Banking executives told the BBC they expect the sector to face tax increases when the UK chancellor announces his Budget in two weeks. John Healey, while describing banks as "crown jewels" of the UK economy, has not ruled out additional taxation on the sector.
The UK's four biggest banks generated around £15bn in profit during the first six months of this year, prompting calls from trade unions and others for higher taxes. UK Finance, the banking sector trade body, countered 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".
Banks currently pay a 3% surcharge on top of the baseline 25% corporation tax rate, plus a levy on balance sheet assets. The sector contributed nearly £40bn to the Treasury last year when employee income tax is included. The bank levy alone generated £1.4bn last year, with the surcharge contributing £1.2bn.
The chancellor has several options to extract more revenue. The 3% surcharge was reduced from 8% under former chancellor Rishi Sunak when he raised corporation tax from 19% to 25%. Restoring it to 8% could raise approximately £2bn annually. The bank levy currently charges 0.1% on short-term loans and 0.05% on longer-dated loans, though mortgages are excluded.
A third option involves restricting banks' ability to use historical losses to offset current profits. Lloyds particularly benefits from this practice, using losses from the financial crisis to reduce tax bills for years. A moratorium on this practice for several years could generate an estimated £1bn annually and would be "a lot more bearable", according to one bank executive quoted in the BBC report.
JPMorgan chief executive Jamie Dimon warned that the UK already imposes one of the world's highest tax burdens on banks. He cautioned that additional sector-specific taxes could discourage investment and damage competitiveness.
Industry leaders argue that any tax rise targeting UK banks while exempting foreign banks operating in the UK would contradict the government's stated commitment to back British business.