Banks make an easy target when the government needs money. They just handed over billions in taxes, and now they're trying to ensure that's not seen as an invitation for more.
The UK financial industry has sent a clear message to the Chancellor: don't impose an extra tax on banks. The pushback comes as political pressure builds on the left for another windfall levy on banking profits, with trade unions and the Green Party among those calling for it.
David Postings, chief executive of the banking lobby group UK Finance, wrote to the Chancellor on Thursday warning that a windfall tax could actually shrink future government tax income. His letter, reviewed by Bloomberg, argues that the move would make Britain less competitive globally.
Postings wrote that higher taxes could "ultimately risk undermining the very tax base the government seeks to protect and grow, as well as damaging the UK's international competitiveness."
He pointed out that banks already pay a hefty share of the national bill. Over the past year, the industry paid more than £43 billion, which works out to $59 billion. That amounts to 4.3% of all UK government tax receipts.
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The industry's case rests on London's tax disadvantage relative to other financial centres. The letter argues that a typical corporate and investment bank in the UK is already taxed far more heavily than comparable banks elsewhere.
The existing structure layers several charges on UK lenders. The 46.6% figure combines the additional bank profit surcharge with a separate balance-sheet levy. Frankfurt's rate is 39.1% and New York's is 27.9%.
Postings argues that this cumulative burden is what makes London less competitive than Frankfurt or New York, and that any further increase would widen that gap.
"What we're seeing is a cumulative disadvantage that makes London less attractive for global banking operations," Postings wrote in the letter. "Tax levels influence decisions about where to locate jobs, capital, and activities."
The letter argues that tax levels influence decisions about investment, jobs, and where to base operations. If London becomes too expensive, money and work could move elsewhere.
That concern isn't hypothetical. In August, the government declined to rule out another bank levy in the upcoming budget, which was enough to put the financial district on edge. The heads of Barclays Plc, Citigroup Inc. and JPMorgan Chase & Co. have all spoken out against the idea.
Postings's argument is about more than the immediate bill. If banks shift jobs, capital, and activities to lower-tax centres, the UK's future tax base could shrink. That is why the industry is urging the government to weigh any short-term gain from a windfall tax against the risk of losing a much larger stream of future tax receipts.
The banking industry is warning that a new windfall tax could end up costing the government more in lost future revenue than it raises in the short term. As Postings put it, the government risks "killing the goose that lays the golden eggs."
So while politicians debate new bank taxes, the industry is making its case: banks already pay a lot, and piling on more could backfire.
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