Bank and gambling shares jump after Budget tax raid was ‘not as bad as feared’

Bank and gambling shares jumped today as John Healey’s tax raids on the sectors were not as punishing as feared.

In his first Budget, the Chancellor doubled the bank surcharge from 3 per cent to 6 per cent, raising money to help with household energy bills.

The higher levy on bank profits – which comes on top of corporation tax of 25 per cent – will last for 15 months from January.

It is feared the attack on bank profits will push up borrowing costs for households and businesses and hold back the economy.

But the increase in the surcharge was not as large as feared amid speculation Mr Healey would raise it to 8 per cent – even after describing the industry as a ‘jewel’ in the crown of the British economy.

And it was well below the 16 per cent demanded by the TUC, which even suggested introducing a 35 per cent surcharge on bank profits would raise £15billion a year.

Bank shares, which have been under pressure in recent weeks as investors fretted about the scale of Labour’s planned tax raid, rebounded strongly while the Budget speech took place before settling back somewhat.

Lloyds and NatWest shares rose around 2 per cent while Barclays was up 1.6 per cent and Standard Chartered gained 2.4 per cent.

Neil Wilson, investor strategist at Saxo, said ‘banking stocks rallied sharply’ as the Budget proved ‘better than the market’s worst fears for a bank tax raid’.

Gambling shares also rallied after the Chancellor raised the levy on slot machines from 20 per cent to 25 per cent.

While the industry warned the increase in so-called machine games duty will still lead to job losses and site closures, it had been feared it could rise to 40 per cent.

Shares in Mecca Bingo and Grosvenor Casino owner Rank jumped nearly 12 per cent while Labdrokes and Coral parent Entain gained close to 4 per cent.

Despite the apparent respite, one industry source said: ‘It’s a punitive tax raid and a jobs killer. It’s ideology on steroids pushed by donors, campaigners and Gordon Brown.

‘The PM used to back bookies, but now his Government is putting up gambling taxes yet again in the knowledge it will force hundreds of them to close. 

‘You can’t give people breathing space when they don’t have a job.’

Ahead of the Budget, TUC general secretary Paul Nowak said bumper profits across the banking industry ‘make it blatantly obvious banks can afford to contribute more’.

But Shadow Chancellor Andrew Griffith said higher taxes would push up ‘the cost of credit for businesses and mortgage-holders’ while also ‘rendering the City less competitive than its international rivals’.

UK Finance warned a fresh tax raid would make the UK even more of an international outlier, pointing out that UK banks are currently taxed at a rate of 46.5 per cent once employment levies and VAT are taken into account. That compares with 39.1 per cent in Frankfurt and 27.9 per cent in New York.

Peter Johnson, financial services tax policy leader at Deloitte, said: ‘While recent profits may have put banks in the spotlight, higher taxes can have consequences beyond the sector itself if they constrain the flow of credit, increase financing costs for individuals and businesses, or weigh on growth.

‘So confirmation that this is a temporary measure limited to 15 months will likely be met with quiet relief by the sector, which is already taxed at a higher rate than most other types of business. International investors will nevertheless be looking closely at what it means for the UK as a place to invest.

‘Clarity over the tax environment once the temporary measure ends will be important for banks and the wider financial services sector. A stable and predictable approach will help support the UK’s competitiveness and inward investment.’

Mark Eastwood, director of corporate sales at property lender Together, said: : ‘Having declared the Banking sector the jewel in the crown of the country’s economy the Chancellor’s decision today to increase the rate profit surcharge for banks undoubtedly removes some of the sheen.

‘The Treasury would have judged today’s decision as necessary given the diminishing fiscal headroom and a desire to keep personal tax changes to a minimum, but given the centrality of the sector to the economy, the effects of the tax are likely to trickle down to everyday British people.

‘Beyond a potential acceleration of plans to lay off workers or move certain operations out of the country, banks may look to offset the effects of the tax by lowering interest rates deals for savers and increasing mortgage rates.

‘Mortgage borrowers are already contending with a market grappling with a cauldron of unpredictable swap rates and rising inflation, so an additional upward pressure may cause first time buyers to pause plans, and existing borrowers to cut back on additional spending to cope with increased rates.’

The current surcharge comes on top of the main rate of corporation tax – meaning banks already pay a higher rate than other businesses.

The extra levy on the banks was cut by the Tories from 8 per cent to 3 per cent in 2023 at the same time that corporation tax was raised from 19 per cent to 25 per cent.