John Healey will raise the bank surcharge temporarily, but the rate will stay below 8%. The report hit before the budget statement and gave lenders a smaller tax shock than feared, while bank shares moved higher on the news.
Neil Wilson on sterling
0.1% was how much sterling fell to $1.3288, leaving the pound on track for its fourth daily fall in a row. Neil Wilson, Saxo UK investor strategist, said: “Some degree of negativity towards the pound reflects options market flagging Budget/fiscal risks.”
6% versus 8%
6% was the level discussed earlier this month as the kind of limited rise that could still lift bank shares, rather than the 8% threshold that would have implied a steeper move. One major investor said there was an understanding in the City that higher bank taxes were now “highly likely”. If the surcharge on profits increased by no more than 3 percentage points, bank shares would rally, the investor said.
£763m per year was the figure UBS analyst Jason Napier and his team attached to a move from 3% to 6% across the four big banks alone. That estimate helps explain why the market treated a sub-8% plan as a relief rather than a surprise squeeze: the charge would still rise, but not enough to fully reverse Jeremy Hunt's 2023 cut to the bank surcharge.
Budget and 2023 cut
2023 is the reference point lenders are still using, because that was when Jeremy Hunt cut the bank surcharge. A temporary increase below 8% would leave part of that earlier change in place, which is why the report mattered for trading in bank shares and for the pound before the budget statement due to begin at 12.30pm.
