Chancellor John Healey is examining options to increase taxation on the banking sector, multiple senior banking executives have confirmed to the BBC. While the Chancellor has previously characterized banks as among the UK’s most valuable economic assets, sector leaders acknowledge that tax increases remain a realistic possibility when the government presents its fiscal plan in the coming weeks.
The four largest banks in the country reported approximately £15 billion in combined profits during the first half of the year, prompting trade unions and some analysts to advocate for increased taxation on the sector. However, the banking industry’s trade association, UK Finance, has cautioned that further tax increases would harm the nation’s competitive position, reduce investment incentives, and undermine the government’s stated objective of fostering economic growth across all regions.
The Chancellor has several mechanisms available to increase revenue from banks. One approach would involve reversing a reduction in the bank surcharge on corporate profits—cut from 8 percent to 3 percent in 2023 by the previous administration—which occurred concurrently with a broader increase in the standard corporate tax rate. Alternatively, Healey could increase the bank levy, a charge assessed on lending activities. Another proposal under consideration involves restricting banks’ ability to offset historical losses against current profits, a practice that has particularly benefited some institutions. Industry officials suggest this moratorium approach could generate approximately £1 billion annually in additional government revenue while proving more tolerable to the sector than other tax increases.
Banking shares declined on Friday following reports of anticipated tax measures. The sector has traditionally argued that elevated taxation risks reducing the UK’s attractiveness to financial institutions and limiting lending capacity, thereby restraining economic growth. However, some observers contend that banks currently benefit from favorable conditions driven by elevated interest rates, which widen profit margins. The Treasury has declined to comment on specific proposals, indicating that tax decisions remain under the Chancellor’s purview.
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