Chancellor Healey Considers Tax Increases on UK Banks in Upcoming Budget

Chancellor John Healey is planning to increase taxes on the banking sector, according to senior banking executives who spoke to the BBC. Healey has referred to banks as part of 'the crown jewels' of the UK economy, but industry leaders have indicated that tax increases will be 'on the menu' at the Budget scheduled for two weeks from now. The four largest banks reported approximately £15 billion in profits during the first half of this year, prompting trade unions to advocate for additional taxes on the sector. UK Finance, the trade body for the banking sector, cautioned that further increases in bank taxes could undermine competitiveness, deter investment, and hinder job creation, countering the government's goal of fostering growth across the UK. There are several potential methods for the Chancellor to raise additional revenue from the banking sector. One option is to reverse a reduction in the surcharge on corporation tax for banks, which was lowered from 8% to 3% in 2023 under former Chancellor Jeremy Hunt. Critics argue that this reduction was unjust, as it coincided with an increase in corporation tax from 19% to 25%. Another possibility is to raise the bank levy, which is a small percentage charged on loans. Speaking from Bangkok, Healey acknowledged the significant role banks play in the UK economy and stated, 'My observation on the banks is that people too often see them as big, distant financial institutions, when they are hardwired into the economic fabric of this country and our future prospects.' Following these discussions, shares in Lloyds and NatWest declined on expectations of impending tax hikes. Historically, banks have argued that higher taxes could make the UK less competitive compared to other regions and limit their lending capacity, which could be detrimental to economic growth. Sir Philip Augar, a former banker and author, suggested there is 'room for a moderate increase' in bank taxes that could generate up to £3 billion annually, citing that banks are currently benefiting from favorable conditions due to rising interest rates. Augar noted that banks expect taxpayer support during downturns while seeking special treatment during profitable periods, stating they cannot be 'too big to fail and too big to tax.' Paul Nowak, general secretary of the Trades Union Congress, highlighted that the four largest banks are earning approximately £1 billion per week, with bonuses reaching post-financial crisis highs. He emphasized the need for banks to contribute a fair share of taxes, asserting that if the Chancellor decides to implement such measures, it would be the correct decision. In the previous Budget, banks were relieved to avoid being targeted despite their significant profits. Another option under consideration involves limiting banks' ability to use past losses to offset current profits, which could yield an estimated additional £1 billion per year for the Treasury. This approach would provide a financial boost while being more manageable for banks. However, it could also exempt foreign banks, such as JP Morgan, whose CEO Jamie Dimon has expressed concerns about the UK's already high tax burden on banks. Industry leaders argue that any tax increase affecting UK banks while exempting foreign operations would conflict with the government's commitment to support British businesses. A Treasury spokesperson stated that tax decisions are typically announced by the Chancellor during fiscal events and declined to comment on speculation or proposals.