The Treasury has asked banks to publicly praise the Budget after Rachel Reeves spared them from higher taxes, it has emerged.
The Chancellor’s officials are reported to want lenders to make public and prominent endorsements of Ms Reeves’ latest fiscal package when she unveils it tomorrow.
The chaotic build-up to the Budget, including a U-turn on plans to raise income tax rates, has led to fresh questions about the Chancellor’s political future.
As she scrambles to shore up her position, the Financial Times reported on efforts to get banks to make positive statements about Ms Reeves’ actions.
But Government officials told the newspaper there had been no ‘deal’ with the sector, after it was also revealed the Chancellor had decided against increasing bank levies.
Shares in major UK banks rose on Tuesday as worries eased about Ms Reeves hiking taxes on them.
Lloyds Banking Group, Barclays and NatWest were among the biggest risers on the FTSE 100 on Tuesday morning with their share prices up by about 2 per cent.
It had previously been claimed the Chancellor was considering an increase in taxes on bank profits.
The Treasury has asked banks to publicly praise the Budget after Rachel Reeves spared them from higher taxes, it has emerged
The Chancellor is pictured returning to a back entrance of Downing Street after going for a run on Tuesday
The Institute for Public Policy Research (IPPR) think tank said in August that hiking levies on the profits of British banking giants could raise up to £8 billion a year.
But the Chancellor will reportedly avoid hitting lenders with higher taxes in her Budget and instead call for them to show how they plan to improve lending to first-time buyers and small businesses.
It follows a sustained period of lobbying among bank chiefs and City leaders who have argued that higher taxes would be at odds with Labour’s pro-growth mission.
One leading City figure told the Financial Times that Ms Reeves had asked financial services bosses to adopt an optimistic tone.
‘There was a frustration that the Government’s positive messaging about the economy was being undermined by unwelcome commentary,’ they said.
A Government official told the newspaper: ‘The Chancellor does want business to highlight the positives more.’
Gary Greenwood, an equity analyst for Shore Capital, said the ‘quid pro quo’ for being spared tax rises is that big banks ‘will need to demonstrate a willingness to grow even faster than they are doing in order to support the economy’.
He said this could mean investing more into lowering pricing to ‘create additional demand for credit’ rather than ‘harvesting the benefits of higher interest rates’ by handing out more cash to shareholders.
But he added the market was ‘likely to breathe a sigh of relief’ over the reports that banks will be spared, and the fact that the Chancellor was ‘recognising the importance of the banking sector to growing the economy’.