Chancellor John Healey is being urged by Treasury officials to consider a windfall tax on banks and the Budget as a route to repairing public finances, with oil companies also in the frame, according to reports in Bloomberg. The pressure comes as Healey faces a shrinking fiscal buffer and mounting spending commitments on defence and the cost of living.
Windfall tax on banks and Budget arithmetic
Treasury officials reportedly view windfall taxes on banks and oil companies as ‘low hanging fruit’ for raising government receipts. The backdrop to that assessment is hard to ignore. Britain’s big four banks (HSBC, Barclays, Lloyds Banking Group, and NatWest) made more than £29 billion in profit in six months, according to the Daily Mirror, a figure that has given ammunition to those arguing the sector can absorb a higher levy.
The Trades Union Congress is among those pushing hardest. According to GB News, the TUC is pressing the government to raise the windfall levy from its current rate of 3% to a minimum of 8%, a move it claims would generate £9 billion in additional Treasury revenue over a four-year period. That would go some way towards addressing a fiscal position that has deteriorated since the current government took office.
Healey’s headroom has narrowed. The £22.7 billion fiscal buffer has partly eroded, and the Resolution Foundation believes it could now be as low as £8 billion, a thin margin that leaves public finances more exposed to shocks, including higher energy prices. The Chancellor also needs to find £4.7 billion in extra government revenue over four years to fund the defence investment plan, alongside £10 billion in departmental cuts.
City lobbying intensifies ahead of October
The mooted plan has already prompted a swift response from the financial sector. Citigroup boss Dame Jane Fraser warned Healey against introducing a new banking tax, while industry officials at UK Finance have written to the Chancellor setting out the risks of targeting financial services. The two-month window before this year’s Budget on 28 October is expected to be busy with lobbying from banking and energy interests alike.
Barclays economist Jack Meaning said he believed the fiscal statement would represent ‘continuity’ from Rachel Reeves, with Healey likely to rely more heavily on reallocating budgets across government departments rather than large-scale borrowing or sweeping new spending. City economists broadly do not expect the Budget to break far from the previous government’s economic plans, ruling out vast expansions in public spending. The government has already said it would leave a decision on raising defence spending to 3% of GDP until the middle of next year, when a spending review is scheduled.
A Treasury spokesperson said: ‘The Chancellor is fully focused on his priorities to boost business, help with the cost of living and support people in every postcode, underpinned by fiscal discipline and a commitment to meeting the fiscal rules with a buffer against uncertainty. The Office for Budget Responsibility will publish its updated forecast alongside the Budget in October and we will not comment on rumour, speculation or proposals about its contents ahead of then.’
Pay pressures add to the squeeze
The fiscal challenge does not end with banks and oil. New public sector pay pressures are also loading onto the government. Andy Burnham has agreed to give train drivers on Avanti, the line connecting London to Manchester, a pay rise of around 3.6%, according to The Sunday Times. The Aslef union, which represents some drivers on over £70,000 a year, secured the deal with Burnham, with the arrangement aimed at preventing disruption on a route used by the Prime Minister when travelling between Downing Street and Manchester.
Drivers on the east coast operator LNER could meanwhile receive a 12% pay rise over four years, reports suggested. Taken together, the pay commitments tighten the room available for Healey and Burnham to offer further ‘breathing space’ to households and businesses.
With the TUC’s proposed levy increase alone potentially worth £9 billion to the Treasury over four years, the windfall tax debate is unlikely to quieten before Barclays and its peers hear what October’s Budget actually contains.
