The chief executive of Lloyds Banking Group has warned that a tax raid on the banks could harm lending to households and businesses.
In an exclusive interview with Sky News at the government’s regional investment summit, Charlie Nunn urged the chancellor to ignore calls for a windfall tax on commercial banks even though the sector is enjoying record profits.
“If we are going to have the ability and the confidence to continue to lend into the real economy, to help households and businesses invest, we need to make sure that the financial services system and Lloyds Banking Group really remains healthy in that context,” he said.
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Britain’s four largest banks – HSBC, Barclays, Lloyds Banking Group and NatWest – posted record profits of £45.9bn last year and are on course for another bumper performance this year, thanks to higher interest rates.
Their financial success has raised speculation that the sector could be in the chancellor’s firing line at next month’s budget.
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Rachel Reeves could raise the bank surcharge – a levy on bank profits in addition to corporation tax.
The Conservative government cut the levy from 8% to 3% in 2023. Returning it to 8% could raise £2bn for a chancellor who needs to find anywhere up to £50bn to meet her fiscal rules.
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Some have suggested a separate windfall tax, which could raise closer to £8bn.
Mr Nunn said such a move risked undermining the health of a sector which underpins the country’s economic prosperity.
“Obviously, taxes are a matter for the government to look at. But it’s definitely one of the factors that impact our ability to support the real economy in the UK,” he said.
A raid on the banks would cause pain to a sector that is already facing substantial costs because of the car finance scandal.
Lloyds, one of the most exposed lenders, has set aside nearly £2bn to cover potential compensation arising from the Financial Conduct Authority’s (FCA) redress scheme.
The FCA established the scheme to draw a line under the long-running mis-selling scandal, in which lenders failed to disclose commission paid to brokers, meaning many customers ended up paying more than they should have for their car finance.
Under the FCA’s scheme, eligible customers – as many as 14.2 million – could receive an average of £700 each.
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There is mounting anger within the industry at the way the scheme, which is going out to consultation, has been set up. Mr Nunn said the proposal was too generous to customers and not proportionate to the harms actually caused to customers.
He did not rule out the possibility of a judicial review but, in the first instance, called for a rethink, warning that the current scheme risks scaring away investors, causing an exodus from the market and driving up the cost and availability of credit.
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“When you look at the implication of what’s being proposed by the FCA, it’s going to potentially take 20 years of profitability of the car finance industry. And, what does that mean for invest ability in that industry and for other investors and businesses looking to invest in the UK? There’s real concern that this is going to create an invest ability issue,” he said.
“Our concern is will the industry continue to function? Will it support all customers across the whole of the UK that need finance? Will other investors be looking at this and wondering whether the UK is a place they should invest, if retrospectively we can take away 20 years of profits?”
