Chancellor John Healey plans to increase taxes on banks ahead of the Budget announcement in two weeks, senior banking executives told the BBC. The move follows calls from trade unions and comes as the UK's four largest banks generated roughly £15bn in profit during the first half of 2024.
Bank shares fell on Friday in anticipation of the tax increase. Lloyds and NatWest dropped more than 2%, while Barclays and HSBC experienced smaller declines due to their larger international operations, which would shield them from UK-specific tax changes.
The Treasury is considering several approaches to extract more revenue from the sector. The most likely option, according to the BBC, involves reversing a 2023 cut to the bank surcharge on corporation tax, which was reduced from 8% to 3% by former Conservative Chancellor Jeremy Hunt. Reversing this reduction entirely would raise around £2bn annually, though the government may opt for a partial increase to preserve banking competitiveness against European and US competitors.
Alternative options under discussion include raising the bank levy, a small percentage charged on loans, or implementing a temporary moratorium on banks using past losses to offset current profits. That moratorium alone could generate an estimated £1bn per year, primarily affecting Lloyds, which has benefited substantially from offsetting losses accumulated during the 2008 financial crisis.
Sir Philip Augar, a former City banker, told the BBC's Today programme that banks could absorb "a moderate increase" yielding up to £3bn annually. He noted that lenders are currently enjoying "booming conditions" as higher interest rates widen the gap between lending and deposit rates, boosting profits.
Banks have warned that further tax increases would reduce competitiveness and discourage investment and job creation. UK Finance, the sector's trade body, cautioned that higher taxes work against the government's growth objectives. JPMorgan Chief Executive Jamie Dimon has stated that the UK already imposes one of the world's highest tax burdens on banks.
Healey has described banks as part of "the crown jewels" of the UK economy while acknowledging he faces difficult decisions at the Budget. The Treasury declined to comment on speculation or specific proposals regarding tax changes.