environment needs to be stable and predictable. We ultimately run the business to contribute to UK growth."
He also commented that there was "no obvious linkage" between higher energy prices and tax rises. Following the announcement, shares in Lloyds fell 3 percent at the market open to 101p, valuing the bank at £58 billion, after experiencing a temporary relief rally the previous day.
The Chancellor targeted the banking sector after a period in which UK banks' profits were significantly boosted by rising interest rates. For Lloyds, the net interest income—the difference between what banks pay on deposits and charge on loans—surged 10 percent to £3.8 billion in the third quarter. This rise outpaced rivals Barclays and HSBC UK, which both saw income increase by 6 percent in the same period.
Lloyds reported that deposits in its retail division remained "broadly stable," a statement coming after HSBC had earlier flagged pricing competition and falling margins in the market. However, the bank increased its impairment provisions for the quarter to £313 million, bringing the year-to-date total to £930 million. This increase was attributed to the "deterioration in the economic outlook due to the Middle East conflict."
Chris Beauchamp, chief market analyst at IG, commented that while Lloyds is reducing its dependence on interest rate income, such income remains an integral part of profitability and fuels business expansion. He suggested that the recent results from Lloyds should help to revive the rally in UK bank stocks, even though diversification efforts will take time to yield full results.