Bank shares rise after reports they will be spared tax hike amid growth mission

Shares in UK banks have risen following reports that they will be spared from a tax hike in Wednesday’s Budget.

Lloyds Banking Group, Barclays and NatWest were among the biggest risers on the FTSE 100 on Tuesday morning with their share prices up by about 2%.

Banks were thought to have been in the firing line through a potential increase to the bank levy.

This is an additional tax on the balance sheets of banks and building societies operating in the UK.

The Institute for Public Policy Research (IPPR) said in August that hiking a levy on the profits of British banking giants could raise up to £8 billion a year for public services.

But the Chancellor is preparing to avoid hitting lenders with higher taxes and will instead call for them to show how they plan to improve lending to first-time buyers and small businesses, the Financial Times (FT) reported.

It follows a sustained period of lobbying among bank chiefs and City leaders who have argued that higher taxes would be at odds with their pro-growth mission.

The boss of Barclays, CS Venkatakrishnan, said in an interview with the FT in September that the “path to growth does not lie in taxing the sector even more”.

Lloyds chief executive Charlie Nunn also cautioned over tax measures that would reduce the competitiveness of the UK’s financial services sector.

Gary Greenwood, an equity analyst for Shore Capital, said the “quid pro quo” for being spared tax rises is 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 this could mean investing more into lowering pricing to “create additional demand for credit” rather than “harvesting the benefits of higher interest rates” by handing out more cash to shareholders.

But he added that the market was “likely to breathe a sigh of relief” over the reports and the fact that the Chancellor was “recognising the importance of the banking sector to growing the economy”.

The Treasury has been contacted for comment.