Economy · · 2 min read
Editor: Bohdan S.
UK chancellor Healey signals higher bank taxes in Budget, FT reports
The chancellor has hinted that lenders face higher levies, according to the Financial Times, putting the big UK banks' 3% profit surcharge in focus ahead of his first Budget.
The short answer
UK chancellor John Healey has signaled that banks could pay more tax in his first Budget, the Financial Times (FT) reported, with the chancellor pointing to decisions ahead and the financial sector bracing for higher levies. Banks currently pay a 3% surcharge on top of corporation tax, and any rise could hit lenders' profits and payouts to shareholders.
What happened
The Financial Times (FT) reported on Thursday that Healey has pointed to coming decisions on tax, signaling a possible raid on banks as the financial services industry braces for heavier levies. He has not announced any measure. UK lenders already pay a banking surcharge of 3% on profits above £100m, on top of standard corporation tax, giving a combined rate of 28%, City AM reported. Bosses from Barclays, NatWest, HSBC, Lloyds, Nationwide and Santander met the chancellor earlier this month, and the industry body UK Finance has written to him warning against any increase.
What it means
Healey replaced Rachel Reeves at the Treasury and is preparing his first Budget. Reeves never raised the surcharge during her time as chancellor and kept close ties with the City. According to City AM, Treasury officials have told senior finance figures not to expect the same relationship under Healey. The UK faces tight public finances, and banks are an obvious target because their profits have been strong while interest rates are high.
The surcharge used to be 8% before former chancellor Jeremy Hunt brought it down to today's level, and campaigners want it pushed back up. Positive Money, an activist group, has argued that a one-off windfall tax could raise £19bn from NatWest, Lloyds, Barclays and HSBC alone. The banks counter that they are already heavily taxed: PwC figures cited by City AM put total taxes on UK banks at 46% of profits, against 42% in Amsterdam, 39% in Frankfurt and 29% in Dublin.
Not all lenders are lined up the same way. A group of challenger and specialist banks including Revolut, Monzo, Shawbrook and Investec has asked Healey to raise the profit level at which the surcharge starts from £100m to £500m. They say they provide 60% of UK lending to small and medium-sized businesses and estimate the change would cost the Treasury only £39m. Independent banking analyst John Cronin told City AM he expects some success for that lobbying, though perhaps not the full amount.
One possibility flagged by analysts is a higher rate with an exemption for the UK operations of international banks, which would fall hardest on domestic lenders. Until the Budget is published, the shape of any change, if there is one, remains uncertain.
The bull case
A tax increase may already be partly expected after weeks of reports, limiting the hit to share prices. Big UK banks are highly profitable, so a modest surcharge rise would trim rather than threaten earnings. Mid-sized lenders could even gain if the threshold is lifted, and clarity after the Budget could remove a cloud that has hung over the sector.
The bear case
Higher taxes would cut the profits banks use to fund dividends and share buybacks. A large rise or windfall levy could make the UK look less competitive than Amsterdam, Frankfurt or Dublin, and the industry warns it could curb lending to households and businesses. If international banks were exempt, domestic lenders such as Lloyds and NatWest would carry most of the burden.
Why it matters
For investors
UK-focused lenders such as Lloyds, NatWest and Barclays are most exposed, and their shares could react to any Budget hints. Challenger banks listed in the FTSE 250 may benefit if the surcharge threshold is raised.
The wider context
Many UK savers own bank shares through pensions and index funds, so lower bank profits could mean smaller dividends. Banks may also try to recover higher taxes through loan and deposit pricing.
Market impact
| Asset (ticker) | Possible move | Timeframe | Why |
|---|---|---|---|
| Lloyds Banking Group (LLOY) | ↓ Down | Short term | As a domestic lender it would bear the full cost of any surcharge rise. |
| NatWest Group (NWG) | ↓ Down | Short term | UK-focused profits leave it directly exposed to higher bank levies. |
| Barclays (BARC) | ↓ Down | Short term | A bank tax raid would trim UK earnings, though it has large overseas operations. |
The FinPrism newsroom's view of how these figures could move, as of . It is general news commentary, not a recommendation to buy, sell or hold anything.
Frequently asked questions
What is the UK bank surcharge?
The bank surcharge is an extra tax on UK bank profits on top of normal corporation tax. It is currently 3% on profits above £100m, which takes banks' combined rate to 28%. It was cut from 8% in recent years, and campaigners want it raised again.
Will UK banks pay more tax in the 2026 Budget?
It is possible. The Financial Times reported that chancellor John Healey has signaled coming decisions on tax that the financial sector expects to mean higher levies. No measure has been announced, and the details will only be confirmed when the Budget is presented.
How would a bank tax rise affect bank shares?
Higher taxes reduce the profits that banks pay out as dividends and buybacks, which can weigh on share prices. UK-focused lenders such as Lloyds and NatWest would be most exposed. Smaller challenger banks could benefit if the threshold for paying the surcharge is raised.
Sources: Financial Times, City AM, City AM
How this was made: written with AI assistance from the sources listed above, following our editorial standards.
