Senior bankers have launched a fierce assault on proposals for higher taxes on the financial services industry, warning that any raid to fund winter support for struggling households would amount to “economic suicide” and leave probable future Prime Minister Andy Burnham politically exposed.
Bankers Warn of 'Economic Suicide'
The intervention comes as battle lines harden between City of London bosses and trade unions over potential measures to bankroll expanded cost-of-living help. Mr Burnham, the former Greater Manchester mayor and newly elected Labour MP widely tipped to replace Sir Keir Starmer, reignited the debate in a speech on Monday. He acknowledged that cash-strapped households “need a bit extra now to help with rising costs” and pledged to “do my very best to deliver it” while “not taking risks with the public finances”.
The comments have prompted an immediate backlash from the banking sector, which argues it is already paying uncompetitive rates and should not be penalised for strong performance amid higher interest rates. One senior banker told The Guardian the idea was not an economic policy “but economic suicide”. The banker said: “Financial services remained one of the only parts of the economy that is growing and highly productive. We need more sectors to do the same, not be taxed for being successful. The TUC needs to grow up.”
Record Profits Fuel Tax Debate
Profits at major UK lenders have surged in recent years. NatWest reported £7.7bn in pre-tax profits for 2025, up 24% on the previous year and its highest since the 2008 bailout. Lloyds Banking Group saw profits rise 12% to £6.7bn, while Barclays recorded a 13% increase to £9.1bn, paving the way for £15bn in shareholder payouts between 2026 and 2028.
Paul Nowak, general secretary of the Trades Union Congress, urged Mr Burnham to ignore “vested interests” and pursue a bolder approach. Mr Nowak said: “When one in five people are skipping meals, you can’t afford to be held hostage by people defending the status quo.” He suggested reversing a previous Conservative cut to the bank surcharge could raise £9bn over four years. Mr Nowak added: “We can’t ask working people to pay more tax, so we need a system that is better at taxing wealth and windfall profits.”
UK Banks Already Facing High Tax Burden
The row revives longstanding tensions. Banks already face the 25% headline corporation tax rate, a 3% surcharge and a bank levy on balance sheet assets. When employment taxes and VAT are included, the effective rate reaches about 46.4%, compared with 38.9% in Frankfurt and 27.9% in New York, according to UK Finance figures. City executives have expressed concern that further hikes could drive investment and jobs overseas.
One executive noted the issue had been simmering since the 2024 general election but had intensified recently as interest rates responded to global events, including the US-Israeli conflict with Iran. Another warned that London risked losing out to rival financial centres if the tax regime became more punitive.
Advisers Urge Caution
Jim O’Neill, the former Goldman Sachs chief economist advising Mr Burnham on policy, has cautioned against additional business tax rises. Mr O’Neill told Sky News: “We can’t just keep avoiding what are seen as difficult choices and having backdoor ways of raising taxes. And we certainly shouldn’t raise them on business.” Bankers have also pointed to recent decisions, such as JP Morgan’s commitment to a £3bn headquarters in Canary Wharf after the last budget spared the sector further increases. Jamie Dimon, JP Morgan’s boss, has hinted that such plans could be scrapped if the new leadership proves hostile.
The clash places Mr Burnham in an awkward position as he navigates expectations of radical action on living costs while reassuring markets. Lobbyists say they will engage constructively once a new chancellor is appointed but described the early public exchanges as “not an elegant start to a new relationship”.
Balancing Fiscal Demands and City Competitiveness
Union leaders insist Britain cannot afford to shield the City given pressures on defence spending and household support. Mr Burnham’s team is said to be receiving counsel from figures such as Mr O’Neill and former Bank of England chief economist Andy Haldane, who are understood to favour caution on tax policy. The episode underscores the challenges facing the next Labour leader in balancing fiscal demands with the need to maintain the City’s competitiveness. With banks continuing to deliver robust returns on the back of elevated net interest margins, any move to tap them further is likely to provoke sustained resistance from an industry that views itself as a rare success story in the UK economy.
