Concerns over tax hikes on UK banks are mounting, as HSBC’s CEO warns they could damage economic growth and reduce investment. Georges Elhedery, chief executive of HSBC, said additional taxes would hurt the sector’s ability to support customers and drive growth.
On Wednesday, Elhedery addressed reporters after HSBC posted a 29% fall in second-quarter profits. He stressed that UK banks already face some of the world’s highest corporate tax rates. Meanwhile, further financial pressure could reduce their investment capacity and weaken the UK economy.
His warning follows speculation that Chancellor Rachel Reeves might raise taxes in the autumn budget. She faces growing pressure to plug gaps in public finances. Moreover, Deputy Prime Minister Angela Rayner recently suggested wealth taxes, including higher corporation taxes for banks.
Currently, UK banks pay a 25% corporate tax rate. Additionally, they face a 3% surcharge and a separate bank levy. Including employment taxes and VAT, banks pay an effective tax rate of 45.8%. This is significantly higher than Frankfurt’s 38.6% and New York’s 27.9%.
Elhedery joins Lloyds Banking Group’s CEO Charlie Nunn in raising concerns. Nunn warned last week that higher taxes could derail Labour’s plan for City-led economic recovery. He also said it contradicted the chancellor’s goal of promoting growth in financial services.
Financial services are a central part of Labour’s industrial strategy. The government has already promised deregulation and incentives to boost the sector. Despite this, investors remain cautious due to the threat of higher taxes.
Nevertheless, Elhedery struck a hopeful tone. He said HSBC remains “positive about the outlook” for the UK. He pointed to falling inflation, strong employment, and resilient credit markets as signs of stability. These factors, he said, give the bank confidence about future performance.
Elhedery also praised the UK’s fast trade negotiations. He highlighted deals with the US, EU, and India. Notably, he called the UK-India corridor one of HSBC’s most vibrant global partnerships.
Despite this optimism, HSBC reported a difficult quarter. The bank took a $2.1 billion loss tied to its stake in China’s Bank of Communications. That investment suffered after a recapitalisation plan linked to China’s weak property market.
In addition, HSBC recorded a $400 million charge in Hong Kong due to falling commercial real estate values. Oversupply and low demand have dragged down property rents and values.
These losses pushed HSBC’s pre-tax profits down to $6.3 billion, from $8.9 billion a year earlier. However, the bank still committed to shareholder returns. It announced a 10 cent dividend and a $3 billion share buyback before the third-quarter results in October.
In summary, tax hikes on UK banks remain a hot topic as leaders debate how to balance fiscal needs with economic recovery. Executives warn that further tax burdens could hurt both investment and national growth.
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