Bank tax raid could spark exodus, City warns Healey

By JOHN-PAUL FORD ROJAS, DEPUTY BUSINESS EDITOR

Britain faces an exodus of talent, business and capital if Labour increases bank taxes, the City has warned the Chancellor.

In a hard-hitting letter less than three weeks before the Budget, a coalition of influential business groups told John Healey a tax raid could backfire by causing a stampede out of the UK.

‘As well as weakening investor confidence and damaging UK attractiveness, a higher tax burden may not necessarily generate higher tax receipts if capital, people and businesses move elsewhere,’ the letter said.

It comes after John Healey this week summoned the bosses of Britain’s biggest banks to Downing Street to tell them Britain faces a ‘challenging fiscal picture’ – adding to fears that they will be hit by a tax raid.

The timing of the letter, just days later, suggests the meeting did nothing to reassure the City.

And the prospect that higher taxes could see the Square Mile’s rainmakers up sticks and leave Britain would add to an exodus of the wealthy that is already taking place.

Britain’s City-based finance industry is essential to UK growth ambitions, the letter argued

Figures earlier this week showed billionaires with £120 billion to their name had fled the country since Labour came to power and started putting up taxes.

Banks are seen by the party and its union backers as a potentially lucrative source of extra tax revenues as they enjoy bumper profits thanks to high interest rates.

The Trades Union Congress has called for ‘a windfall tax on bank profits to fund cuts to energy bills for everyone on low and middle incomes’.

But the prospect that lenders will be targeted by Mr Healey has alarmed the City, prompting the new letter from five groups led by the Confederation of British Industry and trade body UK Finance.

Also represented are the City of London Corporation and lobby groups TheCityUK and the Association for Financial Markets in Europe.

In the letter, they argued that a ‘strong and internationally competitive’ finance industry was ‘essential to achieving the government’s growth objectives’.

That requires ‘stable and internationally competitive’ taxes and regulations, they added.

And the letter said the government’s tax decisions should be made not only on how much revenue they are likely to raise but also after assessing their impact on investment and competitiveness and the ability of banks to lend to businesses and households.

It warned that UK lenders are already paying higher taxes – at a rate of around 46.5 per cent – than those in rival financial centres such as New York and Frankfurt, where they pay 27.9 per cent and 39 per cent.

A tax raid would also buck the trend of some countries reviewing their regulations to try to make conditions more competitive for banks.

If the UK were to increase the tax burden it would ‘send a different signal and make it harder to channel finance and liquidity into businesses trying to invest and grow in the UK’.

The business groups told Mr Healey a tax raid risked reducing the availability of finance and insurance to households and businesses and ‘undermining the growth that both you and the Prime Minister have rightly identified as the key to the country’s long-term success’.

The letter called on the government to provide greater certainty by pledging not to levy further taxes on banks.

It added: ‘With the right regulatory policy and taxation framework, UK financial and related professional services can play an even greater role in delivering investment, prosperity and resilience across every region and nation of the UK.

‘If economic growth is the government’s priority, protecting one of the UK’s most important national strategic assets is essential.’

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