UK Chancellor John Healey is expected to target bank profits in his Budget announcement in two weeks, according to senior banking executives who told the BBC they anticipate the sector will be "on the menu" for additional taxation.
The UK's four largest banks earned approximately £15bn in profit during the first six months of 2024, prompting calls from trade unions and others for higher taxes on the sector. Healey has refused to rule out a tax increase, despite describing banks as part of "the crown jewels" of the UK economy.
Banks currently pay a 3% surcharge on top of the baseline 25% corporation tax rate, plus a separate levy on balance sheet assets. The sector contributed nearly £40bn to the Treasury last year when income tax on employees is included. The bank levy alone generated £1.4bn last year, with the surcharge contributing £1.2bn.
The BBC outlines several options Healey could pursue. Raising the 3% surcharge to its previous level of 8% could yield around £2bn annually. The surcharge was cut from 8% by former Chancellor Rishi Sunak when he raised corporation tax to 25%. Alternatively, officials have discussed a moratorium on banks using past losses to offset current profits, a practice that could generate an estimated £1bn per year. Lloyds has particularly benefited from this arrangement, using losses from the 2008 financial crisis to reduce tax bills since then.
UK Finance, the banking sector's trade body, warned that "further increases in bank taxes would weaken competitiveness, discourage investment and job creation, and work against the government's ambition to deliver growth in every postcode".
JPMorgan Chief Executive Jamie Dimon has cautioned that the UK already imposes one of the world's highest tax burdens on banks. He warned that additional sector-specific taxes could discourage investment and damage competitiveness.
Banks have historically argued successfully that higher taxes risk reducing their lending capacity and making the UK uncompetitive with other financial centres. However, the sector was surprised to avoid tax increases at the previous Budget given recent profit levels, which have expanded as rising interest rates increased margins between lending rates and deposit rates.