John Healey hints at higher taxes for Britain’s biggest banks as the 2026 budget approaches, prompting fierce debate across the City and labour movement.
The United Kingdom’s finance ministry is gearing up for a potentially jarring fiscal move. Chancellor John Healey has signalled that the upcoming October 2026 budget could see a reversal of recent tax reliefs granted to the banking sector, a development that would alter the fiscal landscape for the nation’s four largest lenders.
Banking executives have already warned that any increase in the sector’s tax burden could erode the UK’s competitive edge, while trade unions are pressing for what they describe as a “fair share” from institutions that have logged record profits amid rising interest rates.
What the chancellor may change
One of the most discussed levers is the bank surcharge—an extra charge levied on corporate tax for banks. Introduced by the previous government at an 8% rate, it was cut to 3% in 2023 by Chancellor Jeremy Hunt.
Restoring the surcharge to its former level could generate roughly £2 billion annually, according to Treasury estimates.
Officials prefer to tweak an existing instrument rather than introduce a fresh windfall tax because the administrative burden is lower and the policy is already embedded in the tax code. Critics, however, argue that the original cut coincided with a corporate tax rise from 19% to 25%, making a full reinstatement appear punitive.
Alternative revenue streams on the table
Beyond the surcharge, the Treasury is evaluating a modest increase to the bank levy a percentage applied to loan portfolios. Adjusting this levy would affect banks proportionally to their lending activity, a factor that could be calibrated to spare smaller, specialist lenders.
Another proposal involves tightening the rules that let banks offset current-year profits with historic losses. Large institutions such as Lloyds have benefited from losses incurred during the 2008 crisis, reducing their tax bills year after year. A temporary moratorium on loss carry-forwards could add about £1 billion per annum, according to industry insiders.
Reactions from the City and labour groups
Industry bodies, including UK Finance and TheCityUK, have warned that higher sector-specific taxes could trigger a relocation of staff and assets abroad, weakening the City’s standing against European rivals. JPMorgan’s chief executive, Jamie Dimon, has previously hinted at shelving a £3 billion London headquarters project if the UK adopts a hostile tax stance.
Conversely, the Trades Union Congress (TUC) and its finance-focused arm argue that the banks’ recent £15 billion half-year profit (equating to roughly £1 billion a week) justifies a more aggressive fiscal approach. TUC secretary Paul Nowak has called the profits “bumper” and urged the chancellor to deliver a “fair share” from an industry that, in his view, benefits from “boom-time tax breaks and bust-time bailouts”.
Financial commentator Sir Philip Augar, a former City banker, suggested a “moderate” surcharge increase could raise up to £3 billion annually without jeopardising the sector’s ability to lend. He highlighted that higher interest rates have widened banks’ net interest margins, creating a window for the Treasury to capture additional revenue.
Healey, speaking from Bangkok where the IMF recently praised the UK’s fiscal trajectory, framed the banks as “hard-wired into the economic fabric” of the country. While acknowledging their profitability, he also noted the need to strike a balance between supporting growth and ensuring the Treasury’s deficit-reduction agenda stays on track.
The policy debate is expected to culminate in the Budget announcement on 28 October. Market reactions have already materialised: shares of domestically-focused banks like Lloyds and NatWest slipped more than 2 %, while globally-diversified giants such as HSBC and Barclays showed more muted moves, reflecting differing exposure to a UK-only tax shift.
