UK General Election: Impact on banks

Publication April 2015


In the run up to the 2015 election, this briefing looks at how the key party manifesto pledges impact both directly on banks and indirectly as part of the wider business community. Six years on from the financial crisis, whilst tax and regulatory reforms continue to feature in the manifestos of all three main parties, employment and pensions reforms point towards a “brighter, more secure future”1 but also a constitutionally uncertain one, with EU and Scottish referendums at the centre of electoral debate.

Banking Reform and Competition

Each of the Liberal Democrat, Conservative and Labour parties are committed to continuing with the cycle of reform to the banking sector, including the ring-fencing of investment business (see further our Financial Services Regulation briefing).

Unsurprisingly, there is also a common desire to improve the funding of small and medium sized businesses and house-buyers, encouraging new challenger banks to enter the market with the ability to compete with existing high street lenders although it is unclear to what extent the promise in relation to retail banking is tied to the current retail banking market investigation; or how “new” the new challenger banks will be.

There is general consensus by all parties for continued support for, and extension of services provided by, the Green Investment Bank, a government owned bank that has been investing in UK based green infrastructure projects since 2012 (see further our Energy briefing).

The parties differ in that the Conservatives want Britain to have the toughest regime of bonus deferral and clawback of any financial centre and they intend to continue to sell the government’s stakes in the bailed-out banks and building societies. They pledge to continue the Funding for Lending scheme into 2016 and improve funding via the British Business Bank. The British Business Bank does not currently lend but informs SMEs about available funding options and finds lending partners. As part of the British Business Bank, the government recently announced a new Help to Grow Scheme intended to source unsecured junior or mezzanine investors to established businesses looking for substantial growth.

The Liberal Democrats also intend to expand the British Business Bank to tackle the shortage of equity capital for growing firms and provide long-term capital for medium-sized businesses. They pledge to encourage a new community banking sector to support small and medium-sized enterprises and social enterprises, and to establish a new government-backed Housing Investment Bank to provide long-term capital for major new settlements and help attract finance for major house building projects.

Labour pledge to establish a British Investment Bank to improve access for co-operative and mutual organisations to growth finance supported by a network of regional banks. This would be expected to reflect the recommendations of the 2011 report by Nick Tott2 to create a new lender to fund SMEs and infrastructure projects alongside private lending.

Business uncertainty – EU and Scottish referendum risk

The prospect of an EU referendum in the next parliament is clearly a key area of concern for banks and the wider UK financial services industry . The Conservatives if elected, have pledged to hold a referendum on the basis of a renegotiated membership for the UK. Labour in their manifesto agree that the UK’s membership needs to be renegotiated but do not commit to a referendum, pledging instead to legislate for a “lock” guaranteeing an “in/out” referendum in the event that powers are “transferred”3 to Brussels. The Liberal Democrats state that their intention is to keep the UK in the EU but also do not fully discount the possibility of an “in/out” referendum should there be a “material4 transfer of sovereignty” from the UK.

A recent FT article quoted an influential think-tank Open Europe report warning that a “Brexit” could cost the British economy up to £56 bn a year and the potential impact of an EU exit on the economy, trade and the financial services industry has already been well documented. From a legal perspective, any exit5 would also clearly necessitate a lengthy period of negotiation and legislative reform at both a national and supranational level, all of which would be difficult to predict and would depend at the time on how any exit is managed by the UK government and its EU counterparts at the time. For the business community, the concern is also one of a sustained period of economic uncertainty in the run-up to any referendum that might take place and what contingency planning might need to be put in place to prepare for such Brexit risk.

The recent Scottish independence referendum has been a timely reminder of how difficult it may be to predict the outcome of any referendum and the potential impact on business confidence and short to long term planning until the result is known. The after effects of the September referendum is evident in the manifestos of all the main parties with pledges across the board supporting further devolution for Scotland and Wales. However, the continuing growth in support for the SNP, its possible role as a coalition partner in the event of a hung parliament and the SNP’s refusal to rule out a further referendum in the short to medium term, means that Scottish independence risk still hovers on the horizon for the wider business community, including banks.


Although the Labour, Conservative and Liberal Democrat manifestos promise to maintain the UK’s competitive corporate tax rates, Labour and the Liberal Democrats do espouse policies which will increase the tax burden for banks. Whilst the Conservative and Liberal Democrat manifestos merely promise to keep the bank levy in place, under the Coalition the rate of the levy has, of course, increased. Labour has undertaken to increase it; and the Liberal Democrats have undertaken to introduce a “time-limited supplementary corporation tax charge on the banking sector”.

All three parties promise to be tough on tax avoidance. The Conservative manifesto is light on detail but the Labour manifesto does pledge to “end unfair tax breaks used by hedge funds and others”. What this is referring to can be gleaned from Labour’s Ten Point Plan to Tackle Tax Avoidance which had been set out earlier by the Shadow Chancellor. In relation to the funds themselves, this is aimed at the stamp duty paid by them. The Ten Point Plan also included the proposed abolition of the Quoted Eurobonds exemption from withholding tax. The Liberal Democrats want the Bank of England’s Financial Policy Committee to “consider the approach to paying tax taken by banks for themselves, their employees and their customers, as part of their assessment of the risks posed by the sector.”

The Labour and Conservative manifestos also look at the position of employees in the banking and financial services sectors. Labour promises to introduce a Bank Bonus Tax6 and, in relation to investment managers, they plan to tax carried interest as income when the managers “have not been investing their own money”. The Conservatives promise to “ensure that Britain continues to have the toughest regime of bonus deferral and clawback of any financial centre”. These may not be each party’s last word on this subject.

Of course, there are other tax proposals that could affect bank employees, most notably the proposals to alter or abolish the non-dom regime.


There are a number of employment related pledges in the manifestos that will impact on all businesses, including banks. These include pledges around paternity leave, volunteering leave (aimed at large companies as well as the public sector) and more transparency on pay.

A particular employment hot topic of this election is the debate around zero-hour contracts, with advocates arguing that such contracts have been good for business, allowing employers to be more flexible about taking on staff and helping to create employment opportunities and flexible working opportunities but detractors arguing that such contracts fail to provide sufficient job security and prevent individuals from accessing finance in the same way as those on fixed hour contracts and incomes. Labour pledges to ban zero hour contracts and other parties plan to review or revise such contracts (the Conservatives propose banning zero-hour contracts that bar an employee from seeking work elsewhere).

Further details on key employment pledges of interest to businesses can be found in our Employment briefing.


Since the last election, there have been substantial reforms to the pensions industry, including the introduction of auto-enrolment and the flexible access regime. The manifestos of the three main parties reveal a consensus for continued reform in the pensions arena, specifically in relation to tax relief on pension contributions at least for high earners. Further details on pension pledges impacting on bank employees can be found in our Pensions briefing.

Tackling the deficit

The Conservatives commit to reducing government spending by one per cent each year in real terms for the first two full financial years of the next Parliament to be achieved through a combination of departmental savings, welfare savings, tackling tax evasion, aggressive tax avoidance and tax planning. The second phase of the reduction plan to start in 2018/19 promises the elimination of the national debt and a return to surplus through controlled spending.

Labour pledge to cut the deficit year on year through spending reductions, outside of the protected areas of health, education and international development, by introducing a 50p rate of tax on those with incomes over £150,000 a year, by controlling social security spending, capping child benefit rises for two years, means testing winter fuel payments, cutting and freezing ministerial pay and taxing properties worth over £2 million. They will implement the proposals of their zero-based review identifying savings through reforming government bureaucracies, devolving power and services to towns and cities, redesigning public services and using digital technology to create a more responsive, devolved, and less costly system of government.

The Liberal Democrat objective is to eradicate the budget deficit by 2017/18 and have debt falling as a percentage of national income, so it is back to sustainable levels by the middle of the next decade. They intend to achieve this by a combination of spending cuts and tax rises aimed at the wealthiest, banks and big business, and on polluters, and by bearing down on tax avoidance. They aim to carry out a full spending review after the election and focus on delivering efficiency, funding proven spend-to-save initiatives and investing in technology to get public services and frontline staff online.


All of the parties to varying degrees recognise the need to control national debt and banks will no doubt be expected to accept a direct ongoing burden in achieving this following the financial crisis, however there are considerable differences in party views as to the form and extent of that support.

The main parties are keen to promote increased competition in the retail banking sector and further promote business lending.

There is potential for the election to create uncertainty surrounding the UK’s ongoing membership of the EU and it remains to be seen how this would impact the UK economy.



Conservative Manifesto 2015.


The case for a British Investment Bank: A report for Labour's Policy Review.


The exact “transfer” trigger is not elaborated on in Labour’s manifesto.


The “materiality “ test is also not elaborated on in the Liberal Democrat’s manifesto.


A number of scenarios as to how a UK might both remain (in a reformed EU) or exit have been considered in various legal briefings.


The Labour manifesto states that the Bank Bonus Tax would pay for a Compulsory Jobs Guarantee aimed at guaranteeing a paid starter job for every young person unemployed for over a year.

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