The City of London Corporation has expressed strong concerns over potential plans to increase taxes on the banking sector in the upcoming UK Budget, warning that higher levies could negatively impact the broader economy. Chris Hayward, policy chairman at the Corporation, cautioned that additional tax burdens on banks might reduce their ability to lend and could drive investment away from Britain.

The warnings come as Chancellor of the Exchequer John Healey and City Minister Lucy Rigby met with chief executives from major British banks—including Lloyds, HSBC, NatWest, and Barclays—in Downing Street. This marked their first face-to-face discussions since Healey assumed office in July. Bank leaders reportedly urged caution, highlighting the risk that a new bank tax could deter international investors, many of whom hold significant shares in UK lenders.

There is also debate within the financial sector about the Treasury’s approach. Some executives have expressed concern that proposed windfall taxes may target only British banks while exempting international lenders operating in the UK. Jamie Dimon, CEO of JP Morgan, criticized such proposals, calling them “unfair” and lacking in principle during an interview earlier this week.

Despite the mounting pressure, the Chancellor reportedly emphasized Britain’s difficult fiscal position but did not commit to any decisions regarding the bank levy. Market reactions to the uncertainty have been sharp; shares of Lloyds have declined more than 7 percent over the past month, while Barclays shares have fallen nearly 10 percent during the same period.

Hayward stressed the importance of viewing banks as “drivers of growth” essential to supporting small businesses and the wider economy, rather than as entities to be taxed for immediate government revenue. He noted that British banks already face some of the highest tax rates globally, near 47 percent according to UK Finance, and pointed out that this places them under pressure compared to their European counterparts.

Amid concerns about the tax outlook, UK investors have pulled money from stock funds for the fifth consecutive month, with a particularly sharp outflow from British equities. Data from Calastone revealed a net £858 million withdrawal from stock funds in May, of which £708 million came from UK shares alone. Edward Glyn, head of global markets at Calastone, attributed this trend to speculation over potential tax increases prompting some investors to realise profits.

Elsewhere, former Bank of England chief economist Andy Haldane urged the government to implement spending cuts in the upcoming Budget to maintain fiscal discipline. He warned that the UK’s public finances were precarious and that failing to control spending risked undermining economic and political stability. Haldane emphasized to CNBC that avoiding a fiscal crisis was crucial to maintaining confidence in bond markets and the broader economy.