Lloyds boss backs devolution plan – but points out big problem if UK taxes banks

Lloyds Bank chief executive Charlie Nunn says the devolution plan of new prime minister Andy Burnham can help the government to “actually get stuff done” – but has also warned against taxes on banks.

Ahead of the Budget on 28 October, the first since Mr Burnham appointed John Healey as chancellor, there has been much speculation about where Labour will raise additional funds.

Banks are widely expected to be one sector which will be asked to fork out more than previously, though several industry experts have cautioned against the wisdom of doing so.

While the financial sector can generate huge profits, that money tends to go towards those who plough it back into the economy in other ways, critics say, including wide-ranging investors, those who run other business and the financial industry itself, which employ many and is part of the stronghold of British industry.

Speaking to the Financial Times, the CEO of Lloyds Banking Group – which also includes the likes of Bank of Scotland, Scottish Widows and what’s left of the Halifax brand – said the UK shouldn’t be focusing on windfall taxes for successful parts of the economy, as those who run successful businesses would be backing those horses, not reigning them in.

“Tax is obviously a matter for the government […] we are not in an era of windfall returns,” said Mr Nunn in the FT’s Patrick Jenkins Interview. “We want to go faster, not slower” to continue building economic growth, he continued, adding that governments should “look at the UK economy as a CEO would” to help fuel that progression.

“It’s not the response that anywhere else in the world took. Most of the world realised that if you kill banking, you’re killing the ability of your economy to borrow and invest.

“In my ten years at [previous employer] HSBC, working with 50 countries, typically the conversation I’d have with regulators and governments was what can you do to drive productivity and growth. They’d tell us what sectors, what parts of their country they were trying to grow.

“The UK seems to have moved away from [that approach] since the financial crisis.”

Experts at tax and audit firm Blick Rothenberg have highlighted to The Independent that the last time banks faced a so-called windfall tax, the wider corporation tax was actually lower than it is now.

As such, it’s a far bigger overall hit that banks may face if their profits are taxed additionally again this time around.

With banks typically determining where to invest their money by what their expected rate of return is, it stands to reason that a nation offering a lower projected return therefore might face less investment in it than previously, compared to bigger opportunities overseas.

That’s something which might be more impactful for multinational and global banks – such as Barclays or HSBC – than the more domestic-facing ones, including NatWest or Lloyds.

But the inclusion of such a tax might also hint at whether this is a Budget “to grow the economy, or just to cover its costs”, as Blick Rothenberg director Robert Salter put it.

Mr Nunn is rather more upbeat about the prospects of devolution and artificial intelligence giving the UK economy a boost.

“When I came back to the UK to do this role, we realised that one of the best ways of getting things done was down at a local combined authority or mayoral level, because they could join the dots between the assets they had, like land, and businesses or universities,” he said.

“The devolution agenda done properly could unlock […] the ability for government to actually get stuff done.”

Meanwhile, AI offers a “massive opportunity” to reskill workers and offer AI-led advice to customers, particularly through encouraging them to invest – though Mr Nunn warns that so far “there hasn’t been enough thinking about the regulatory consequences if things go wrong for customers”.

However, AI offers another prospective positive for clients too: robots aren’t swayed by big commissions, which has been a problem in the past across the Payment Protection Insurance (PPI) scandal and with motor vehicle finance.

“If you look at what are classified as mis-selling scandals, it’s about the incentives,” said Mr Nunn. “You don’t have to incentivise an [AI] agent.”