"It has been thought that the Chancellor may increase the 3% bank surcharge on top of the 25% corporate tax rate, or change rules so banks would have to pay tax on the interest received on funds they hold at the Bank of England. Estimates vary but raising the surcharge to 5%, as had been mooted, would entail a hit of up to 2.5% on profits for the banks, with Lloyds and NatWest the most affected."
"Changing the way the BoE pays interest on bank deposits is not an easy option, but the government could opt for a model along the lines of the European Central Bank, which requires banks to hold 1% of assets earnings no interest. This could have another ~2% hit to profits next year. Bank shares rallied on the report with Lloyds and NatWest each gaining over 2% and the FTSE 350 Banks index also climbed about 1.5%."
UK lenders have seen soaring profits driven by higher interest rates while the Treasury needs to raise billions. Banks already pay 28% corporation tax and a balance sheet levy up to 0.1%. Considered measures included raising the 3% bank surcharge to 5%, which could cut profits by up to around 2.5% for major lenders, and changing how interest on Bank of England deposits is treated, which could impose roughly a 2% profit hit. The Chancellor is not minded to press forward with additional bank taxes, prompting a rally in bank shares, though fiscal contraction remains an economic headwind.
Read at London Business News | Londonlovesbusiness.com
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