Britain's biggest banks issue major warning to Andy Burnham over 'damaging' windfall tax

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Higher levies could threaten Mr Burnham's ambition to deliver 'growth in every postcode'

Britain's biggest banks have fired a warning shot at Prime Minister Andy Burnham, urging him not to impose a "damaging" windfall tax on the financial sector.

The intervention comes as speculation mounts that Chancellor John Healey could target bank profits in his first Budget on October 28.

UK Finance, the industry lobby group, wrote to the Government on Thursday expressing alarm that heavier levies would threaten Mr Burnham's ambition to deliver "growth in every postcode".

The organisation said it was "concerned that increasing taxes on banks would ultimately risk undermining the very tax base the Government seeks to protect and grow, as well as damaging the UK's international competitiveness".

It added that raising already steep sector-specific taxes "would run counter to the wider growth agenda".

According to UK Finance, British banks already shoulder one of the heaviest tax burdens globally, paying close to 47 per cent. That figure dwarfs the rates levied in competing financial centres.

New York charges just 28 per cent, making it by far the cheapest of the major hubs. Frankfurt sits at 39 per cent, while Amsterdam demands 42 per cent.

The UK's elevated rate reflects a three per cent corporation tax surcharge applied to profits exceeding £100million, on top of a separate levy based on the value of banks' assets.

The competitive gap could widen further. Germany is planning to reduce its corporation tax by 1 per cent annually between 2028 and 2032.

That trajectory would make Frankfurt an increasingly attractive alternative for banking operations, UK Finance warned.

The Green Party has called for a 38 per cent windfall tax on all bank profits above £800million.

The proposal is designed to generate £19bn for the Treasury, which would be used to cut National Insurance for small businesses.

Senior figures in the banking world have also spoken out against fresh levies. Jamie Dimon, the chief executive of JP Morgan, warned Mr Healey earlier this week that raising taxes on UK banks could push staff overseas.

Mr Dimon reportedly told the Chancellor that London's higher tax burden had already contributed to jobs leaving the city.

Sir Howard Davies, the former NatWest chairman, has similarly cautioned Mr Burnham. He told The Telegraph last week that additional bank taxes risked driving banking activities to other countries.

The banking sector contributes more than £1 in every £25 of the UK's total economic output, according to UK Finance. The lobby group argued that this substantial footprint makes it essential for the Government to align its approach to taxation and regulation.

"At a time when peer jurisdictions are seeking to improve their competitiveness, it is vital that the UK's approach to both tax and regulation pull in the same direction, supporting investment and the sector's capacity to finance growth across the economy," the organisation said.

The letter acknowledged the fiscal pressures facing the Government.

But UK Finance maintained that penalising the sector with additional charges would ultimately weaken its ability to fund economic expansion across the country.