Chancellor John Healey plans to increase taxes on the UK banking sector before the Budget in two weeks, senior banking executives told the BBC. The four largest banks earned about £15bn profit in the first six months of 2024.

Shares in Lloyds and NatWest fell more than 2% on Friday on expectations of the tax increase. Barclays fell slightly and HSBC rose, as both have large international operations that would be less affected by UK-specific tax changes.

The Treasury is considering several options. One is reversing a 2023 reduction in the bank surcharge on corporation tax from 8% to 3%, a move introduced by Conservative Chancellor Jeremy Hunt. Reversing that cut entirely would raise around £2bn annually, though the Treasury may raise it only partially to avoid damaging UK bank competitiveness against European and US rivals. Another option is raising the bank levy, a small percentage charged on loans.

A third approach would impose a temporary moratorium on banks using past losses to offset current profits. Lloyds in particular has benefited from this policy by applying losses from the 2008 financial crisis to lower recent tax bills. A moratorium would yield an estimated £1bn per year and would spare foreign banks from additional burden.

UK Finance, the banking sector 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."

Sir Philip Augar, a former City banker, told the BBC there was "room for a moderate increase" in bank taxes that could raise up to £3bn annually. He noted that banks are enjoying "booming conditions" from higher interest rates, which widen the margin between lending and deposit rates.

Paul Nowak, general secretary of the Trades Union Congress, said Britain's four biggest banks are making a billion pounds weekly. "These are bumper profits, driven by high interest rates and households' mortgage misery," he said, calling for banks to "pay their fair share."

JPMorgan CEO Jamie Dimon warned that the UK already has one of the world's highest tax burdens on banks, and additional sector-specific taxes could discourage investment.