Chancellor Rachel Reeves is reportedly planning to increase taxes on the United Kingdom's banking sector in an upcoming Budget scheduled for late October, according to senior banking executives. While Reeves has referred to banks as part of the "crown jewels" of the economy, industry leaders told the BBC they expect the sector to be targeted for additional revenue. The four largest banks in the UK reported a collective profit of approximately £15 billion during the first six months of the current year.
Currently, large banks and building societies pay a 3% surcharge in addition to the standard 25% corporation tax rate, which is a tax on company profits. They are also subject to a bank levy, a tax based on the size of their balance sheets rather than profits, which charged 0.1% on short-term loans and 0.05% on long-term loans last year. The banking sector contributed nearly £40 billion to the Treasury last year when including income tax from employees, with the levy and surcharge specifically generating £1.4 billion and £1.2 billion respectively.
Several options for tax increases are under consideration, according to industry sources and analysts. One proposal involves returning the 3% surcharge to its previous 8% level, which could raise an estimated £2 billion annually. Another option discussed with Treasury officials is a temporary moratorium on the practice of using past losses to offset current profits. This change, which would specifically affect institutions like Lloyds that have utilized losses from the 2008 financial crisis to lower tax bills, could yield an additional £1 billion per year.
Banking trade body UK Finance and JP Morgan CEO Jamie Dimon have stated that further tax increases would weaken the UK's international competitiveness and could discourage job creation and investment. Conversely, the Trades Union Congress (TUC) and former banker Sir Philip Augar argue that banks should pay a higher share during "booming conditions" created by high interest rates. A person would notice the impact of these changes indirectly through the banking market; critics suggest it may limit lending capacity, while supporters like TUC General Secretary Paul Nowak argue it ensures a "fairer share" of tax is paid to fund public services.
The specific mechanism chosen will determine which institutions bear the highest costs. A moratorium on loss-offsetting would hit domestic banks with historical losses, while a surcharge increase would affect all profitable lenders. If the government proceeds with these plans, the changes would likely be formally announced in the Budget in late October. Bankers and analysts are currently monitoring whether the government will prioritize taxing balance sheets or profits, and whether foreign banks operating in the UK will be exempted from certain increases to maintain global competitiveness.
What happens next: The Chancellor is expected to present the Budget in approximately two weeks. At that time, the specific tax rates and effective dates for any new surcharges or levies will be confirmed by the Treasury.