As Liz Truss departs, banks are frustrated by British government U-turns
Jamie Dimon makes a point of introducing himself to new chancellors of the exchequer in Britain, where JPMorgan Chase, the bank he runs, has a large presence. It is a task that is keeping him busy lately.
Dimon spoke with Kwasi Kwarteng during the latter’s five-week stint in charge of Britain’s purse strings, when he was told the government would prioritize the growth of financial firms.
Next week, the American executive is due to pick up the phone to Kwarteng’s successor, Jeremy Hunt, for a different conversation about the threat of a tax hike.
The political maelstrom of the past few months has left a number of financial leaders with a feeling of whiplash about their position in Britain.
Prime Minister Liz Truss said during this summer’s leadership campaign that the financial sector was the “jewel in the crown” of the economy.
She will be replaced by the end of next week, having already caved on the prospect of a substantial tax rise for the sector to fill a budget hole.
While some finance firms would welcome a rethink on reforms, the additional uncertainty has stirred up frustration and focused attention on what the Labour Party might do if it gains office, according to various City of London figures.
Even if a Labour government ultimately means higher taxes, that may be more acceptable than the current chaos, one of those people said.
Hunt has said he will announce that plan on Oct 31, though the timing and content is a matter for whoever succeeds Truss.
Hunt’s abandonment of Trussonomics, as the outgoing leader’s low-tax vision was known, received a warm welcome in the markets. But a nasty sting has emerged for banks.
There was widespread expectation that Hunt would bring down an 8 percent surcharge tax on banks’ profits, following a plan laid out by Rishi Sunak, who was chancellor until July and now a potential leadership candidate once more.
A reduction would help soften the blow of a rise in corporation tax for all sectors from 19 percent to 25 percent in April.
The Treasury has been silent on the issue when firms tried to make inquiries, and Hunt has told the House of Commons that he was “not against the principle of taxing profits that are genuine windfalls”.
He was talking about energy companies, but it was enough to send chills through the banking sector.
If Hunt does not make any further changes, banks will pay a 33 percent tax rate, higher than financial centers such as Frankfurt and New York.
The reason is two-fold: Hunt is scouring the economy for ways to balance the books, following vast spending commitments during Covid-19 and the European energy crisis.
Meanwhile, British banks are about to report large quarterly rises in profit and revenue next week thanks to soaring interest rates that improve their margins while heaping pain onto millions of borrowers, making the firms appear an easy target for tax hikes.