The Budget Is Set to Raise Banks’ Taxes. Is It a Decoy?

Two weekends to go until the Budget. Not only has the government had to hand it to the Office for Budget Responsibility to create their forecasts, but this is also when the Treasury begins framing how they want the finished article to be interpreted. Make no mistake, we are all being managed.

Therefore it’s all but confirmed that bank taxes are going up, as the Readout predicted they would early in August. Recent profits have just been too large and juicy for a cash-strapped Treasury to ignore, even if the banks could end up passing on higher charges to the very same customers that they want to help in other ways.

Here’s Bloomberg’s Joe Mayes: “An increase in bank taxes is one of the major measures that [Chancellor John] Healey submitted to the Office for Budget Responsibility ahead of his first fiscal event on Oct. 28.” It’s likely, Joe writes, to take the form of an increase in the bank surcharge — it would raise around £2 billion. Healey could use that to fund an energy-support package for poorer households.

The banks, though, aren’t taking this lying down. As our Katherine Griffiths reveals, they have launched a rearguard action, warning that it could shrink economic output by £6 billion as the banks lend less. A hike in bank taxes would also once again put the future of JPMorgan’s planned London headquarters in doubt.

It’s pretty clear what the government is doing. This bank surcharge will go down well with the left of the Labour party and the unions, who have been pushing hard for it. By setting up a fairly classic fight with the bogeymen and women from central casting — bankers — they reassure their leftward flank that this is a traditional red Labour government.

But while they send everyone dashing leftwards, are they actually leaning ever so slightly the other way? Already Yvette Cooper, the health secretary, has had her request for extra money to fund the nurses’ pay deal rejected. The IMF this week praised the UK government for its deficit reduction path. The bond markets could end up being content. I’m not going to use the words “in hock.”

There could be other items the left of the political spectrum will not like at all — there are rumours circulating that the Chancellor is to divert capital budgets from green energy to defence.

Well, I hope it’s done with care. As Joss Garman’s Loop project has so brilliantly pointed out, many of the technologies that underpin the defence tech of modern warfare are the same as a modern energy system. There is a growing overlap between national resilience and defence projects and green energy ones (e.g. drones rely on the same tech as electric vehicles; a flexible grid makes a nation resilient and so on).

Today Tom Rees reports on fascinating analysis that has experts wondering if one of the reasons the effect of the Iran war has so far been contained, and the UK has seen a recent overperformance in economic growth figures, may be that UK economic output is “far less energy intensive that it once was.”

But back to the banks who look likely to get some of that bashing beloved of the 2010s — not just for their billions in revenue but also for the warm glow it gives some parts of the Labour family. Healey will be calculating that even 18 years after the crash, the banks remain a soft target.

Want this in your inbox each weekday? You can sign up here.

Stories you need to know

Severe Drought Hits Parts of England for First Time Since 1995Britain’s Consumers Are Turning Cautious as Cost Pressures MountBritain’s ‘Temu Range Rovers’ May Be Too Much of a Good Thing

New from Bloomberg: Markets Daily UK

Hi, it’s Morwenna from the Markets Today blog. We’ve got exciting news for markets fans. Starting next week, we’re launching a brand new newsletter: Markets Daily UK.

Designed to get you up to speed on what’s driving UK markets before the trading day starts, Markets Daily UK will replace the The London Rush newsletter. It’ll be primarily written by the MT editors, me and Sam Unsted, along with some of our esteemed colleagues.

You can sign up to receive Markets Daily UK here. And while you’re at it, explore all of our newsletters here.

Don’t forget to read the Markets Today live blog for rolling news and up-to-the-minute analysis during UK market hours. Drop us an email us at marketstoday@bloomberg.net.

The big number

$35 billionThe valuation Nscale is aiming for in its IPO, which has been muddied by AI data center delays.

One Big Story

Michael Palin on Traveling in His 80s: I Mustn’t GrumbleThe Monty Python star reinvented himself as a travel filmmaker and has now visited 101 countries. Back from the Philippines, he acknowledges the journeys are getting harder.

More from Bloomberg

Enjoying The Readout? Check out these newsletters:

Markets Daily for what’s moving in stocks, bonds, FX and commoditiesMarkets Daily UK for what’s driving UK markets before the trading day startsOdd Lots for exploring the most interesting topics in finance, markets and economicsMoney Distilled for John Stepek’s daily newsletter on what market moves mean for your moneyMerryn Talks Money for micro to macro thoughts on your money and investments

You have exclusive access to other subscriber-only newsletters. Explore all newsletters here to get most out of your Bloomberg subscription.

Allegra Stratton worked for former Prime Minister Rishi Sunak when he was chancellor and runs an environmental consultancy, Zeroism.

Please send thoughts, tips and feedback to readout@bloomberg.net. You can follow Bloomberg UK on X.