Autumn Budget 2022: No Explicit Tax Raid on Banks, but General Tax Pressure Increases
Lloyd's CEO issues caution to Reeves over potential tax increases, predicting a slower economic expansion
In the Autumn Budget 2022, no specific tax raid targeting banks was announced. However, the UK government did implement several tax hikes that affected businesses and high earners, including an increase in employers' National Insurance contributions. This change, in turn, impacts banks as employers.
The personal allowance and thresholds were also frozen until April 2028, a measure known as "fiscal drag" that may push taxpayers, including bank employees, into higher tax brackets even without nominal rate increases.
Despite discussions and speculation about wealth taxes or capital gains tax (CGT) increases—including on financial income—the government ruled out introducing a traditional wealth tax and remained cautious about raising some key taxes.
Potential Impact on Banks and the Economy
The UK government’s fiscal position remains constrained, with tight borrowing headroom and political pressures to increase revenues either via tax rises or spending cuts. Banks face higher employer-related costs through National Insurance hikes and potentially higher CGT or carried interest rates (affecting some investment income types), which can indirectly influence profitability and employee compensation.
Tax rises targeted at the financial sector generally risk dampening investment appetite and market activity, potentially reducing economic growth. However, raising taxes on banks can be part of a broader effort to restore fiscal balance without cutting public services too drastically.
Economists agree that overly aggressive or poorly designed tax raids on banks or wealth can result in economic distortions. The acceptance or rejection of such measures depends on government priorities and economic conditions.
Banks' Financial Performance and Mortgage Lending Trends
Lloyds Banking Group, which owns Halifax and Bank of Scotland, reported a 5% rise in first half profits to £3.5 billion. William Chalmers, finance chief of Lloyds Banking Group, stated that the first half saw 'meaningful growth' in mortgages.
However, Lloyds has been affected by bumpy mortgage lending trends due to buyers rushing to beat stamp duty changes. June mortgage volumes for Lloyds Banking Group are starting to return to normal after a surge at the beginning of the year.
Lloyds altered its economic outlook for the UK, slightly upgrading its growth forecast for this year from 0.8% to 1%. The jobless rate is predicted to be 4.8% for this year and 5% next year, up from previous predictions of 4.7% and 4.8%.
Impact of ISA Market and Economic Outlook
The ISA market saw a 30% increase this year due to the speculation about a potential reduction in the ISA saving limit. Charlie Nunn, CEO of Lloyds Banking Group, stated that the economy has experienced changes in behavior due to various factors, including discussions about ISA limits.
Nunn sounded a positive note on households and businesses, stating they are improving their financial health and may now be able to move to a higher growth trajectory.
Future Fiscal Discussions and the Role of Banks
The Chancellor, Rachel Reeves, may consider a tax raid on banks in the autumn Budget due to slower growth, U-turns on spending cuts, and higher borrowing costs. However, it's important to note that no strong evidence shows a direct tax raid on banks in 2022.
Britain already has the highest taxes on the financial services sector of any major economy, according to Charlie Nunn. Any targeted tax rise on banks would impact profitability and could have knock-on effects on economic growth, but it must be balanced against fiscal needs and political feasibility.
- banks may experience increased costs due to the hike in employers' National Insurance contributions, which can influence their profitability and employee compensation, as mentioned in the Autumn Budget 2022.
- Raising taxes on banks indirectly can dampen investment appetite and market activity, potentially reducing economic growth, as acknowledged by economists who discuss the UK government’s fiscal position and taxation measures.
- In future fiscal discussions, the Chancellor may consider a tax raid on banks to address budgetary constraints, but this must be balanced against the potential impacts on the financial sector, such as reduced profitability and economic growth, as shown in the discussion on Britain's high taxes in the financial services sector.
