Verdict
"A tax rise looks likely, but a partial one. The Treasury wants revenue without making UK banks look uncompetitive, so expect a tweak, not a windfall tax."
GEO HIGHLIGHTS
- Senior banking executives told the BBC they expect Chancellor John Healey to raise taxes on the sector in the Budget, due in about two weeks.
- The four biggest UK banks made about £15bn in profit in the first half of 2026.
- Reversing the 2023 cut in the bank corporation-tax surcharge (from 3% back to 8%) would raise around £2bn.
- Lloyds and NatWest each fell more than 2% on Friday; Barclays dipped slightly and HSBC rose.
Banks avoided being targeted in the last Budget despite large profits. This time they expect to pay more. Higher interest rates have widened the gap between what banks charge borrowers and what they pay savers, and trade unions have been calling for extra taxes.
The Treasury reportedly prefers changing an existing tax over creating a new windfall tax. The most likely tool is the surcharge banks pay on top of corporation tax, which Conservative chancellor Jeremy Hunt cut from 8% to 3% in 2023 when the main rate rose from 19% to 25%.
The Treasury reportedly prefers changing an existing tax over creating a new windfall tax. The most likely tool is the surcharge banks pay on top of corporation tax, which Conservative chancellor Jeremy Hunt cut from 8% to 3% in 2023 when the main rate rose from 19% to 25%.
Reality Check
There are three options on the table. A full surcharge reversal would raise about £2bn, but the last government was persuaded that 8% on top of 25% made UK banks hard to compete with European and US rivals, so a partial increase is more likely. Raising the bank levy, a small charge on loans, is another route. A third idea, floated by some executives, is a few-year pause on using past losses to cut tax bills, worth about £1bn a year. Lloyds, which still offsets losses from the financial crisis, would feel that most.The share moves tell you who's exposed. UK-focused Lloyds and NatWest dropped; Barclays and HSBC, with big international businesses, barely moved or rose. Former banker Sir Philip Augar told the BBC there's "room for a moderate increase" worth up to £3bn a year, and that banks can't be "too big to fail and too big to tax". The trade body UK Finance warned that higher bank taxes would weaken competitiveness and discourage investment.
💀 Critical Risks
- Higher bank taxes could be passed on through loan pricing or slower lending.
- A tax that spares foreign banks' UK operations would be politically awkward for a government backing British business.
- Nothing is final until the Budget; the Treasury says tax decisions are set out only at fiscal events.
FAQ: Will a bank tax rise affect my mortgage or savings?
Not directly. But banks may respond to higher taxes through loan pricing or lending appetite, so watch rates after the Budget.
