UK banks expect tax increase in Healey's upcoming Budget

Senior banking executives have told the BBC they expect the sector to be "on the menu" when the chancellor announces his Budget in two weeks' time. John Healey has described the banks as part of "the crown jewels" of the UK economy, yet has refused to rule out a raid on the sector.

Current Tax Contributions

The biggest four banks collectively made around £15bn profit in the first six months of this year. This has led to calls from trade unions and others for additional taxes. Currently, the UK's biggest banks and building societies pay a surcharge of 3% on top of the baseline 25% rate of corporation tax, plus a levy on the assets held on their balance sheets.

The sector contributed nearly £40bn to the Treasury last year, if income tax on employees is factored in. The bank levy generated £1.4bn last year and the surcharge a further £1.2bn.

Potential Measures

There are several ways the chancellor could extract more money from the sector. The 3% surcharge was reduced from 8% under Rishi Sunak when he was chancellor, at the same time as he raised corporation tax from 19% to 25%. Returning the surcharge to its previous level could raise around £2bn a year.

Another option discussed with Treasury officials involves the use of past losses to offset against profits, which reduces the tax bill in any given year. Lloyds in particular has been a beneficiary of this policy, as large losses from the financial crisis have been used to lower tax bills ever since. Some analysts and bank executives have pushed the idea of a moratorium on this practice for a few years, which would yield an estimated extra £1bn per year for the Treasury. One bank executive described this approach as "a lot more bearable".

Industry Reaction

The banking sector trade body, UK Finance, 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".

Jamie Dimon, chief executive of JP Morgan, has warned that the UK already has one of the highest tax burdens on banks in the world. He warned that adding further sector-specific taxes could discourage investment and damage competitiveness. However, industry leaders say any form of tax rise that hits UK banks and exempts foreign banks' operations in the UK would be hard to square with the government's push to back British business.

Why it matters

The potential tax changes highlight the tension between the government's need for revenue and the banking sector's concerns about global competitiveness. While banks were "pleasantly surprised" they were not hit at the last Budget, executives now believe the chancellor has "much more of an appetite to take a larger slice of their pie". The outcome will influence investment decisions and the UK's standing as a financial hub.

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Sources

• bbc.com: Banks expect tax increase in Healey's first Budget
• ft.com: Subscribe to read

This article was drafted with AI assistance and checked against the sources above. Company claims are reported as claims. Cover image is AI-generated.