Chancellor Rachel Reeves is set to secure crucial backing from major UK banks for her upcoming Budget measures, following reports that she will dismiss calls for additional taxes on the financial sector.
Budget Truce with Banking Sector
According to sources cited by the Financial Times, bank chiefs are expected to publicly support the Chancellor's economic plans in exchange for being spared from extra levies. Lenders are being encouraged to back the government and follow through with investment plans designed to support communities across Britain.
One insider revealed that banks would scale back their criticism of government economic policy in return for protection from additional taxation. Another figure close to the discussions noted: "There was a frustration that the government's positive messaging about the economy was being undermined by unwelcome commentary."
Pressure for Tax Increases Dismissed
The Chancellor faces significant pressure from various quarters to increase banking taxes. Think tanks, MPs, and lobby groups have repeatedly called for Reeves to restore the bank surcharge to 8% from its current 3% level, a move that could raise at least £2 billion for Treasury coffers.
Some economists have argued that the Treasury should seek to recover losses from the Bank of England's bond-selling programme, given that commercial banks have benefited from extra profits during this period. However, government officials have firmly denied that any formal "deal" has been struck between City institutions and the government.
Building City Relationships
Reeves has reportedly developed close relationships with banking leaders during her first year in Downing Street. The Sunday Times reported that she even shares a group chat with some executives, indicating an unprecedented level of access and communication.
This collaborative approach follows earlier praise from City chiefs for her deregulatory initiatives, particularly the Leeds Reforms that eased mortgage rules. The Financial Conduct Authority has also contributed to this business-friendly environment by implementing measures to reduce red tape as part of its new growth-focused mandate.
Other potential tax measures that were considered but ultimately rejected by the Chancellor included:
- An exit tax on individuals leaving the UK
- Higher taxes on law firms
- Increased levies on limited partnerships
Representatives for the banking sector have consistently argued that lending would inevitably decline if the Treasury imposed additional taxes on their operations.
Political Challenges and Unity Calls
The Chancellor's efforts to rebuild business relationships come after companies faced higher taxes in last year's Budget. Reeves has also been working to galvanise her backbenchers amid concerns that the Budget might dampen growth prospects.
During a recent meeting with MPs, she firmly committed to remaining in her position and defying critics. She described recent leaks as "incredibly destabilising," despite speculation among commentators that some briefings may have originated from within her own team.
Reeves promised "brilliant stuff" in the upcoming Budget package and urged Labour MPs to unite behind the government's economic strategy as she prepares to present her vision for the country's financial future.
