UK bank shares fall as budget tax hike on lenders looms
Lloyds and NatWest slid on Friday while HSBC and Standard Chartered gained, as reports point to a bigger banking surcharge in the Oct. 28 budget.
At a glance
- Lloyds fell 1.8% and NatWest 1.51% on Friday amid reports of a higher tax on London-listed banks' profits.
- Chancellor John Healey is expected to raise the banking surcharge to 8% from 3% in his Oct. 28 budget.
- KBW says the rise could raise £2 billion a year but cut lenders' earnings 6%; Citi calls UK bank fundamentals healthy.
Shares in several of Britain's biggest banks fell on Friday after reports that the U.K. government plans to raise taxes on the profits of London-listed lenders in this month's budget.
Lloyds Banking Group led the losses, sliding 1.8%, while NatWest was 1.51% lower by 11:30 a.m. in London (6:30 a.m. ET). Barclays edged 0.13% higher, reversing earlier losses. London-listed shares of HSBC and Standard Chartered, which both derive much of their profit overseas, added 1.2% and 0.71% respectively.
What is proposed
Finance Minister John Healey is expected to raise the sector-specific surcharge on banks' profits to 8% from 3% when he delivers his first budget as Chancellor on Oct. 28. The levy sits on top of corporation tax and was cut to 3% from 8% in 2023 under Rishi Sunak's Conservative government.
KBW analysts said in an Oct. 12 note that the increase could raise about £2 billion ($2.67 billion) a year for the U.K. Treasury, but could also slice 6% off lenders' earnings.
Healey described banks on Thursday as the "jewel" in the U.K.'s economic crown in an interview with Bloomberg. Even so, the proposed levy has revived wider concerns about the Labour government's approach to financial services as ministers seek to fund public services and meet fiscal targets.
Industry pushback
Amanda Blanc, CEO of insurer Aviva, told CNBC's "Squawk Box Europe" that financial services is one of the U.K.'s "core industries" and should be encouraged rather than made harder to invest in. "My urge would be if you really believe that financial services is important, don't make it difficult for people to invest in the U.K., and for those businesses in the U.K. to invest in the U.K.," she said.
According to PwC data cited in the report, U.K. banks operate with a total tax rate of more than 46%, compared with 38.9% for banks in Frankfurt and about 27% in New York.
Analyst view
Citi said in an Oct. 14 note that the budget could act as a "clearing event" that resolves uncertainty among lenders. Fears of a tax-and-spend budget, combined with broader geopolitical events, have driven gilt yields higher — which Citi said benefits banks' structural hedge roll into net interest income but also raises the cost of equity, helping explain why U.K. banks trade at a discount.
Analysts led by Andrew Coombs, Citi's head of European financials equity, said U.K. bank fundamentals remain healthy, pointing to corporate releveraging and net interest income growth among the highest in Europe. Citi expects mixed third-quarter results, with adjusted pretax profit above consensus at Barclays and NatWest but below at HSBC, Lloyds and Standard Chartered.
Source: CNBC Top News.
Questions and answers
- What is the UK banking surcharge and how is it changing?
- It is a sector-specific levy on bank profits that sits on top of corporation tax. Finance Minister John Healey is expected to raise it to 8% from 3% in the Oct. 28 budget.
- Which UK bank shares fell and which rose on Friday?
- Lloyds fell 1.8% and NatWest 1.51%. Barclays added 0.13%, while HSBC rose 1.2% and Standard Chartered 0.71%.
- How much money could the bank tax hike raise?
- KBW analysts say it could raise about £2 billion ($2.67 billion) a year for the U.K. Treasury, while cutting lenders' earnings by around 6%.
