John Healey has confirmed a temporary increase in the bank surcharge, raising it by an extra 3% on top of the current 3% levy, which is charged in addition to the 25% corporation tax rate. The move, announced in the Budget, is intended to help fund energy support and reverses a tax cut introduced by former Conservative Chancellor Jeremy Hunt.
Support and opposition
The Trades Union Congress (TUC) voiced support for the increase, suggesting it would raise £2.25 billion a year for the Treasury from the "bumper profits" of banks. However, City bosses claimed the move would stifle investment in Britain.
Trade body UK Finance warned that "further increases in bank taxes would weaken competitiveness" and "discourage investment and job creation". The announcement follows Mr Healey's description of banks as part of "the crown jewels" of the British economy.
Fiscal context
The Government faces stretched public finances due to increased borrowing costs. Mr Healey is sticking to his predecessor Rachel Reeves's fiscal rules, which require day-to-day spending to be financed by taxes rather than borrowing by 2029/30, and public debt as a share of the economy to fall in the same year.
In March, the Office for Budget Responsibility (OBR) forecast the UK's fiscal headroom at around £24 billion. The Resolution Foundation estimated it could have halved to £12 billion, while the Institute for Fiscal Studies (IFS) thought it could still be around £20 billion.
Household measures and spending plans
The Budget emphasised "breathing room" for households and businesses. It was announced that standing charges — the fixed daily fee covering the costs of connecting households to gas and electricity supplies in Great Britain — would be scrapped. Currently, the average gas fee is just under 30p per day, equivalent to around £108 per year, while the dual-fuel energy bill for a typical household under the current price cap is £1,723 a year.
Cornwall Insight has suggested the cap could increase 16% on January 1. The Chancellor previously rejected the possibility of hiking capital gains tax, the levy on profits from selling assets, despite calls from within Labour to make the rate closer to that on earnings.
An initial £285 million has been allocated as part of a plan to give mayors and regional leaders in England more money and power to invest in projects in their areas. In addition, it is expected that more than £1 billion will be allocated for social and affordable housing, and a further £432 million will be committed to the rough sleeping programme to get people off the streets in England.
