‘The City can’t be taken for granted’: how banks won over Rachel Reeves | Budget 2025

Financiers at JP Morgan’s New York headquarters held up champagne flutes in toasts over canapés of beef and stilton pie, bone marrow sauce and tender peas: “His Majesty the king.”

Just days before Rachel Reeves’ budget – amid the Chancellor’s efforts to ease trade fears and bond market jitters – Wall Street banking firm Jamie Dimon was hosting a birthday celebration for King Charles at his new $3bn (£2.3bn) headquarters in Manhattan.

Despite the British flag on the skyscraper, the king was not there. However, the prime minister’s envoy Varun Chandra was also among the 400 guests. According to the Financial Times, he was sent to reassure the JP Morgan boss about Labour’s pro-business stance.

This week – just hours after Reeves sidestepped a tax hike on banks in his £26bn budget – Dimon unveiled plans to build a 279,000 square meter (3m sq ft) tower in London’s Canary Wharf, warning that a “continued positive business environment in the UK” was needed.

It appears that planning issues and long-term considerations are more important to the bank than any budget. But the episode still highlights how financial services gained a prized status in government amid the City’s relentless lobbying to ensure it was one of several banned sectors in Reeves’ buffet tax-raising budget.

Labor has been rolling out the red carpet for Wall Street and City financiers for months, amid a much wider campaign to woo bankers and corporate bosses after the party’s pre-election fondness for the sector soured.

Norman Blackwell, the former chairman of Lloyds Banking Group who also advised Margaret Thatcher on policy in the 1980s, said Reeves had “work to do” to rebuild the city’s confidence after his £40bn tax-increasing 2024 budget.

“Before the elections, they were talking as if they were a party that would understand the importance of business and entrepreneurs creating wealth in the economy. Everything they did in government went in the opposite direction,” he said.

“They increased taxes on businesses, increased regulations on the labor market, [and] threat to high earners and non-doms. “If you look at the numbers of entrepreneurs and wealthy people leaving the country, they have convinced people that they do not value entrepreneurs and will not support them.”

Blackwell said that despite the banks’ reprieve, the budget would still be of little help because it would do little to boost Britain’s growth. “This is a budget that is taking the economy in the wrong direction and in that sense is self-defeating in terms of growth and future government revenues.”

Much of the logic behind the rearguard action is pragmatic. Reeves sees the City as a critical region for the government’s growth mission, with financial services among the eight critical sectors supported by Labour’s industrial strategy. Finance contributes almost a tenth of UK GDP, employs 1.2 million people and generates more than £40bn a year for the exchequer.

In Birmingham earlier this autumn, the chancellor hosted a gala dinner for 300 financiers and business leaders, staging a ballet performance and spoken word poetry reading on the eve of his first regional investment summit. Sponsored by HSBC, Lloyds, Eon, KPMG and IBM, the event, held the next day at Edgbaston cricket ground, generated more than £10bn of investment for Britain.

But its proximity to Labour’s meeting rooms in the Square Mile is a poor fit for the party’s own MPs and voters still stung by memories of the 2008 financial crisis. Most people, including the majority of those considering voting for Nigel Farage’s UK Reform, would support introducing a windfall tax on banks in the budget.

“The Chancellor’s failure to introduce a windfall tax on the banking sector in the budget is a damning indictment of the stronghold the sector continues to have over our politics,” said Sara Hall, co-managing director of campaign group Positive Money.

“It is deeply worrying that banks are getting away with impunity while the public are being asked to contribute more to fixing our crumbling public services – it is high time we have a proper public conversation about the industry’s lobbying and influence.”

Last month Reeves hosted Goldman Sachs boss David Solomon At No 11 Downing Street, the head of a Wall Street firm was advising him against rising bank taxes. Politico reported that he tore up the briefing notes to focus solely on the issue, but the bank denied that detail.

This week, following the budget, Goldman announced it would expand its Birmingham office and hire 500 staff; it was a move that would more than double the workforce in the UK’s second largest city.

The story could have been different. Reeves was actively considering a multibillion-pound windfall bank levy to help repair the public finances and fund the removal of the two-child benefit cap.

In August, a paper by the Institute for Public Policy Research think tank estimated that Reeves could earn as much as £8bn; The report triggered a sell-off in UK banking shares and spurred the industry to lobby harder.

Reeves’ office was outraged by the IPPR report recommending an unlikely tax and the subsequent share price reaction. But insiders said the Treasury wanted to see the report before it was published.

The Guardian also understands bank profits, inflated by the Bank of England’s QE plan, are being scrutinized by Treasury officials after ministers instructed to increase the budget.

“From time to time we get great response in our meetings with HMT,” said a senior banker. “One minute [senior officials are] They are incredibly nervous about inward investment, then argue that major structural problems are the businesses’ fault. Narratives like lenders are the real handbrake on slow growth. I think they realized that the city cannot be taken lightly. “London is one of many financial centers for global banks.”

London’s highly paid corporate lawyers were among those expressing relief after the budget after being spared the threat of taxes on their earnings. Reports suggested that Reeves was considering eliminating the national insurance exemption for limited liability partnership members; this move would raise £2bn.

Mark Evans, chief executive of the Law Society, a body that represents lawyers, this week welcomed the delay, saying it would harm the UK economy and claimed law firms would be unable to invest, recruit and contribute to growth.

Banking industry figures said the sector pays a 28% corporate tax rate, above the standard 25% rate applied to company profits, in addition to a 0.1% tax on bank balance sheets. “It’s hard to say we’re not paying a fair share because we’re paying more,” said one bank lobbyist.

But banks still managed to make record profits, taking advantage of rising interest rates and the end of the Bank’s quantitative easing plan. In total, Positive Money estimates banks will make £24.1bn in the first half of 2025 alone; That’s almost £1 billion a week.

Speaking earlier this autumn, TUC general secretary Paul Nowak said it was prudent for banks to pay a little more to help rebuild Britain. “Banks have been very good to the British people. It’s right that they use their high profits to pay a little more tax to invest in our hospitals, schools and local councils.”

The Treasury was contacted for opinion. JP Morgan declined to comment.