Banks expect to be hit with higher taxes in Budget

Chancellor John Healey plans to increase taxes on the UK banking sector ahead of the Budget in two weeks, according to senior banking executives who spoke to the BBC.

The UK's four largest banks generated approximately £15 billion in profit during the first half of 2024. Bank shares fell sharply Friday following speculation about tax increases. Lloyds and NatWest dropped more than 2 percent, while Barclays and HSBC experienced smaller declines due to their larger international operations, which would face less exposure to UK-specific tax changes.

The Treasury is considering multiple options to raise revenue from banks. One approach involves reversing the surcharge reduction that former Conservative Chancellor Jeremy Hunt introduced in 2023, lowering the bank surcharge from 8 percent to 3 percent. Reversing this change would raise approximately £2 billion annually, according to the BBC's understanding of Treasury discussions. However, officials worry that restoring the full 8 percent rate on top of the existing 25 percent corporation tax could harm UK banks' global competitiveness against European and US rivals.

Alternative proposals include raising the bank levy, a small percentage charged on loans, or imposing a moratorium on banks' ability to offset past losses against current profits. The loss-offset moratorium would generate an estimated £1 billion yearly and could prove "more bearable" to the sector, according to one bank executive quoted in the source material.

UK Finance, the banking 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."

Sir Philip Augar, a former banker and author, told the BBC's Today programme that "room for a moderate increase" exists, potentially raising up to £3 billion annually. He noted that banks currently benefit from "booming conditions" created by higher interest rates, which expand margins between lending and savings rates.

Paul Nowak, general secretary of the Trades Union Congress, stated that Britain's four biggest banks earn roughly £1 billion weekly and that "now it's time to make sure banks pay their fair share."

JPMorgan Chief Executive Jamie Dimon warned that the UK already carries "one of the highest tax burdens on banks in the world" and cautioned that additional sector-specific taxes could discourage investment.