Bank surcharge could return to 8%
One option under consideration is reversing the reduction in the bank profit surcharge introduced by former Chancellor Jeremy Hunt in 2023. The additional charge was cut from 8% to 3% when corporation tax increased from 19% to 25%.
Currently, major banks and building societies pay the standard 25% corporation tax rate, an additional 3% surcharge and a levy on certain balance-sheet liabilities. Restoring the surcharge to 8% could raise around £2 billion to £2.25 billion annually, according to estimates reported in the press.
The Trades Union Congress (TUC) has proposed more substantial increases. It estimates that restoring the surcharge to 8% could generate £9 billion over four years, while raising it to 16% could bring in £24 billion. A 35% surcharge, matching the rate previously applied to energy companies’ exceptional profits, could raise £60 billion over four years.
The TUC also estimates that the 2023 tax changes cost the public purse £6 billion across the 2023-24, 2024-25 and 2025-26 financial years.
Banks warn of investment and lending risks
Banking representatives have warned that further tax increases could undermine the UK’s attractiveness as a financial centre, discourage investment and threaten jobs. They argue that higher costs could also reduce their capacity to lend to households and businesses.
The Treasury is also considering a temporary limit on how much banks can deduct in past losses from their current profits. The move could bring in an additional £1 billion a year.
Smaller and newer lenders, including Revolut and Shawbrook, have separately sought an increase in the surcharge threshold from £100 million to £500 million in annual profits. They argue that this would protect smaller institutions and their ability to support business lending. JPMorgan chief executive Jamie Dimon has also warned that an increasingly hostile tax environment could put the bank’s planned £3 billion London headquarters at risk.
Treasury faces competing demands over public finances
The pressure for additional bank taxes comes as higher borrowing costs and the economic impact of conflict in the Middle East complicate the government’s fiscal plans. The TUC argues that banks can afford to pay more after generating substantial profits, supported partly by higher interest rates that have widened the gap between lending and savings rates.
However, the banking industry maintains that it already makes a significant contribution to public finances. The sector contributed nearly £40 billion to the Treasury in the previous year when employee income tax was included. The bank levy alone generated £1.4 billion, while the surcharge raised £1.2 billion.
Healey has not confirmed the final tax measures. Banks therefore face uncertainty ahead of the Budget, with the government needing to balance revenue requirements against concerns about investment, employment and economic growth.