Shares in major British banks climbed on Wednesday after finance minister Rachel Reeves opted not to impose any new sector-specific taxes, easing months of concerns that she might raise levies to help fill gaps in public finances.
Reeves made no reference to bank-focused tax hikes in her Budget speech, and none were mentioned in the Office for Budget Responsibility’s analysis, which was unusually released ahead of her address.
Domestic banking giants Lloyds Banking Group and NatWest rose 3.8% and 2.5% respectively, reversing earlier losses, while globally exposed lenders HSBC and Barclays were up 1% and 3.2%. All four comfortably outperformed the broader FTSE 100, which gained 0.6%.
Speculation that lenders might be targeted intensified in August after a think tank proposed a new levy on interest earned from deposits held at the Bank of England—a suggestion that triggered a sharp sell-off in bank shares at the time.
However, bank stocks have since rebounded, helped by media reports playing down the likelihood of fresh taxes on a sector Reeves wants to encourage to increase business lending to support economic growth, a central pillar of Labour’s agenda.
This marks the second consecutive budget in which Reeves has chosen not to pursue new taxes on bank profits, despite industry concerns that another fiscal raid could be on the horizon.
UK banks have delivered strong profits in the years following the COVID-19 pandemic, benefiting from higher interest rates that boosted margins. At the same time, both households and businesses have remained more resilient than expected, helping lenders avoid major defaults.
