According to Financial Times News, UK chancellor Rachel Reeves has asked banks to provide public and prominent endorsements of this week’s Budget after deciding to spare the sector from tax increases. Treasury officials want lenders to specifically praise new policies and demonstrate how they’ll boost lending to first-time buyers and small businesses. The understanding is that banks should refrain from criticizing government decisions in exchange for avoiding what was described as a potential “tax raid.” Banks had previously warned they would curtail lending if hit with higher taxes and have been lobbying for months to avoid such levies. While government officials deny any formal “deal” with the sector, there’s an expectation that senior City executives will carry out their original investment plans and adopt an optimistic tone about the economy.
The Political Calculus
Here’s the thing – this isn’t just about economic policy. Reeves has been telling business leaders they need to talk Britain up or risk letting Nigel Farage’s Reform UK into power at the next election. That’s some serious political pressure. She wants what one insider called a “continuous drumbeat of commitments and deliverables” to show the positive impact of decisions to avoid certain tax increases.
And there’s internal party dynamics at play too. The effort is partly about quelling calls from Labour MPs to raise taxes on banks, whose profits have risen and share prices have hit their highest level since the financial crisis. Some on the left of the party have been pushing for a higher bank levy and other financial sector taxes. So basically, Reeves needs the banks to play along publicly to justify what could be seen as going easy on them.
Unprecedented Business Involvement
Government officials say this Budget is unusual because Reeves and the Treasury have involved business in discussions on its content from the outset. One official admitted, “I can’t remember a Budget where there has been so much business engagement.” That’s pretty telling when you think about it – normally these things are developed behind closed Treasury doors.
The chancellor’s team has apparently told lenders that a tax climbdown wouldn’t be worth it if the public doesn’t understand the economic benefits. Which raises an interesting question: Is this about policy effectiveness or political optics? Probably both, but the emphasis on public messaging suggests the latter carries significant weight.
Reeves Digs In
Meanwhile, Reeves is showing some serious determination in the face of dismal approval ratings. She told Labour MPs at a private meeting, “I will show the media, I will show the Tories, I will not let them beat me. I will be back next year, I will be back the year after that and the year after that.” That’s not someone planning to go quietly.
She also expressed anger about weeks of Budget leaks, calling them “incredibly destabilising,” but insisted there were still surprises that Labour MPs would like. “There’s brilliant stuff in there,” she promised. The question is whether the banks will deliver the public praise she’s apparently expecting in return for the tax reprieve – and whether voters will buy what amounts to a coordinated economic narrative.
