HSBC and BP have become the latest industry giants to announce profit bonanzas, helped by the Middle East conflict, while ordinary households are left reeling by the financial fall-out. It has prompted new calls for the companies to pay more to offset the impact - but what are chances?
Record Profits Amid Conflict
Big banks and energy giants have announced another wave of eye-watering profits over the past week, fuelled by the ongoing Middle East war. And as companies coin it in - what one critic dubbed a “war bonus” - ordinary households are paying the price through higher prices for everything from energy and fuel to food in the supermarket.
It is why there are fresh calls for new PM Andy Burnham and Chancellor John Healey to take action against the firms, especially in the case of banks in the form of a windfall tax. The criticism of energy giants also comes against the backdrop of the extreme weather, with drought conditions across the UK and Europe, and devastating wildfire. Critics have linked the current situation with the impact of fossil fuel firms on man-made climate change.
How Much Are They Making?
In short, huge amounts at the moment. While it’s true that banks and energy firms’ earnings can go through cycles, for different reasons, both sectors have enjoyed bumper profits for some time. Britain’s often called ‘big four’ banks - HSBC, Lloyds Banking Group, NatWest and Barclays - have netted more than £29billion profit between them in the past six months. BP, meanwhile, booked a £6.6billion profit for the same period, having well over doubled from the first half of last year.
Why Are They Making So Much?
In the case of energy producers, it is thanks in part to a surge in wholesale oil and gas prices after the outbreak of the US-Israel war with Iran at the end of February. While the conflict meant added costs to producers in the region too, the price jump ensured they got that much more for what they produce.
There is a cut across when it comes to banks, as the energy shock caused by the price spikes have driven inflation back up, or at least slowed an expected fall. Higher for longer inflation means central banks, including the Bank of England, have delayed possible interest rate cuts, and have even considered increases. The longer rates say high, the better it is for lenders.
Current Tax Levels
Oil producers argue they’re heavily taxed already, at 78%. That’s made up of a higher rate of corporation tax, an energy profits levy and a supplementary charge. According to trade body UK Finance, banks operating here pay a total tax rate of 46.6%, though that includes things like employers’ national insurance. That compared to 42.2% in Amsterdam, 38.9% in Frankfurt, 28.9% in Dublin, and 27.9% in New York. It estimates the sector paid £43.3 billion in taxes for the financial year to the end of March 2025.
What Could the Government Do?
One option being pushed by campaigners and the TUC is a new windfall tax on banks. It is based on the idea of a levy imposed on companies that have benefited from something they were not responsible for, in this case the Middle East conflict.
The Tories have introduced windfall taxes various times in the past. Indeed, Margaret Thatcher’s Chancellor, Geoffrey Howe, announced a 2.5% levy on banks in 1981, with a special tax on North Sea producers following the next year. Gordon Brown, when Labour Chancellor, upped a supplementary charge on North Sea producers to 20% in 2006, and Tory Chancellor George Osborne hiked it further in 2011.
The TUC and others are focusing on a surcharge on top of what corporation tax banks pay. It is currently a 3% add-on, having been cut from 8% by the Tories in 2023. They claim restoring it to 8% could raise £9billion over four years, doubling it to 16% would rake in £24billion. An upper end hike to 35% could collect £60billion over four years, they say.
Likelihood of Tax Hikes
It’s too early to know ahead of the autumn Budget in late October, but a windfall tax on banks is a possible “low hanging fruit” for Chancellor John Healey. Expect heavy lobbying from the sector between now and then, as it argues higher taxes will only mean less money for lending, with the knock on impact for the economy.
Nigel Green ,of advisory firm deVere Group, said: “Every time a government talks about taxing banks harder, people assume it only hits shareholders in the City. It never stays there. Banks pass costs on, and the people who end up paying are ordinary customers with a mortgage, a savings account, or a current card.”
Higher taxes on North Sea producers could prove a short-term money spinner. The Treasury collected £4.5billion from UK oil and gas production in the 2024/25 financial year, though that was down from £6.1 billion in 2023/24. However, a hike doesn’t look likely at this stage, especially given the scale of job losses in the sector. If anything, Burnham and Healey are facing calls to ease pressure on producers and allow some form of new drilling. Oil firms also point out that the bulk of their profits are made abroad, so any tax hike here may not deliver a hoped-for tax surge.
