Chancellor John Healey remained tight-lipped regarding potential tax hikes during a meeting with top bank bosses on Tuesday. He did, however, describe the UK's fiscal situation as "challenging".
One option for increasing revenue could be to raise the sector surcharge on top of corporation tax to five per cent, a move previously advocated by Housing Secretary Angela Rayner. Another possibility is a return to the eight per cent surcharge rate that was in place before former Chancellor Jeremy Hunt provided some relief.
Investment bank Jefferies has suggested a potential trade-off, where lenders could temporarily give up their deferred tax asset (DTA) privileges. This could involve banks agreeing to pause DTA usage for five years and paying a two per cent annual fee, in exchange for an explicit government guarantee on these assets if a bank fails.
Lloyds Banking Group is estimated to hold approximately £4bn in DTAs, which currently allows it to reduce its tax payments by around £400m annually. Jefferies forecasts that such a DTA shakeup would result in a one per cent pre-tax profit downgrade for Lloyds through an £80m fee, while also requiring the payment of the full tax bill. In return, regulators would no longer deduct the £4bn DTA pool from Lloyds’ capital buffer, potentially boosting its CET1 ratio.
Meanwhile, new data from credit analytics firm CRIF indicates that traditional banks and building societies are the only financial providers perceived to have worsened in quality over the last three years. Digital banks and fintechs, in contrast, show improved customer satisfaction.