Banks will be among the biggest beneficiaries of Kwasi Kwarteng’s mini-budget after he announced a raft of policies to help costs, increase profits, attract employees, house prices for fuel and cut red tape.
Cancellation of the bank bonus cap
One of the most controversial announcements on Friday was the decision to scrap the EU’s bankers’ bonus cap, which has limited its payments to double the salaries of workers since 2014.
The rules were intended to end a reward culture that prioritized short-term profits over long-term stability in the run-up to the financial crisis. But conservative politicians, including then chancellor George Osborne, criticized the cap from the start, warning that it would hurt competitiveness and increase fixed costs for banks.
The new government is taking advantage of Brexit to scrap the cap, in a move likely to be welcomed by employers who use variable wages to cut costs in slower years.
However, headhunters warn that the impact will be marginal and is unlikely to create more jobs or attract many high-income bankers to the UK, given that European employees tend to enjoy the reliability of salary-focused income, while it is unlikely That American bankers leave New York for the same pay as London.
The decision to raise the cap has left some bank chiefs bewildered, who said they had not pushed for change, nor had they been consulted about the proposals.
Meanwhile, the city’s high-income bankers There will still be a reduction in income tax Let’s look forward to it.
Cut stamp duty to support the housing market
high interest rates It will boost banks’ net interest margins – which is a key measure of profitability and calculates the difference between what is charged to loans and paid to deposits. Lenders have been accused of being slow to pass higher interest rates to savers while increasing mortgage rates to borrowers.
The decision by Liz Truss’ team to spur potential homebuyers by doubling the minimum they start paying stamp duty to £250,000 will also support the housing market, which has shown signs of slowing. They’ve also increased that number from £300,000 to £425,000 for first-time buyers.
Lloyd’s Banking Services The group, which owns Halifax and is the UK’s largest mortgage lender, said in July that it expects its lending rate to grow in single digits over the next 12-18 months given expectations of a rate hike.
However, lowering the stamp duty is likely to push lenders’ expectations higher when they release third-quarter results in October and raise earnings expectations.
cut out routine
The chancellor is also pursuing an “ambitious package of regulatory reforms” that he said will be unveiled this fall. It is unclear if this will be in addition to the financial services bill, which will essentially eliminate EU financial regulations.
Some of the biggest changes already being made on the train include forcing regulators to consider companies’ “competitiveness” when applying UK regulations, rather than just whether they treat consumers fairly or have enough capital to mitigate potential risks. This is despite economists warning that Inappropriate reversion to pre-crisis conditions.
And although Kwarteng has emphasized that he considers the independence of the Bank of England “sacred”, the government still plans to give itself powers to “direct a regulator to do, Modify or cancel the rules where there are matters of significant public interest” – a move that could also benefit city companies lobbying for changes to UK rules.
Eliminate corporate tax increases
Kwarteng also confirmed that the government will keep the corporate tax at 19%, instead of raising it to 25% as originally planned by former Chancellor Rishi Sunak.
The move alone is expected to provide the city companies with a combined bill of £4.5 billion between 2023 and 2025, According to the analysis Compiled by the House of Commons Library.
However, Kwarteng canceled the planned cut in additional bank surcharges that were supposed to offset the corporate tax increase, meaning it will stay at 8%, rather than dropping to 3% next year. Smaller lenders, including the co-op bank, will still benefit from an upper limit, with the chancellor promising that the surcharge will only apply to lenders earning at least £100m, instead of £25m.
However, the combined tax rate for most banks and building societies will remain at 27%.
Invoices are frozen to keep companies afloat
Fears of large-scale corporate failures among commercial borrowers have been growing, with businesses being more exposed to price swings than households because they are not benefiting from the UK’s energy cap.
But Truss’ decision to cut the corporate power unit price for at least six months means banks will be less concerned about ongoing business, protecting them from a potentially sharp increase in defaults.