Over canapés of beef and stilton pie, bone marrow gravy and mushy peas, financiers at JPMorgan’s New York headquarters raised their champagne flutes for a toast: “His Majesty the King”.
By Rachel Reeves Just days before the Budget – amid the Chancellor’s efforts to calm trade fears and bond market jitters – Wall Street banking giant boss Jamie Dimon was hosting a birthday bash for King Charles at his new $3bn (£2.3bn) Manhattan headquarters.
Despite the Union Jack being displayed on the skyscraper, the King was not there. However, the Prime Minister’s envoy Varun Chandra was among the 400 guests. According to the Financial Times, the JP Morgan boss was sent to reassure Labor about its pro-business stance.
This week – hours after the banks were exempted from tax rises in Reeves’s £26 billion budget – Dimon unveiled plans to build a 279,000-square-metre (3 million sq ft) tower in London’s Canary Wharf district, warning that there was a need for a “continued positive business environment in the UK”.
It is understood that planning issues and long-term considerations are more important for the Bank than any single budget. But the episode still highlights how financial services has achieved a prized status in government, amid vigorous lobbying by the city to ensure it was one of the few off-limits areas in Reeves’s smorgasbord tax-hike budget.
Labor has been rolling out the red carpet for Wall Street and City financiers for months amid a sweeping campaign to woo bankers and company owners after the party’s pre-election love affair with industry soured.
Norman Blackwell, former chairman of Lloyds Banking Group, who also advised Margaret Thatcher on policy in the 1980s, said Reeves had to “get to work” to rebuild confidence in the city after the £40 billion tax-raising Budget of 2024.
“Before the elections they talked as if they would be a party that would recognize the importance of wealth creation in the economy by business and entrepreneurs. Everything they have done in government has gone in the opposite direction.
“He’s raised taxes on business, increased regulation in the labor market, (and) threatened high earners and non-doms. If you look at the number of entrepreneurs and rich people leaving the country — he’s convinced people that he doesn’t value entrepreneurs and won’t support them.”
Despite the relief for banks, he said the budget was still unlikely to be of much help as it would do little to boost UK growth. “This is a budget that takes the economy in the wrong direction, and in that sense is self-defeating in terms of growth and future government revenues.”
Much of the reasoning behind rearguard action is practical. Reeves sees the city as vital to the government’s growth mission, with financial services among the eight key sectors championed in Labour’s industrial strategy. Finance contributes about one tenth of Britain’s GDP, employs 1.2 million people, and brings in more than £40 billion a year into the government coffers.
In Birmingham earlier this autumn, the Chancellor hosted a gala dinner for 300 financiers and business chiefs – featuring a ballet and a spoken word poetry reading – on the eve of its first regional investment summit. Sponsored by HSBC, Lloyds, Eon, KPMG and IBM, the event, held at the Edgbaston cricket ground the following day, secured more than £10 billion of investment in the UK.
However, Labour’s proximity to the boardrooms of the Square Mile does not sit well with the party’s own MPs and voters, for whom memories of the 2008 financial crisis still sting. Most people – including most of those considering voting for Nigel Farage’s Reform UK – would have supported a windfall tax on banks in the Budget.
Sarah Hall, co-executive director of campaign group Positive Money, said, “The Chancellor’s failure to impose a windfall tax on the banking sector in the Budget is a serious indictment of the hold this sector has on our politics.”
“It is deeply worrying that while the public has been asked to contribute more to fixing our crumbling public services, the banks have been left out – it is time we had a proper public conversation about the lobbying and influence of this sector.”
Last month Reeves hosted Goldman Sachs boss David Solomon at No. 11 Downing Street, with the head of the Wall Street firm advising him against increasing bank taxes. Politico reported that he tore up his briefing notes to focus specifically on the issue, a detail the bank denied.
This week, after the Budget, Goldman announced it would expand its Birmingham office and hire 500 staff, a move that would more than double its headcount in Britain’s second-largest city.
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The story could have been different. Reeves was actively considering a billion-pound bank windfall tax to raise funds to help repair the public finances and removing the two-child benefit limit.
In August a paper by the Institute for Public Policy Research thinktank estimated that Reeves could command as much as £8bn, triggering a sell-off in UK banking shares and prompting the industry to lobby hard.
Reeves’ office was angered by the IPPR report suggesting a windfall tax and the subsequent stock price reaction. However, insiders said the Treasury had requested to see the report before its publication.
The Guardian also understands that the bank’s profits – boosted by the Bank of England’s quantitative easing scheme – were scrutinized by Treasury officials on the instructions of ministers in the preparation of the budget.
“Sometimes we face criticism in meetings with HMT,” said a senior banker.
“One minute they (senior executives) are incredibly nervous about inward investment, the next moment they’re suggesting that major structural problems are the fault of businesses. Narratives like the lenders are the real stumbling block to growth. I think they’ve realized the City can’t be taken lightly. London is one of many financial centers for global banks.”
London’s highly-paid corporate lawyers were also among those who expressed relief after the Budget avoided the threat of tax on their earnings. Reports suggest that Reeves was considering scrapping the exemption for limited liability partnership members from national insurance – a move which could have raised £2 billion.
Mark Evans, chairman of the Law Society, the body representing lawyers, welcomed the relief this week, saying it would have been damaging to the UK economy and claiming law firms would not be able to invest, hire and contribute to growth.
Banking industry figures say the sector pays a 28% headline rate of corporation tax, above the standard 25% rate imposed on company profits, in addition to a 0.1% levy on banks’ balance sheets. “It’s hard to say we don’t pay our fair share, because we pay more,” said one bank lobbyist.
However, banks still managed to make record profits, benefiting from rising interest rates and the closure of the bank quantitative easing scheme. Overall, Positive Money estimates that banks will make £24.1 billion in the first half of 2025 alone, which equates to around £1 billion per week.
Speaking earlier this autumn, TUC general secretary Paul Novak said it was common sense for banks to pay a little more to help Britain rebuild. “The banks have done a great job with the British people. It’s absolutely right that they should use their bumper profits to invest in our hospitals, schools and local councils without paying a little more in tax.”
The Treasury has been contacted for comment. JPMorgan declined to comment.
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