Chancellor Jeremy Hunt is plotting a new round of windfall taxes targetting the banks and energy companies to help fill the gaps in the government’s finances.
According to a report in the FT, Hunt sees the bumper profits being made in the City due to rising interest rates and by energy companies due to soaring oil and gas prices as a method of plugging what is estimated to be a £40bn fiscal shortfall.
At a cabinet meeting yesterday, Hunt said “eye-wateringly difficult" decisions lay ahead and to keep credibility among financial markets tight spending control was required and possibly even larger cutbacks.
For oil and gas companies, the changes are likely to mean the current levy introduced by Rishi Sunak being extended beyond 2025 while the banks including Lloyds Banking Group PLC (LSE:LLOY), NatWest Group PLC (LSE:NWG) and Barclays PLC (LSE:BARC) face a continuation of a surcharge of 8% on top of higher corporation tax.
The current surcharge has been in place since 2016 but was due to be cut to 3% from the next tax year.
If the surcharge is retained and is coupled with Hunt’s proposed rise in corporation tax to 25% the effective tax rate on bank profits will be 33%.
David Postings, chief executive of UK Finance, the financial services industry trade body said: “We urge the government to consider the surcharge very carefully and not put at risk the competitiveness of the UK’s banking and finance industry".
Two-thirds of [finance] jobs are outside London, he added.
As part of his mini-mini-Budget, Hunt also scrapped a cut in income tax but a planned cut to national insurance was retained.
How much money a bank surcharge extension would raise depends on the profitability of the banks, but analysts have predicted strong third-quarter numbers when they report figures next week.
Extending the current oil and gas windfall tax by two years could raise an additional £10bn on top of the £28bn expected already, according to the reports.