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Lloyds boss warns against bank windfall tax as Labour election win looms

Charlie Nunn
Charlie Nunn

The chief of Lloyds Bank has urged Labour and the Government to rule out a windfall tax on his industry amid “nervousness” about a possible levy on lenders.

Charlie Nunn, chief executive of Britain’s largest lender, said politicians needed to clearly state their policies towards banking ahead of a looming election next year.

Mr Nunn said there was “nervousness” among international investors about the UK’s plans after Spain, Italy and Switzerland all moved to raise taxes on banks.

With Labour storming ahead in the polls, pressure is also growing on the party to explicitly rule out additional levies for banks amid concerns it could adopt similar policies once in power.

Mr Nunn told the FT Global Banking Summit: “The real desire we have and I know our shareholders have is just clarity that banks can continue to operate effectively in supporting their customers, and continue to safely create returns for their shareholders.”

Shadow chancellor Rachel Reeves has so far refused to support a windfall on the banks, saying in the summer she was “not convinced by the evidence” to adopt the policy.

However, Mr Nunn’s comments suggest the industry wants her and Chancellor Jeremy Hunt to go further and explicitly rule out a windfall tax on profits.

The disastrous introduction of a bank tax in Italy in August has underscored investor fears over tax policy on banks.

A fresh levy introduced by Italian prime minister Giorgia Meloni in August prompted a sell-off in local bank share prices, forcing the government to backtrack and water down the plan.

UK banks are already subject to several types of taxes, such as the bank levy on their balance sheet and bank surcharge on profits.

Last year the Government cut the bank surcharge to 3pc from 8pc, saying it was necessary to make UK banking internationally competitive. However, rising interest rates have bolstered profits at some banks and prompted calls for higher taxes.

Positive Money, a campaign group, said a levy on HSBC, Barclays, Lloyds and NatWest could raise anywhere from £5bn to £20bn. Interest rates largely boosted profits at banks last year. In 2023, high levels of customer switching have forced banks to offer more competitive savings rates, which has eaten into earnings.

Mr Nunn’s comments came as it emerged that Barclays is mulling plans to axe thousands of clients from its investment bank as it targets £1bn in cost cuts.

As part of an anticipated restructuring next year, the bank has discussed plans to end relationships with clients that do not generate enough profits for the lender.

Clients that face being cut off include governments, hedge funds, fund managers and sovereign wealth funds.

Barclays investment bank has around 10,000 corporate customers, with the Financial Times reporting that up to 2,500 could be dropped.

The move is one of several options under consideration by chief executive CS Venkatakrishnan, known as Venkat, as he pursues a restructuring plan codenamed Project Minerva.

The bank is under intense pressure to revive its fortunes after a share price slide left it lagging behind rivals.

CS Venkatakrishnan
CS Venkatakrishnan has been at the helm of Barclays since late 2021 - Barclays

Venkat is expected to formally announce his shake-up in February, which will revolve around cutting costs and boosting value for shareholders.

Ditching less profitable customers may prove a quick way to free up cash at the lender.

Banks must put money aside as a safety buffer for investment bank customers, so cutting ties with some less profitable clients would free up money for Barclays to spend elsewhere.

Axing clients could reportedly release up to £20bn of assets to deploy elsewhere.

Its £21bn valuation is much lower than rivals such as HSBC, which is worth £116bn. It is also dwarfed by large Wall Street banks.

The cost-cutting plan across its investment bank comes after it emerged last week that the lender was looking to axe back office jobs in its HR, legal and compliance functions to save money.

Up to 2,000 roles have been earmarked for the chop.

Barclays currently employs about 87,000 people across the globe, with 44,000 workers in the UK.

Venkat was forced into action earlier this year after dismal results triggered a fresh fall in its share price.

Barclays’ investment bank division competes against the likes of Goldman Sachs, Morgan Stanley and JP Morgan to offer a full range of services like M&A and share trading for large corporate customers.

Unlike HSBC, its exposure to fast-growing Asian markets is minimal.

The investment bank has previously been a focus for radical shake-up plans, with activist investor Ed Bramson unsuccessfully trying to force the bank to spin off parts of the unit several years ago.

Barclays declined to comment.