Chancellor John Healey is set to raise taxes on banks when he delivers his first Budget at the end of the month, according to new reports.
Healey has faced fierce lobbying from the left of the Labour party and trade unions to impose higher taxes on the sector, following the bumper profits reaped by the industry this year, as reported by City AM.
The Chancellor is now understood to have decided to target the sector for a cash raid as he looks to balance the books on October 28, The Guardian has reported.
Banking surcharge increase under consideration
The most straightforward option available to Healey would be an increase to the banking surcharge that sits on top of corporation tax. The surcharge currently stands at three per cent, having been reduced from eight per cent under Jeremy Hunt's tenure as Chancellor in 2023.
A reversal of that move is understood to be under consideration, which would generate around £2bn a year.
However, some have urged the Chancellor to go even further with a windfall tax on lenders' profits. Campaigners at Positive Money claim such a measure could raise £19bn from Natwest, Lloyds, Barclays and HSBC alone.
Healey defends banks' role
Speaking to reporters in Bangkok at the IMF summit, Healey said: "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."
He added there was "decisions to take in the budget". In a separate interview with Bloomberg Television, Healey described banks as "a part of the jewel ... in the British economic crown".
Any announcement looks certain to trigger fury in the City, where attempts to protect the sector from a tax raid appear to have fallen on deaf ears. Industry leaders have voiced concerns that banks already face a disproportionately high tax rate compared with their overseas rivals.
Industry opposition and fiscal pressure
Figures from PwC reveal that total taxes on UK banks amount to 46 per cent of profits, compared to 42 percent in Amsterdam, 39 per cent in Frankfurt, 29 per cent in Dublin and 28 per cent in Dublin.
A group of City heavyweights – including the chiefs of TheCityUK, CBI and UK Finance – cautioned Healey in a letter last week that "a higher tax burden may not necessarily generate higher tax receipts if capital, people and businesses move elsewhere".
Conservative leader Kemi Badenoch joined those opposing a bank tax earlier this week, firing a warning shot at Healey during a visit to Edinburgh.
Shadow chancellor Andrew Griffith said: "Britain needs growth. But a raid on the financial services sector will stifle it. Labour should be backing businesses and wealth-creators, not making their lives even harder."
The chief executives of HSBC, Lloyds, NatWest, Barclays and Santander were summoned to a meeting with Healey last week, where the Chancellor kept his cards close to his chest on fiscal policy but cautioned of the "challenging" fiscal landscape. Economists have predicted that Healey's £24bn of fiscal headroom has been cut by more than half, following the spike in borrowing costs linked to the inflationary pressures stemming from the US-Iran conflict.
A Treasury spokesperson said: "As has always been the case, decisions on tax are a matter for the chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals."
