UK Chancellor John Healey plans to raise taxes on banks ahead of his Budget announcement in two weeks, according to banking executives who told the BBC the sector expects to be "on the menu" for additional levies.
The four largest UK banks generated around £15bn in profit during the first half of this year. Banks currently pay a 3% surcharge on top of the baseline 25% corporation tax rate, plus a separate asset levy. Together, these generated £1.4bn and £1.2bn respectively last year. The sector contributed nearly £40bn to the Treasury in total last year when employee income tax is included.
Healey has called banks "crown jewels" of the UK economy but has refused to rule out a tax raid on the sector. Trade unions and others have called for higher taxes given recent profitability. The banking trade body UK Finance 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."
The BBC outlined several mechanisms Healey could use. He could restore the surcharge to its previous 8% level, which was reduced under Rishi Sunak. That move alone could raise around £2bn annually. Alternatively, the chancellor could increase the bank levy itself, which currently charges 0.1% on short-term loans and 0.05% on longer-dated debt. Mortgages are excluded from the calculation.
A third option discussed with Treasury officials involves restricting banks' ability to offset past losses against current profits. Lloyds has particularly benefited from this practice, using losses from the 2008 financial crisis to reduce tax bills for years. A moratorium on this offset could yield an estimated £1bn per year.
Some bank executives described a loss offset moratorium as "a lot more bearable" than outright tax increases. However, industry leaders noted that any levy hitting UK banks while exempting foreign operations, such as JP Morgan, would conflict with the government's stated goal of supporting British business. Jamie Dimon, JP Morgan's chief executive, has warned that the UK already carries one of the world's highest tax burdens on banks.
Banks were notably spared higher taxes at the last Budget. Rising interest rates have expanded their margins between lending rates and deposit rates, driving recent profit growth.