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The chief executive of Lloyds Banking Group – the UK’s biggest lender – has warned whoever wins the general election that they will not be able to fuel growth by increasing government borrowing.

Charlie Nunn said the UK’s national debt had been forced higher in the last decade and a half due to “massive shocks” such as the global financial crisis, the pandemic, the war in Ukraine and also by some issues specific to the UK economy.

Limits on investment

And, speaking exclusively to Sky News, he said this would limit the next government’s ability to invest.

He said: “We have increased the government debt ratio for the UK. And…we should just accept the government can’t pay its way out of this next stage.

“The US in the last few years has gone up to a… 7.5% government [deficit] to GDP ratio. The US can do that because it’s growing at above 3%, but also it’s [the US dollar] the world’s reserve currency.

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“We don’t have those options in the UK – but what we do need is a really clear plan and set of priorities for the UK. And then…we need to find the right way of getting the very material amount of private money, international and domestic, that is excited about investing in the UK to invest alongside government.

The biggest challenge

“I think we can create that positive momentum for investment in jobs and business growth. And then that will feed through into the economy. That has to be the unlock from these three or four very systemic shocks that the UK economy has experienced in the last 16 years.”

Mr Nunn, who has served on both Prime Minister Rishi Sunak’s business council and the British Infrastructure Council launched by the shadow chancellor Rachel Reeves, said this would be the biggest challenge for the next administration.

He added: “When you look at the next few years for the next government, the real issue is how are we going to get investment into the economy – and that investment isn’t going to come from the government. It’s going to have to be crowding in international foreign direct investment, leveraging the banking system to really support customers, investing in their businesses and creating jobs and employment in growth and then supporting other financial institutions and pools of capital like pension funds for that investment.

“So the real focus has to be how do we get some growth going and how do we bring in private money alongside the government to make that difference? And that’s what will give the best outcome for the country, but also the government’s own finances.”

‘Very high’ business sentiment

Mr Nunn, who said business sentiment was “actually very high” at present, said a clear government plan and set of priorities could unlock three things.

He went on: “The first is we need to get more private, both domestically and international investment into the UK to support growth, and that needs to come with some supply-side reforms.

The second is housing. Housing really is an important topic for the UK, from social housing all the way through affordable housing and in the broader housing market. We think you need a 10-year plan to unlock the housing investment that would be needed to really make a difference.

“And then the third thing that we think that could make a difference is focusing on long-term savings and investments, both building financial resilience for businesses and consumers in the UK, but also then how we use those savings, those savings pots, to invest back in the UK economy.

“We think there’s opportunity to do more.”

General view of signage at a branch of Lloyds bank, in London, Britain October 31, 2021. REUTERS/Tom Nicholson
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Pic: Reuters

Investors looking for ‘stability and a plan’

Lloyds is the owner of Halifax, the UK’s biggest mortgage lender, as well as being the UK’s biggest current account provider and one of its biggest players in business banking and credit cards and owner of the life and pensions giant Scottish Widows.

Mr Nunn said that, as chief executive, he met many businesses and was clear what they wanted from the next government.

He went on: “I spend a lot of time with entrepreneurs across the UK, but also big international finance houses, whether they’re pension funds or institutions looking to invest in the UK. The first thing that’s consistent across them is they’re looking for stability and a plan.

“And I think that’s the first thing for a new government, which is to provide that stability and to provide thinking, in some of these areas around infrastructure and housing, which is 10 years thinking not shorter-term thinking. So that’s the first thing they’re looking for.

“The second big theme, which is really consistent, is there are some supply-side issues… which are getting in the way of businesses getting a return on their investments. And obviously, there’s been good discussion around planning around connectivity to the [electricity] grid, around skills. Those are the three topics that businesses always identify.

‘Two to four times longer to get a return on UK investment’

“And what does it mean for investors, whether it’s a business or international investor? Typically, they’ll tell you it takes two to four times longer to get a return on your investment in the UK than it does in other countries of the world. And that’s really where we need to focus.”

Interest rates

Mr Nunn, who in August will mark his third anniversary as chief executive of the black horse bank, said the interest rate cuts from the Bank of England expected later this year would be “beneficial” – but warned homeowners not to expect a return to the ultra-low interest rates seen for most of the last 16 years.

He added: “Of course, the short-term impact of interest rates is going to impact, first of all, the government on the cost of government debt. That will be important. And secondly, it’ll make the cost of borrowing for businesses short term more attractive…that’ll be important.

“In terms of the impact on the broader consumer in the UK, it’ll take longer to feed through. Around mortgages specifically, we’ve just come off a decade where mortgages have been in the 1.5-2.5% range.

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“The expectations the market have is that interest rates probably won’t get below 3.5%. And that means mortgages, or the new normal for mortgages, will be in that 3.5-4.5% range, not 1.5-2.5%.

“So there is going to be a higher cost of borrowing in the economy, probably based on what we can see happening at the moment.

“But a reduction in rates will be good for the government’s own capacity to invest and will support the economy and it should be good for business.”

Bank of England proposals

Mr Nunn also questioned proposals for the Bank of England to pay no interest to banks on the reserves they have deposited at the Bank of England – a measure that Reform UK has claimed could raise £40bn that could be used to cut taxes.

The Lloyds chief executive said: “Obviously that will be a political decision and not one that we’ll get directly involved with. The statement from the governor of the Bank of England was an important one in this context…he wouldn’t support it because it would start to undermine monetary policy and specifically how…interest rates feed through into the economy, through the commercial banks, through organisations like Lloyds Banking Group.

“I think that’s a really important consideration. In terms of the quantum of impact, there are various estimates out there, but I think the quantum of impact that’s been talked about is significantly more than I think would be realistic. And so it will be a political choice.

But you really need to look at the integrity of what the Bank of England does and whether or not monetary policy works effectively in the economy.”

Growth through financial regulation

Mr Nunn also said there was an opportunity for a new government to boost the economy through financial regulation, building on the new objectives recently set for financial regulators by the current government, which obliged the Financial Conduct Authority and the Prudential Regulation Authority to enable competitiveness and growth both for the banking sector and the UK economy as a whole.

Stressing he was not calling for a return to the looser regulation seen prior to the financial crisis, he added: “There are choices about how do we help customers take the right level of risk…how do businesses and entrepreneurs take the right level of risk and what can financial services do safely to support that?

“When I look at what the UK is doing relative to other countries, we haven’t had that as a really clear objective and I think there’s more we can do that can untap opportunities for businesses, for families in the UK, over the coming years.”

He said the US and Canada could be a good template for the UK in that respect.

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City veteran Kheraj in contention to chair banking giant HSBC

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City veteran Kheraj in contention to chair banking giant HSBC

Naguib Kheraj, the City veteran, has been shortlisted to become the next chairman of HSBC Holdings, Europe’s biggest bank.

Sky News can reveal that Mr Kheraj, a former Barclays finance chief, is among a small number of contenders currently being considered to replace Sir Mark Tucker.

HSBC, which has a market capitalisation of £165.4bn, has been conducting a search for Sir Mark’s successor since the start of the year.

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In June, Sky News revealed that the former McKinsey boss Kevin Sneader was among the candidates being considered to lead the bank, although it was unclear this weekend whether he remained in the process.

Mr Kheraj would, in many respects, be seen as a solid choice for the job.

He is familiar with HSBC’s core markets in Asia, having spent several years on the board of Standard Chartered, the FTSE-100 bank, latterly as deputy chairman.

He also possesses extensive experience as a chairman, having led the privately held pensions insurer Rothesay Life, while he now chairs Petershill Partners, the London-listed private equity investment group backed by Goldman Sachs.

Mr Kheraj’s other interests have included acting as an adviser to the Aga Khan Development Board and The Wellcome Trust, as well as the Financial Services Authority.

He spent 12 years at Barclays, holding board roles for much of that time, before he went on to become chief executive of JP Morgan Cazenove, the London-based investment bank.

HSBC’s shares have soared over the last year, rising by close to 50%, despite the headwinds posed by President Donald Trump’s sweeping global tariffs regime.

In June, the bank said that Sir Mark would be replaced on an interim basis by Brendan Nelson, one of its existing board members, while it continued the search for a permanent successor.

Ann Godbehere, HSBC’s senior independent director, said at the time: “The nomination and corporate governance committee continues to make progress on the succession process for the next HSBC group chair.

“Our focus is on securing the best candidate to lead the board and wider group over the next phase of our growth and development.”

Sky News revealed late last year that MWM, the headhunter founded by Anna Mann, a prominent figure in the executive search sector, was advising HSBC on the process.

Since then, at least one other firm has been drafted in to work on the mandate.

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Sir Mark, who has chaired HSBC since 2017, steps down at the end of next month to become non-executive chair of AIA, the Asian insurer he used to run.

He will continue to advise HSBC’s board during the hunt for his long-term successor.

As a financial behemoth with deep ties to both China and the US, HSBC is deeply exposed to escalating trade and diplomatic tensions between the two countries.

When he was appointed, Mr Tucker became the first outsider to take the post in the bank’s 152-year history – which has a big presence on the high street thanks to its acquisition of the Midland Bank in 1992.

He oversaw a rapid change of leadership, appointing bank veteran John Flint to replace Stuart Gulliver as chief executive.

The transition did not work out, however, with Mr Tucker deciding to sack Mr Flint after just 18 months.

He was replaced on an interim basis by Noel Quinn in the summer of 2018, with that change becoming permanent in April 2020.

Mr Quinn spent a further four years in the post before deciding to step down, and in July 2024 he was succeeded by Georges Elhedery, a long-serving executive in HSBC’s markets unit, and more recently the bank’s chief financial officer.

The new chief’s first big move in the top job was to unveil a sweeping reorganisation of HSBC that sees it reshaped into eastern markets and western markets businesses.

He also decided to merge its commercial and investment banking operations into a single division.

The restructuring, which Mr Elhedery said would “result in a simpler, more dynamic, and agile organisation” has drawn a mixed reaction from analysts, although it has not interrupted a strong run for the stock.

During Sir Mark’s tenure, HSBC has also continued to exit non-core markets, selling operations in countries such as Canada and France as it has sharpened its focus on its Asian businesses.

On Friday, HSBC’s London-listed shares closed at 946.7p.

HSBC has been contacted for comment.

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Bank shares take fright as budget tax hike is floated

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Bank shares take fright as budget tax hike is floated

Shares in UK banks have fallen sharply on the back of a report which urges the chancellor to place their profits in her sights at the coming budget.

As Rachel Reeves stares down a growing deficit – estimated at between £20bn-£40bn heading into the autumn – the Institute for Public Policy Research (IPPR) said there was an opportunity for a windfall by closing a loophole.

It recommended a new levy on the interest UK lenders receive from the Bank of England, amounting to £22bn a year, on reserves held as a result of the Bank’s historic quantitative easing, or bond-buying, programme.

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It was first introduced at the height of the financial crisis, in 2009.

The left-leaning think-tank said the money received by banks amounted to a subsidy and suggested £8bn could be taken from them annually to pay for public services.

It argued that the loss-making scheme – a consequence of rising interest rates since 2021 – had left taxpayers footing the bill unfairly as the Treasury has to cover any loss.

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Why taxes might go up

The Bank recently estimated the total hit would amount to £115bn over the course of its lifetime.

The publication of the report coincided with a story in the Financial Times which spoke of growing fears within the banking sector that it was firmly in the chancellor’s sights.

Her first budget, in late October last year, put businesses on the hook for the bulk of its tax-raising measures.

Ms Reeves is under pressure to find more money from somewhere as she has ruled out breaking her own fiscal rules to help secure the cash she needs through heightened borrowing.

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Is Labour plotting a ‘wealth tax’?

Other measures understood to be under consideration include a wealth tax, new property tax and a shake-up that could lead to a replacement for council tax.

Analysts at Exane told clients in a note: “In the last couple of years, the chancellor has been protective of the banks and has avoided raising taxes.

“However, public finances may require additional cash and pressures for a bank tax from within the Labour party seem to be rising,” it concluded.

The investor flight saw shares in Lloyds and NatWest plunge by more than 5%. Those for Barclays were more than 4% lower at one stage.

A spokesperson for the Treasury said the best way to strengthen public finances was to speed up economic growth.

“Changes to tax and spend policy are not the only ways of doing this, as seen with our planning reforms,” they added.

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Controversial P&O Ferries boss Hebblethwaite to quit

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Controversial P&O Ferries boss Hebblethwaite to quit

The man dubbed “Britain’s most hated boss” for his controversial policy of sacking hundreds of seafarers and replacing them with cheaper agency staff is to quit.

Sky News can exclusively reveal that Peter Hebblethwaite, the chief executive of P&O Ferries, is leaving the company.

Sources said he had decided to resign for personal reasons.

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Mr Hebblethwaite joined the ranks of Britain’s most notorious corporate figures in 2022 when P&O Ferries – a subsidiary of the giant Dubai-based ports operator DP World – said it was sacking 800 staff with immediate effect – some of whom learned their fate via a video message.

The policy, which Mr Hebblethwaite defended to MPs during subsequent select committee hearings, erupted into a national scandal, prompting changes in the law to give workers greater protection.

Under the new legislation, the government plans to tighten collective redundancy requirements for operators of foreign vessels.

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In a statement issued in response to a request from Sky News, a P&O Ferries spokesperson said: “Peter Hebblethwaite has communicated his intention to resign from his position as chief executive officer to dedicate more time to family matters.

Peter Hebblethwaite gives evidence to a committee of MPs in 2022. Pic: PA
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Peter Hebblethwaite gives evidence to a committee of MPs in 2022. Pic: PA

“P&O Ferries extends its gratitude to Peter Hebblethwaite for his contributions as CEO over the past four years.

“During his tenure the company navigated the challenges of the COVID-19 pandemic, initiated a path towards financial stability, and introduced the world’s first large double-ended hybrid ferries on the Dover-Calais route, thereby enhancing sustainability.

“We extend our best wishes to him for his future endeavours.”

A source close to the company said it anticipated making an announcement on Mr Hebblethwaite’s successor in the near term.

A former executive at J Sainsbury, Greene King and Alliance Unichem, Mr Hebblethwaite joined P&O Ferries in 2019, before taking over as chief executive in November 2021.

Insiders claimed on Friday that he had “transformed” the business following the bitter blows dealt to its finances by the COVID-19 pandemic and – to some degree – by the impact of Britain’s exit from the European Union.

A union protest is shown at the height of the mass sackings  row in 2022
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A union protest is shown at the height of the mass sackings row in 2022

P&O Ferries carries 4.5 million passengers annually on routes between the UK and continental European ports including Calais and Rotterdam.

It also operates a route between Northern Ireland and Scotland, and is a major freight carrier.

The company’s losses soared during the pandemic, with DP World – its sole shareholder – supporting it through hundreds of millions of pounds in loans.

Its most recent accounts, which were significantly delayed, showed a significant reduction in losses in 2023 to just over £90m.

The reduction from the previous year’s figure of almost £250m was partly attributed to cost reduction exercises.

The accounts also showed that Mr Hebblethwaite received a pay package of £683,000, including a bonus of £183,000.

“I reflected on accepting that payment, but ultimately I did decide to accept it,” he told MPs.

“I do recognise it is not a decision that everybody would have made.”

The row over his pay was especially acute because of his admission that P&O Ferries’ lowest-paid seafarers received hourly pay of just £4.87.

Mr Hebblethwaite had argued since the mass sackings of 2022 that the company would have gone bust without the drastic cost-cutting that it entailed.

The company insisted at the time that those affected by the redundancies had been offered “enhanced” packages to leave.

Last October, the then transport secretary, Louise Haigh, said: “The mass sacking by P&O Ferries was a national scandal which can never be allowed to happen again,” adding that measures to protect seafarers from “rogue employers” would prevent a repetition.

“This issue has been ignored for over 2 years, but this new government is moving fast and bringing forward measures within 100 days,” Ms Haigh added.

“We are closing the legal loophole that P&O Ferries exploited when they sacked almost 800 dedicated seafarers and replaced them with low-paid agency workers and we are requiring operators to pay the equivalent of National Minimum Wage in UK waters.

“Make no mistake – this is good for workers and good for business.”

The minister’s description of P&O Ferries as “rogue”, and suggestion that consumers should boycott the company, sparked a row which threatened to overshadow the government’s International Investment Summit last October.

Sky News’s business and economics correspondent, Paul Kelso, revealed that DP World had withdrawn from participating in the event, and paused a £1bn investment announcement.

The company relented after Sir Keir Starmer publicly distanced the government from Ms Haigh’s characterisation of DP World.

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