Chancellor Signals Fresh Tax Squeeze on Banks Ahead of Budget
Senior banking executives say Chancellor John Healey is preparing to raise taxes on the sector, with the move expected to feature in the Budget due in two weeks. Healey has called banks part of “the crown jewels” of the UK economy, yet industry figures now expect the sector to be squarely “on the menu” when the Budget is unveiled.
The pressure follows a combined profit of roughly £15bn in the first half of the year at Britain’s four largest banks, prompting trade unions to demand additional levies. UK Finance, the industry’s trade body, warned that “further increases in bank taxes would weaken competitiveness, discourage investment and job creation, and work against the government’s ambition to deliver growth in every postcode”.
Markets reacted quickly: shares in Lloyds and NatWest each fell more than 2% on Friday, among the day’s biggest fallers on the London market. Barclays dipped only slightly and HSBC shares actually rose, since both draw heavily on international operations shielded from a UK-only tax rise.
The chancellor’s options
One possibility is reversing a cut to the banking surcharge on corporation tax, trimmed from 8% to 3% by former Conservative chancellor Jeremy Hunt in 2023 — a change critics call unfair given it coincided with corporation tax rising from 19% to 25%. Another is raising the bank levy, a charge on a small percentage of lending. Treasury officials reportedly favour adjusting the existing surcharge rather than creating a new windfall tax, since altering an existing rate is simpler. A full reversal would raise about £2bn, though the previous government concluded an 8% surcharge on top of 25% corporation tax left UK banks poorly placed against European and US rivals — so any rise may fall short of that level.
Speaking to reporters in Bangkok, Healey struck a conciliatory note even as he confirmed tough choices lie ahead: “My observation on the banks is that people too often see them as big, distant financial institutions, when they are hardwired into the economic fabric of this country and our future prospects,” he said, adding he still has “decisions to take in the Budget”.
Sir Philip Augar, a former City banker and author, told the BBC’s Today programme there was “room for a moderate increase” that could raise up to £3bn a year, pointing to lenders enjoying “booming conditions” as higher rates widen the margin between what banks charge borrowers and pay savers. He argued banks cannot be “too big to fail and too big to tax”, and that in good times the sector “expects some kind of special treatment”, yet turns to taxpayers when times are rocky.
Paul Nowak, general secretary of the Trades Union Congress, was blunter, noting the UK’s four biggest banks earn roughly a billion pounds a week combined, with bonuses at post-crash highs. “These are bumper profits – driven by high interest rates and households’ mortgage misery,” he said, adding “Now it’s time to make sure banks pay their fair share,” and that asking lenders to pay more “that’s 100% the right call”.
A further option under discussion would limit how banks offset historic losses against current profits — a mechanism that has particularly benefited Lloyds, which has used crisis-era losses to cut its tax bill for years. A temporary freeze could raise an extra £1bn a year and would be “a lot more bearable”, in one bank executive’s words, while sparing foreign lenders such as JP Morgan, whose chief executive Jamie Dimon has warned the UK already has one of the highest bank-tax burdens in the world. Industry leaders counter that sparing foreign banks’ domestic operations would sit awkwardly with the government’s push to back British business.
A Treasury spokesperson declined to comment directly: “As has always been the case, decisions on tax are a matter for the chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals.”
Source: BBC News