Andy Burnham explained the thinking behind the tax rise (Image: Getty)
Andy Burnham has explained the reasoning behind a six per cent tax hike outlined in the Budget which takes effect on January 1, 2027. Chancellor of the Exchequer John Healy proposed a number of headline-grabbing measures in last week’s announcement, including a £100 energy payment for 20million households, shifting the green levy onto general taxation, and scrapping the standing charge on gas bills.
The energy payment alone comes at a cost of £2.6billion for the Government. Named ‘Breathing space for today, hope for the future’, the Budget forms part of the Prime Minister’s plan to introduce small changes to help people with the cost of living.
To pay for some of these measures, Mr Burnham has introduced a banking tax. It sees the banks’ surcharge increased from the current three per cent rate to a maximum of six per cent.
It is on top of the corporation tax of 25 per cent that they currently pay. Banks had feared that the increase would be even higher, and shares in many of the big banks climbed after their fears were alleviated.
It is due to start on January 1 and will last for 15 months. It is thought the measure will raise around £1.5billion. “Amid global economic storms, I am looking to our banks to help fund breathing space for British families,” Mr Healey told Parliament.
Explaining the measure, Mr Burnham said that he would always ask ‘those who can contribute to support the wider common good’. He said: “People helped banks when the banks needed support (in 2007-09), and now to ask banks to return that favour.
“We did do that (in the Budget), and other companies that we would say create challenges in communities, gambling particularly, we asked gambling companies to pay more so we could help those high street shops. So the principle is there. What we will do is always ask those who can contribute to support the wider common good.”
Big British lenders have reported bumper profits in recent years, fuelled by favourable interest rates, which boosted lending income.
UK Finance, the industry lobby group, has said Britain already taxes banks higher than in other major financial centres. It estimated in a report this month that the UK banking sector paid £25.7 billion in direct taxation in the year to end-March. Bank profits will now be taxed temporarily at a total rate including corporation tax of 31%, following the new surcharge.
Angeline Ong, analyst at investing and trading platform IG, said the temporary nature of the measure will be of huge relief to the banks. She said: “The fixed end date matters as much as the size, because it turns a potential reset of bank earnings into a one-off charge, and investors appear to be reading it as a bump rather than lasting damage to their earnings base.”
Commenting on the change, Carlota Estragues Lopez, equity strategist at SJP, said: “The UK government has increased the bank surcharge by 3 per cent, taking it to 6 per cent, but stopped short of the more significant increase some lenders had feared. The decision reflects recognition of the banking sector’s importance to the UK economy and the risk that a heavier tax burden could weigh on growth and investment. While the UK tax regime remains relatively uncompetitive internationally, markets welcomed the more measured approach, with major UK bank shares rising 3–4 per cent following the announcement.”
