Barclays has taken aim at speculation about potential tax hikes on the banking sector as the lender trimmed its UK growth forecast for 2026. The bank's chief executive, CS Venkatakrishnan, known as Venkat, highlighted that UK banks face a higher tax burden than those in any other major economy, amid growing concerns that the government may target the industry to raise revenue.
Tax Concerns Amid Political Turmoil
Fears that the banking sector could be singled out for additional taxes have intensified following the conflict in Iran, which has increased cost pressures on the government. The Middle East crisis is expected to keep interest rates elevated, potentially boosting bank profits but also raising the risk of a political backlash.
Adding to the uncertainty, Prime Minister Keir Starmer's leadership is seen as precarious. If Starmer were to step down, Chancellor Rachel Reeves would likely follow, leaving banks vulnerable to tax changes. Reeves resisted calls to impose a bank tax in her last Budget, despite pressure from opposition parties, think tanks, and former Deputy Prime Minister Angela Rayner, who is tipped as a potential successor to Starmer.
Venkatakrishnan stated: "Banks in the UK are more highly taxed than they are in any other major jurisdiction." He noted that the UK's effective tax rate for banks is 46%, compared with 29% to 40% in Europe and around 20% in the US. "We are a leading exporter of financial services in the UK. The UK needs growth. The UK needs income, and banks like ours play a really, really important role in that," he added.
Barclays finance chief Anna Cross revealed that the bank paid nearly £2 billion in UK taxes last year. "Banks dominate the list of top taxpayers in the UK, and are typically in the top four or five, and that's because there are three specific sources of tax that we pay in addition to other sectors," she said.
GDP and House Price Forecasts Cut
The comments accompanied Barclays' first-quarter earnings update, which showed a slight increase in profit but was held back by significant impairment charges. The bank also revised its UK GDP growth forecast for 2026 down to 1%, from 1.1% previously. While still above Lloyds' more pessimistic 0.7% forecast, the cut reflects a deteriorating outlook.
Cross explained that the economic outlook published on Tuesday was "printed in February" and that conditions have worsened since then, prompting adjustments to impairment calculations, particularly in the investment bank.
Barclays also slashed its house price growth forecast for this year to 1.9%, down from 2.9%. The Iran war has shattered hopes of interest rate cuts, with some economists warning the Bank of England could hike rates multiple times to curb inflation. This has caused many Britons to delay moving home, waiting for more favorable mortgage conditions.
Property consultancy Knight Frank halved its house price forecast on Monday, cutting growth expectations from 3% to 1.5%. Knight Frank cited the economic shock from the Iran war and the political uncertainty surrounding Starmer's future as factors fueling market instability.
