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Senior banking executives have told the BBC that the UK’s banking sector could face higher taxes in the upcoming Budget, scheduled for later this month. Source: bbc.co.uk.
What the Budget Could Include
Chancellor John Healey is reportedly considering reversing a 2023 cut in the bank surcharge on corporation tax. The surcharge was reduced from 8% to 3%.
Healey may also raise the bank levy—a small percentage charged on each loan. The Treasury prefers changing an existing tax over introducing a new windfall tax.
Critics note the 2023 surcharge cut came as corporation tax rose from 19% to 25%. That shift placed a heavier burden on UK banks compared to peers in other countries.
Industry and Union Reactions
UK Finance warns that further tax hikes could hurt bank competitiveness. It could discourage investment and reduce job creation.
UK Finance says banks are vital to small business lending, housing, and consumer credit—key drivers across all regions.
Paul Nowak of the Trades Union Congress says the four largest banks make over a billion pounds weekly. He calls this ‘bumper profit’ from high interest rates and mortgage strain.
Nowak says banks must pay their fair share. He supports any tax increase in the Budget.
Sir Philip Augar, a former banker, believes a moderate tax rise is possible. He points to wider interest margins during economic booms.
He says banks expect taxpayer bailouts in downturns. But they expect special treatment in boom times.
He stresses banks can’t be both ‘too big to fail’ and ‘too big to tax’—a principle that shapes public trust.
Market Reaction
Lloyds and NatWest shares fell more than 2% on Friday. They were among the biggest dropers on the UK market.
Barclays dropped slightly. HSBC rose. This reflects differences in international exposure.
HSBC has strong operations abroad. It is less affected by UK tax changes.
Lloyds and NatWest have stronger domestic ties. They are more sensitive to domestic tax policy.
Proposed Tax Changes and Limitations
Banks can use past losses to reduce current tax bills. Lloyds has used financial crisis losses to lower its tax payments.
A moratorium on this practice could add £1bn annually. Bank executives say it would be ‘a lot more bearable’ than new taxes.
JP Morgan’s CEO warns the UK already has one of the world’s highest bank tax burdens. He says new taxes could hurt foreign investment and competitiveness.
Industry leaders argue that taxing UK banks while exempting foreign ones would contradict the government’s goal to support British businesses.
Government Position and Uncertainty
A Treasury spokesperson says tax decisions are made at official events. They do not confirm rumors or unverified proposals.
The Treasury is considering revising the surcharge. No final decision has been made.
Banking leaders welcome the fact they were not targeted last time. The sector has made strong profits recently.
Any new tax plan will likely be carefully balanced to avoid harming financial stability or deterring investment.
Why This Matters
High interest rates have widened lending and savings margins. This has driven record bank profits.
Public debate now centers on fair taxation. The government wants equity. Banks warn such changes could reduce lending and slow growth.
Any tax shift must consider lending, investment, and public trust. If changes seem short-sighted, they may damage confidence in the UK financial system.
The upcoming Budget could define how the UK balances bank profits with public accountability and economic resilience.
