I not too long ago added Barclays (LSE:BARC) shares to my portfolio after convincing myself that the FTSE financial institution has the potential to develop its earnings considerably over the subsequent few years.

However stories have surfaced suggesting that the brand new Labour authorities is considering climbing the financial institution levy in an try to plug a gap within the nation’s funds.

Presently, short-term and long-term liabilities (deposits) are taxed at 0.1% and 0.05%, respectively. That is along with the upper fee of company tax that banks must pay.

It’s estimated that the levy will elevate £1.4bn throughout the 2024-2025 tax yr.

In a latest speech, the Prime Minister mentioned that with regards to tackling the finances deficit: “those with the broadest shoulders should bear the heaviest burden”. And based mostly on the 2023 post-tax earnings of the FTSE 100‘s 5 banks (£36.79bn), they may very well be a straightforward goal.

A finances is because of be held on 30 October. I’m involved {that a} important rise within the levy (or different taxes) might adversely have an effect on the Barclays share price.

Worry not?

Any change is unlikely to be enacted in 2024. However for instance the potential impression I’m going to see the way it may have an effect on this yr’s earnings.

Analysts are forecasting that for the yr ending 31 December 2024 (FY24), the financial institution levy will value Barclays £276m, or 1.9p a share.

With anticipated FY24 earnings per share of 30.5p and a present (6 September) share price of 224p, the inventory has a ahead price-to-earnings (P/E) ratio of seven.3.

If the federal government have been to double the levy — all different issues being equal — the share price might fall by 6.7%, to 209p. And this may prohibit future capital development.

However the impression on Lloyds Banking Group and NatWest Group may very well be greater. They’ve practically all of their belongings situated within the UK. Barclays solely has a 60% home publicity. The levy doesn’t apply to abroad belongings.

Though I don’t welcome any fall within the worth of my shares, it’s not as dangerous as I feared. However I’ve solely assumed a doubling of the levy. Given the scale of the federal government’s deficit, it’d try one thing extra radical.

Nevertheless, if the Chancellor of the Exchequer is severe about getting Britain rising once more, I believe she’s going to want a wholesome banking trade that’s ready to lend at aggressive charges. This may imply she does nothing.

Trying forward

I purchased my Barclays shares for the long run after doing a little bit of quantity crunching.

It has a price-to-book ratio of 0.47. This implies if it ceased enterprise at this time, and all its belongings have been offered and the proceeds used to repay its liabilities, there can be sufficient money left over to return 448p a share to shareholders.

That’s a 114% premium to its present share price.

Its P/E ratio can also be low in comparison with its friends and the FTSE 100 as a complete.

However banking shares may be dangerous. Dangerous money owed might improve if financial situations begin to worsen. And margins might be squeezed if rates of interest (as anticipated) begin to fall.

Nevertheless, I’m nonetheless bullish. Regardless of what the Chancellor of the Exchequer proclaims in October, I believe I’ve acquired myself a discount.