Banks look set to avoid a tax hike in the upcoming Budget, according to reports, though analysts say the reprieve may come with strings attached.
Rachel Reeves accepts that UK banks are already heavily taxed compared with overseas rivals, the Financial Times report said, and raising taxes on banks is "a long way down" her list of potential means of raising funds for the Treasury.
Reacting to the report, Shore Capital analyst Gary Greenwood said: "It seems unlikely that such a high-profile story would have been run by the newspaper without a high degree of conviction that it will prove correct.”
However, Greenwood warned that the move is unlikely to be a “free lunch” for lenders.
"The quid pro quo is likely to be that the big banks... will need to demonstrate a willingness to grow even faster than they are doing in order to support the economy,” he said.
That could mean reinvesting more into pricing to stimulate demand for credit, which might add to future loan losses through greater risk-taking.
While the avoidance of a new tax is “a win”, Greenwood noted that “this benefit may not flow straight to the bottom line but instead get gobbled up by keener pricing.”
Even so, he said the market would likely “breathe a sigh of relief” at the prospect of no new bank levy, adding that “it is encouraging that the trend of bank bashing under former governments seems to have stopped, with the Chancellor rightly recognising the importance of the banking sector to growing the economy.”