UK Chancellor John Healey is considering tax increases on the banking sector ahead of his Budget announcement in two weeks, according to senior banking executives who told the BBC they expect banks to face additional levies.
The sector currently pays a 3% surcharge on top of the baseline 25% corporation tax rate, plus a separate levy on balance sheet assets. The UK's biggest four banks collectively generated around £15bn in profit during the first six months of this year, prompting unions and others to call for higher taxation. The banking sector contributed nearly £40bn to the Treasury last year when employee income tax is included. In 2023, the bank levy alone generated £1.4bn and the surcharge £1.2bn.
Healey has described banks as "the crown jewels" of the UK economy but has refused to rule out a tax increase. UK Finance, the sector'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".
Several options exist for extracting additional revenue. The 3% surcharge was previously set at 8% under former Chancellor Rishi Sunak before being cut when he raised corporation tax to 25%. Returning to the previous level could raise approximately £2bn annually. Alternatively, Healey could adjust the bank levy, which currently charges 0.1% on short-term loans and 0.05% on longer-dated loans, though mortgages are excluded.
Treasury officials have discussed a third approach. Banks currently offset past losses against current profits to reduce tax bills. Lloyds has benefited substantially from this policy, using financial crisis losses for decades. A temporary moratorium on this practice would yield an estimated £1bn per year while proving "a lot more bearable" for banks, according to one executive quoted by the BBC.
Jamie Dimon, chief executive of JP Morgan, cautioned that the UK already imposes one of the world's highest tax burdens on banks. He warned that additional sector-specific taxes could discourage investment and damage competitiveness. Industry leaders also note that tax rises hitting UK banks while exempting foreign bank operations would contradict the government's pledge to support British business.
Banks were largely spared additional taxation at the previous Budget despite rising profits driven by widening lending margins as interest rates increased.