Chancellor John Healey is reportedly preparing to impose higher taxes on the UK banking sector in the forthcoming Budget, with senior banking executives telling the BBC they anticipate being ‘on the menu’ for new fiscal measures. The move comes as the sector faces scrutiny over significant profits, particularly amidst rising interest rates.
The speculation intensifies ahead of the Budget, scheduled in two weeks’ time from 15 October 2026. Despite Healey having previously described banks as ‘the crown jewels’ of the UK economy, the industry is now bracing for potential changes to its tax burden. The four largest UK banks collectively reported approximately £15bn in profits during the first six months of this year, fueling calls from trade unions for additional taxation.
Current Tax Landscape and Potential Adjustments
Currently, the UK’s largest banks and building societies are subject to a 3% surcharge on top of the standard 25% corporation tax rate on their profits. Additionally, they pay a levy based on the assets held on their balance sheets. Last year, the banking sector contributed nearly £40bn to the Treasury, a figure that includes income tax paid by employees. Specifically, the bank levy generated £1.4bn, while the surcharge added a further £1.2bn to government coffers.
Several avenues are being considered by the Chancellor to extract more revenue from the sector. One significant option involves reversing a change made under former Chancellor Rishi Sunak, who reduced the bank surcharge from 8% to 3% when the baseline corporation tax was increased from 19% to 25%. Returning the surcharge to its previous 8% level could generate an estimated £2bn annually for the Treasury.
The bank levy, distinct from profit-based taxes, charges banks based on the size of their balance sheets. It currently stands at 0.1% on outstanding short-term loans and 0.05% on longer-dated loans, with mortgages excluded from this calculation.
Another proposal discussed with Treasury officials involves a temporary moratorium on banks using past losses to offset current profits, thereby reducing their tax liabilities. Lloyds Bank, in particular, has benefited significantly from this policy, utilising substantial losses from the financial crisis to lower its tax bills for years. Analysts and some bank executives suggest that a temporary halt to this practice could yield an estimated £1bn per year for the Treasury, described by one executive as ‘a lot more bearable’ than other options.
Industry Warnings and Pro-Taxation Arguments
The banking sector’s trade body, UK Finance, has issued a stark warning against further tax increases. It argues 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.’ This sentiment echoes past successful arguments by banks that higher taxes could render the UK uncompetitive globally and hinder their ability to lend, thus being detrimental to economic growth.
However, proponents of increased taxation highlight the sector’s current profitability. Sir Philip Augar, a former banker and author, told the BBC’s Today programme that there was ‘room for a moderate increase’ in taxes, potentially raising up to £3bn annually. He noted that lenders are enjoying ‘booming conditions,’ directly benefiting from higher interest rates that expand the margin between lending rates and what they pay savers. Sir Philip also critically observed that while the banking sector ‘expects the taxpayer to bail them out’ during ‘rocky times,’ it anticipates ‘some kind of special treatment’ during ‘boom times,’ asserting that banks cannot simultaneously be ‘too big to fail and too big to tax.’
Paul Nowak, General Secretary of the Trades Union Congress (TUC), voiced strong support for the Chancellor’s potential move. While acknowledging that the majority of bank workers are ‘not fat cats or city high rollers’ and expressing a desire for a successful financial services industry, he stated that ‘if the chancellor does ask the Banks to pay a fairer share of tax in the Budget, that’s 100% the right call.’
The prospect of higher taxes has already drawn international criticism. Jamie Dimon, CEO of JP Morgan, has previously warned that the UK already imposes one of the highest tax burdens on banks globally. He cautioned that additional sector-specific taxes could deter investment and damage the UK’s competitive standing.
A key concern for industry leaders is how any new tax measures would be structured. They argue that a tax rise targeting UK banks while exempting the operations of foreign banks in the UK would be difficult to reconcile with the government’s stated commitment to backing British businesses. This creates a complex balancing act for Chancellor Healey as he finalises his Budget proposals.
