SKN | UK Budget Draws Criticism for Slowing Growth Even as Banks Avoid New Taxes

The UK’s latest Budget has sparked sharp debate after Chancellor Rachel Reeves announced a series of tax changes that critics say will burden households while doing little to stimulate economic growth. While the financial sector avoided additional tax hikes, analysts argue the overall package raises uncertainty and risks undermining long-term competitiveness.

A Budget Overshadowed by Leaks and Rising Taxes

Reeves delivered her second Budget amid controversy: major policy details had already leaked, including an unprecedented early release of the Office for Budget Responsibility’s report. Reeves called the leak a “serious error,” and the OBR launched an investigation into the breach.

Despite pledging fairness, the chancellor introduced £26 billion in tax rises to fund expanded welfare spending. Several personal tax adjustments departed from Labour’s manifesto, prompting criticism that “working people” will bear the brunt of higher costs.

Market reaction reflected the uncertainty. UK 10-year gilt prices fell, erasing earlier monthly gains, while a brief uptick in the FTSE 100 — helped by bank stocks — faded as sterling lost ground against the dollar.

Economist Richard Potts called the Budget “a missed opportunity,” arguing that rising taxes alongside “questionable” spending discipline is unlikely to boost investor confidence.

Banks Avoid Higher Taxes — For Now

One group breathed a sigh of relief: major UK banks. Despite political debate around windfall taxes on lenders benefiting from high interest rates, Reeves opted not to raise the sector’s already-high tax burden — roughly 45%, including corporation tax, a banking surcharge, and the bank levy.

Bank leaders had warned that further taxes would deter investment and undermine economic growth. Barclays CEO CS Venkatakrishnan argued higher levies would “work against” the government’s objectives.

Although Reeves reportedly asked banks to publicly support the Budget, few commented immediately. JPMorgan CEO Jamie Dimon offered the strongest endorsement, praising the Budget’s “financial discipline” and commitment to strengthening UK capital markets.

Still, some campaign groups called the move a missed opportunity. Positive Money said the lack of a windfall tax let the “high street banks making record profits” off the hook.

IPO Market and Investor Participation Get a Boost

One notable pro-growth measure was a three-year suspension of stamp duty on newly listed UK shares, a move intended to revive the London IPO market. Industry leaders welcomed the reform as a step toward improving liquidity and encouraging retail investment.

Changes to ISA rules will also require £8,000 of the £20,000 annual allowance to be invested in stocks and shares rather than held in cash, a measure expected to drive more participation in UK equities.

Corporate advisers say these changes come at a critical time for London’s competitiveness as a global listings hub.

Motor Finance Redress Hits Banks — But Tax Relief Softens the Blow

The OBR noted that bank profits will fall due to the FCA’s motor finance compensation scheme, which will reduce tax receipts by an estimated £2 billion over 2025–27. Banks are on the hook for £11 billion after a landmark ruling on unlawful commission practices.

However, the government confirmed compensation payments will be tax-deductible, offering some relief to lenders.

Personal Tax Changes Spark Backlash

The most contentious elements were changes affecting taxpayers and pension savers. Reeves froze income tax thresholds for another three years — a move expected to raise £56 billion by pushing more workers into higher tax bands.

A cap on salary-sacrifice pension contributions from 2029, targeted at high earners in sectors such as financial services, also drew criticism from businesses worried about rising employment costs and reduced ability to recruit talent.

Closing Insights

The latest UK Budget attempts to balance welfare commitments with fiscal restraint, but critics warn it may hinder economic momentum at a sensitive time. While banks avoided new taxes and capital markets reforms offer some optimism, rising personal taxation and muted pro-growth measures highlight a broader challenge: restoring confidence in the UK’s long-term economic trajectory. For businesses and investors, the coming months will reveal whether policy direction can align with the country’s ambition to remain a competitive global financial centre.

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