UK Chancellor John Healey is expected to target banking profits in his Budget announcement within two weeks, according to senior banking executives who told the BBC they anticipate the sector will face new taxation.
Healey has described banks as part of "the crown jewels" of the UK economy but has declined to rule out additional tax measures on the sector. The UK's four largest banks generated approximately £15bn in profit during the first half of this year, prompting calls from trade unions and others for higher taxation.
Banks currently pay a 3% surcharge on top of the standard 25% corporation tax rate, plus a levy on balance sheet assets. The sector contributed nearly £40bn to the Treasury last year when employee income tax is included. The bank levy raised £1.4bn last year and the surcharge generated £1.2bn.
The BBC report outlines several potential approaches the chancellor could pursue. Raising the 3% surcharge to its previous 8% level, which Rishi Sunak reduced in 2022, could yield approximately £2bn annually. Alternatively, the government could increase the bank levy, which currently charges 0.1% on short-term loans and 0.05% on longer-dated loans, with mortgages excluded from calculations.
A third option involves restricting banks' ability to use past losses to offset current profits. Lloyds particularly benefits from this policy, applying losses from the financial crisis to reduce tax bills. A temporary moratorium on this practice could generate an estimated £1bn annually and would "be a lot more bearable", according to one bank executive quoted in the report.
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."
Jamie Dimon, chief executive of JP Morgan, cautioned that the UK already imposes one of the world's highest tax burdens on banks. He warned that additional sector-specific taxes could deter investment and damage competitiveness. Industry leaders note that any tax increase targeting UK banks while exempting foreign banks' operations in the UK would contradict the government's stated commitment to supporting British business.