UK banks expect potential tax hit in upcoming budget

Financial institutions in the United Kingdom, described as part of the country's economic crown jewels, are bracing for potential tax increases as the government prepares its upcoming budget. While John Healey has declined to rule out a raid on the sector, speculation mounts over how the Treasury might extract additional revenue.

The pressure follows strong financial results from the nation's four largest banks and building societies, which collectively posted approximately £15bn in profit during the first half of the year. This profit surge has prompted trade unions and external groups to call for increased taxation on the industry.

Currently, major UK banks and building societies pay a 3% surcharge on top of a baseline 25% corporation tax rate, alongside a balance sheet asset levy. Last year, the sector contributed nearly £40bn to the Treasury when employee income tax is included, with the bank levy and surcharge generating £1.4bn and £1.2bn respectively.

The chancellor has multiple avenues to secure more funds from the sector. For instance, returning the 3% surcharge to its previous level—before it was reduced under Rishi Sunak—could generate roughly £2bn annually for the government.

Stock photo for illustration only, not from the actual event

Another option discussed with Treasury officials involves placing a temporary moratorium on banks using historical losses to offset current profits, a practice that could yield an estimated £1bn per year. However, executives from international institutions have voiced strong reservations.