Introduction: John Healey poised to raise taxes on banks in budget
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
Britain’s banks may be ‘part of the jewel’ in the UK economic crown, as chancellor John Healey put it yesterday, but that won’t protect them from being hit in this month’s budget.
John Healey is poised to raise the tax take from Britain’s banks in his 28 October budget, the Guardian understands, as the chancellor looks to fix the damage inflicted on the public finances by war in the Middle East.
As my colleagues Heather Stewart, Jessica Elgot and Kalyeena Makortoff reported last night, Healey has decided to tap the financial sector for additional revenue.
One option understood to be under discussion – reversing cuts to the bank surcharge made by Jeremy Hunt – would raise upwards of £2bn a year.
Industry figures believe that will probably mean raising the surcharge back to 8%, from 3% at present, to help bolster the government’s fiscal headroom (which has been eroded by the jump in borrowing costs this year).
News of the looming tax raid came hours after Healey praised the banks as crucial to supporting economic growth, telling reporters:
Banks sound resigned to being shorn at the budget, but they’re not happy about it.
Banking sector trade body, UK Finance, warned that “further increases in bank taxes would weaken competitiveness, discourage investment and job creation, and work against the government’s ambition to deliver growth in every postcode”.
Senior banking executives have told the BBC they expect the sector to be “on the menu” at the budget….
The agenda
10am BST: Eurozone trade and inflation data
1.30pm BST: NY Fed Services Activity Index
No sign of a rebound in UK bank shares yet – Lloyds (now down 2.2%) are still the biggest faller on the FTSE 100, with NatWest now off 2%.
In other banking news, the UK government reportedly tried to persuade UBS to shift its headquarters and stock market listing to London in the event of the bank relocating out of Switzerland.
The FT has the story:
Will Howlett, financials analyst at Quilter Cheviot, points out that the jump in bank profits means tehy can absorb higher taxes.
He also suggests that higher bank taxes are already ‘priced in’ to the company’s share prices, saying:
Worst week for South Korea's stock market since the financial crisis
Elsewhere in the markets today, South Korea’s Kospi share index has recorded its biggest weekly loss since October 2008, down 14.5% this week.
Although the Kospi did rise today (+2%), it was still a bad week for technology stocks – as investors worried about the borrowing, spending commitments and future profitability of AI companies.
As analyst Bill Blain of Windshift Capital puts it:
IG: UK bank tax risk is now a base case
British banking stocks have eased following last night’s reports that John Healey will tax the banks in the budget, says Angeline Ong, senior technical analyst at investing and trading platform IG
Expectations of a budget tax raid aren’t the only thing weighing on Lloyds’ share price this morning.
The bank has also been hit with a broker downgrade – RBC cut its target price for Lloyds this morning, citing increased competition in the UK deposit market.
UK banks are missing out on a wider rally in the banking sector today – eurozone bank stocks are up 0.5% in early trading.
Shares in Barclays have dipped by 0.45%.
Bank shares drop as budget tax hit looms
Shares in UK banks are dropping at the start of trading, as investors react to the Guardian’s scoop that John Healey is poised to increase taxes on Britain’s banks in his 28 October budget.
Lloyds Banking Group are the top faller on the FTSE 100, down around 1.9%, with NatWest dropping by 1.6%.
BoE's Bailey: seeing 'quite subdued' evidence of second round inflation effects
Elsewhere in Bangkok today, Bank of England governor Andrew Bailey, was interviewed at the Institute of International Finance annual members’ meeting, being held across town in Bangkok.
With the BoE’s monetary policy committee due to set interest rates in three weeks’ time, Bailey said he was not yet seeing many signs of the “second round effects,” that would indicate inflation has spread beyond the energy sector.
Bailey said:
Warsh: Super intelligence driving 'massive investment surge'
Heather Stewart is the Guardian’s economic editor, reporting from Thailand.
US Treasury secretary Scott Bessent hasn’t bothered to show up in Bangkok this week for the IMF/World Bank annual meetings, but Federal Reserve chairman Kevin Warsh is here.
He appeared on stage earlier today in a “fireside chat” with an old friend: the IMF’s managing director – Kristalina Georgieva.
Aside from lavishing praise on Warsh, Georgieva asked him about the potential economic impact of AI.
He said AI – for which he used Donald Trump’s preferred term, “Super Intelligence,” is, “probably the most consequential change to the US and the global economy in my lifetime to this point,” which is causing a “massive investment surge”.
Eventually, he said it will boost productivity – “there really is, I think a huge benefit to the global economy, to the US economy over the horizon.” But – with inflation rising sharply in the US – he said there are likely to be short-term bumps in the road.
Echoing the IMF’s warnings earlier this week about the potential for an AI-led market correction, Warsh added, “we really don’t know what the market structure is going to be of these new technologies. Who’s going to get to make the money? What are the consequences for those that bet that they were going to make money, but the market structure doesn’t allow it?” He said his attitude was one of optimism, leavened by seriousness.
In terms of the short-term outlook, it was not surprising given his rejection of “forward guidance,” that Warsh declined to give any sense of where interest rates might go, after last month’s increase. “I don’t prejudge meetings. I don’t believe in saying now what I might do at the meetings that we have in the balance of this year,” he said – prompting Georgieva to joke that he had disappointed half the audience.
CBI: Chancellor should avoid 'further sector-specific taxation'
The Confederation of British Industry has suggested John Healey should avoid “further sector-specific taxation”, such as a bank tax.
Louise Hellem, chief economist at the CBI, said:
Introduction: John Healey poised to raise taxes on banks in budget
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
Britain’s banks may be ‘part of the jewel’ in the UK economic crown, as chancellor John Healey put it yesterday, but that won’t protect them from being hit in this month’s budget.
John Healey is poised to raise the tax take from Britain’s banks in his 28 October budget, the Guardian understands, as the chancellor looks to fix the damage inflicted on the public finances by war in the Middle East.
As my colleagues Heather Stewart, Jessica Elgot and Kalyeena Makortoff reported last night, Healey has decided to tap the financial sector for additional revenue.
One option understood to be under discussion – reversing cuts to the bank surcharge made by Jeremy Hunt – would raise upwards of £2bn a year.
Industry figures believe that will probably mean raising the surcharge back to 8%, from 3% at present, to help bolster the government’s fiscal headroom (which has been eroded by the jump in borrowing costs this year).
News of the looming tax raid came hours after Healey praised the banks as crucial to supporting economic growth, telling reporters:
Banks sound resigned to being shorn at the budget, but they’re not happy about it.
Banking sector trade body, UK Finance, warned that “further increases in bank taxes would weaken competitiveness, discourage investment and job creation, and work against the government’s ambition to deliver growth in every postcode”.
Senior banking executives have told the BBC they expect the sector to be “on the menu” at the budget….
The agenda
10am BST: Eurozone trade and inflation data
1.30pm BST: NY Fed Services Activity Index
