HSBC boss says Rachel Reeves putting up bank taxes would harm UK growth

The Guardian

6 days ago

The boss of HSBC has joined a growing chorus of bankers cautioning Rachel Reeves against increasing taxes on banks in her autumn budget, warning it risked 'eroding' investment and ultimately harming UK growth.
Georges Elhedery, its chief executive, said banks in the UK were already subject to the highest level of taxes on profits compared with other sectors, and paid more than in most other countries. He said placing further financial pressures on lenders could spell trouble for the UK economy.
'Additional taxation on banks does run the risk of eroding our continued investment capacity in the business and in supporting our customers, and ultimately in delivering growth for the UK,' he said on Wednesday, as the bank revealed a 29% drop in second-quarter profits.
The intervention comes amid growing speculation that Reeves could use her autumn budget to announce a fresh round of tax rises, as forecasts for public finances worsen.
While UK banks have so far dodged an increase in sector-specific levies, a leaked memo by the deputy prime minister, Angela Rayner, in May urged the chancellor to consider a series of wealth taxes, including increasing the corporation tax rate on banks.
Banks currently face the 25% headline rate of corporate tax, as well as a 3% bank surcharge and a further bank levy, which is a charge on a portion of balance sheet assets. Estimates by the lobby group UK Finance and the accountancy firm PwC suggest that, when also accounting for employment taxes and VAT, banks in the UK are paying a total tax rate of about 45.8%. That compares with 38.6% in Frankfurt and 27.9% in New York.
Elhedery's comments come days after the chief executive of Lloyds Banking Group, Charlie Nunn, warned that higher taxes on the banking sector could damage Labour's plan to see the City drive an economic recovery, and 'wouldn't be consistent' with the chancellor's messaging to date, as the government pushes to reboot growth.
Financial services were among the eight sectors that received government banking in the Labour government's industrial strategy, with the chancellor subsequently announcing a number of changes to slash regulation and increase growth across the sector.
However, Elhedery said HSBC was 'positive about the outlook' for the UK, which had 'demonstrated strong resilience over the last few years'.
He said: 'We continue to see strong resilience across credit outlook indicators and obviously across matters such as employment, the reduction of inflation, all of which give us significant room to be more optimistic about the outlook.'
Elhedery also highlighted the 'pace' at which the UK had struck a number of free trade agreements, including with the US, EU and India. 'Frankly, UK-India is one of our most vibrant corridors, and we're really looking forward to supporting our clients [to] realise the full benefits of this FTA.'
However, his comments came as HSBC revealed a worse-than-expected drop in profits between April and June as its exposure to a struggling Chinese bank and Hong Kong's troubled commercial real estate sector took its toll.
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The London-headquartered bank, which makes the bulk of its profits in Asia, said it took a $2.1bn (£1.6bn) paper loss related to its stake in China's fifth largest lender, Bank of Communications (BoCom).
The investment was diluted by a recapitalisation plan meant to offset the effects of a sluggish Chinese economy and struggling property sector. It is the second charge the bank has taken over BoCom, with the ripple effects of China's property downturn resulting in a $3.1bn hit last year.
HSBC also took a $400m charge related to 'challenging market conditions' in Hong Kong's commercial real estate sector, as the bank tried to cushion the blow of potential defaults across the industry, with 'the oversupply of nonresidential properties putting continued downward pressure on rental and capital values'.
Together, the impairment charges pushed HSBC's pre-tax profits down 29% to $6.3bn in the three months to the end of June, compared with £8.9bn during the same quarter last year.
However, the bank still announced further payouts to shareholders, as it focused on the strength of the bank outside the one-off hits that dragged down earnings. That includes a dividend of 10 cents a share and a share buyback of up to $3bn, which is expected to take place before the time it announces third-quarter results at the end of October.