Big banks wary of tax raid in budget

Britain’s biggest banks are set to report “robust” profits next week amid speculation that the industry could be hit with tax rises in the budget.
Lloyds Banking Group, Barclays and NatWest are scheduled to post third-quarter results, which City analysts expect will show that earnings have remained resilient despite the recent fall in interest rates.
While pre-tax profits at Lloyds, which reports on Wednesday, are forecast to dip to about £1.6 billion, from £1.86 billion a year earlier when it was riding a boom of higher borrowing costs, analysts anticipate that earnings will be up at both Barclays and NatWest.
Barclays, which releases its figures on Thursday, is expected to say that profits increased to almost £2 billion, from just under £1.9 billion in 2023. A day later NatWest is forecast to post profits of almost £1.5 billion, compared with £1.3 billion a year earlier.
HSBC reports the following week, when analysts predict its quarterly profits will have dipped to $7.6 billion from $7.7 billion in the Asia-focused lender’s first results under Georges Elhedery, its new boss. Investors will be hoping for insights into Elhedery’s strategy amid speculation he plans to cut costs by merging its commercial banking division with its investment banking business.
Gary Greenwood, banks analyst at the stockbroker Shore Capital, said: “I expect the results will be robust, even though interest rates are starting to come down.”
Lenders have enjoyed a big rise in profits in recent years after the Bank of England began to rapidly raise borrowing costs in late 2021 to combat inflation.
The Bank’s base rate reached a 16-year high of 5.25 per cent but was lowered to 5 per cent in August and further cuts are predicted. Even so, lenders’ profits continue to be underpinned by the so-called structural hedges they have in place to offset fluctuations in rates.
There was speculation last month that the boom which banks have enjoyed has left them ripe for a tax raid in the Labour government’s first budget on October 30, when Rachel Reeves, the chancellor, will seek to shore up the public finances.
Lenders already pay an additional corporate tax surcharge on their profits and the bank levy, which is a tax on their balance sheet. UK banks argue that they shoulder a higher tax burden than other British industries or rival foreign lenders.
Greenwood said: “The key uncertainty is the budget and whether the government will raise taxes on the industry. It would seem counterproductive to do so, given the government’s focus on boosting growth and the role banks will need to play in this by lending into the economy.”