UK Chancellor John Healey is preparing to raise taxes on banks ahead of a Budget announcement in two weeks, according to senior banking executives who briefed the BBC. The move signals tension between the government's stated commitment to growth and pressure to extract revenue from a sector that posted £15bn in collective profits in the first half of 2024.
The most likely mechanism is reversing a surcharge reduction that Conservative chancellor Jeremy Hunt introduced in 2023, cutting the rate from 8% to 3%. Reversing that cut entirely would raise approximately £2bn annually. The BBC understands the Treasury prefers modifying an existing tax rather than imposing a new windfall tax. However, officials may not restore the full 8% rate, as raising corporation tax to 25% while adding an 8% surcharge could leave UK banks uncompetitive against European and US rivals, according to previous government analysis.
The prospect of higher bank taxes triggered immediate market reaction. Lloyds and NatWest shares fell more than 2% on Friday, among the largest declines on the UK stock market. Barclays and HSBC were less affected due to their substantial international operations.
The banking industry, represented by trade body UK Finance, warned that further tax increases would "weaken competitiveness, discourage investment and job creation". JPMorgan chief executive Jamie Dimon has said the UK already imposes one of the world's highest tax burdens on banks.
Alternative revenue options exist. The Treasury could restrict banks' ability to offset historical losses against current profits, a practice that has benefited Lloyds especially since it accumulated large losses during the 2008 financial crisis. One unnamed bank executive suggested a temporary moratorium on this offset practice would yield an estimated £1bn annually while being "a lot more bearable" than other tax increases.
Sir Philip Augar, a former City banker, told the BBC there was "room for a moderate increase" raising up to £3bn per year. He noted banks were enjoying "booming conditions" from higher interest rates, which expand lending margins. Paul Nowak, general secretary of the Trades Union Congress, framed the tax increase as necessary fairness, stating Britain's four biggest banks earn approximately £1bn weekly.
Healey told reporters in Bangkok that banks are "hardwired into the economic fabric" of the UK, suggesting some recognition of sector concerns even as tax discussions proceed.