Lloyds Banking Group, one of the UK’s biggest banks, has shown support for the Labour government’s upcoming budget, even though it might include tax increases. The bank believes the budget will have a “constructive, pro-growth agenda” that will help the country’s economy grow.

William Chalmers, the chief financial officer of Lloyds, said he looks forward to a budget that is consistent with the government’s promises to boost growth and investment. These investments are likely to focus on key areas like energy, infrastructure, and housing. Despite some worries about potential tax changes, Lloyds sees the bigger picture and wants to be part of a plan that encourages growth.

This backing from Lloyds is seen as a big boost for the Labour government. The government has faced criticism from some businesses that are worried about the possibility of higher taxes and increased costs for employers. For example, the budget, which is expected to be presented by Chancellor Rachel Reeves next week, could include higher national insurance contributions for employers and new workers’ rights.

Chalmers did not go into detail about how specific tax proposals might affect Lloyds. He stayed neutral on whether things like increased National Insurance Contributions (NICs) or changes to stamp duty exemptions would directly impact the bank. However, he did make it clear that Lloyds is looking at the overall plan. “Whatever the tax changes might be, we believe they will be pursued in the context of a constructive, pro-growth agenda,” he said. “And it’s that overall balance, that pro-growth agenda, that we would seek to be a part of going forward.”

Getting Cozy with Labour

In recent months, Lloyds has been building a closer relationship with the Labour party. Even before Labour won the general election in July, the party was trying to win over big businesses by meeting with leaders in the financial sector. This move seems to be paying off as more businesses, including Lloyds, are aligning with Labour’s plans.

Last year, Lloyds’ chief executive, Charlie Nunn, started advising Labour on its investment plans as part of a special group called the British Infrastructure Council. Recently, this council was re-launched as a government task force, aiming to help boost infrastructure across the country. Earlier this month, Lloyds even sponsored an international investment summit hosted by the government, which reportedly cost the bank up to £250,000.

Chalmers mentioned that he expects the budget to provide much-needed “certainty and clarity.” This, he believes, could open up more opportunities for both the bank and its customers to invest in projects that promote growth. Areas like housing, infrastructure, and energy are likely to be high on the list of investment opportunities if the budget is favorable. “If the budget affords us opportunities,” Chalmers said, “we’d very much like to continue to invest in those.”

Pension Concerns

Despite the positive outlook from Lloyds, some customers are a bit nervous, especially those with pensions. Chalmers admitted that there has been a small increase in pension withdrawals because of concerns over possible tax changes. For instance, there is a rumor that Chancellor Reeves might lower the tax-free threshold for pension withdrawals from £268,275 to £100,000. This means that people taking out money from their pensions could end up paying more tax.

There’s also talk of a possible flat rate of 30% tax relief on pension contributions. Currently, the amount of tax relief a person gets is based on their income tax rate. This change could affect how much money people can save on their pensions.

However, Chalmers downplayed these concerns, saying the increase in pension withdrawals has been small and starts from a low base. He believes the overall impact will be minor, though it is something that the bank is keeping an eye on.

Labour’s Big Plan

Labour’s budget is expected to include a mix of tax increases and spending cuts, amounting to about £40 billion. The goal is to address a £22 billion gap in the country’s public finances, which Labour says it inherited from the previous Conservative government. This budget will be Chancellor Reeves’ first, and many are eager to see how she balances the need for investment with the need to raise money through taxes.

Lloyds, along with other businesses, is hoping that the budget provides certainty and stability. Chalmers echoed this sentiment, saying, “We and everybody else look forward to the certainty that the budget will provide, and hopefully the promotion of growth thereafter.”

A Solid Performance Despite Challenges

Lloyds recently reported its financial results for the third quarter, showing a 1.8% drop in pre-tax profits, down to £1.8 billion. While this might sound like bad news, it was actually better than what analysts expected, as they had predicted profits of around £1.6 billion.

The bank’s strong financial position has allowed it to keep its profit forecasts for the full year unchanged, even though it raised its expectations for house price growth in 2024. Lloyds now expects house prices to grow by 3.1%, up from its previous forecast of 1.2%.

Richard Hunter, head of markets at Interactive Investor, said Lloyds’ performance was steady but not extraordinary. “Overall, these results do not shoot the lights out, but they do provide a large element of comfort that Lloyds continues on its positive direction,” he said. Hunter pointed out that Lloyds is working to become a more streamlined and digital business while also diversifying its income streams through credit cards and insurance.

Lloyds’ steady performance and its commitment to Labour’s pro-growth agenda suggest that the bank is well-positioned to thrive, even in the face of potential tax increases. By supporting Labour’s budget, Lloyds is betting on a future of growth, stability, and investment in key areas like housing and infrastructure.