Hundreds of millions of pounds of market value wiped away
Britain’s big mortgage lenders have been actively cutting costs and embracing new technology such as AI to improve their figures. However increasing fears of a Labour government tax grab to fill a budget black hole have caused investors to start to abandon bank stocks.
Reports that the government might increase taxes on UK banks have increased since Prime Minister Keir Starmer's warning that the upcoming autumn budget will be "painful," a statement that has fuelled fears of broader tax hikes.
Among the hardest hit banks were NatWest and Barclays, whose shares fell by 3.3% and 2.7%, respectively, wiping hundreds of millions of pounds off their market values. Lloyds Banking Group, the UK’s largest mortgage lender, also saw its shares drop by up to 3.3% during the day, though they later recovered slightly to close 1.7% lower.
These declines come amid mounting speculation that the government could target the banking sector with new levies, especially given the Prime Minister's recent comments. He remarked, “There’s a budget coming in October and it’s going to be painful… Those with the broadest shoulders should bear the heavier burden.”
The focus on the financial sector has intensified after Chancellor Rachel Reeves declined to rule out potential hikes in inheritance and capital gains taxes when repeatedly questioned on the matter. This uncertainty has added to the nervousness among investors, particularly as banks have recently benefited from higher interest rates, which have bolstered their profits during a challenging economic period for much of the country.
Investment analyst Dan Coatsworth of AJ Bell highlighted the public’s likely indifference to banks paying more taxes, telling The Times, “No one is going to shed any tears if the banks are forced to hand over more of their profits. It’s about as easy a target as you can get.” However, he noted that such a move could have broader implications for the financial markets.
Despite these concerns, some analysts, including those at Citigroup, remain sceptical that the government will impose significant new levies on banks, especially given the potential pushback from the chancellor ahead of this election.
Economists point out that while tax increases are expected, predicting the exact targets remains challenging.
