UK banking industry warns windfall tax could harm competitiveness

Banking industry lobby group UK Finance has warned Chancellor John Healey that implementing a windfall tax on the sector could undermine the UK’s international competitiveness and drive capital and jobs out of London. In submissions ahead of the October 28 Budget, the group argued that increasing bank-specific taxes could also raise mortgage costs and reduce the ability of banks to lend to households.

Industry research conducted by PwC indicates that the effective tax rate for a typical corporate and investment bank in London is approximately 46.5% to 46.6%. This is significantly higher than rates in other major financial hubs, including Amsterdam at 42.2%, Frankfurt at 39.1%, and New York at 27.9%.

The proposal comes amid conflicting pressures. While the banking sector seeks to maintain current arrangements, the Trades Union Congress (TUC) has advocated for reversing previous tax cuts, with some proposals suggesting rates as high as 16% or 35%. UK Finance also cautioned against changing how banks are paid interest on reserves at the Bank of England, noting such moves could impact the pricing of savings accounts and mortgages.