UK banking sector warns against proposed tax surcharge hike in upcoming budget

Industry group UK Finance has warned Chancellor John Healey against raising the bank surcharge tax rate in his Oct. 28 Budget, modeling that the proposed hike would lower UK economic output by £6 billion over five years.

In a letter to Healey and Prime Minister Andy Burnham, UK Finance Chief Executive David Postings argued the policy would curb business investment and lending across the country. Reports published on Oct. 15 and Oct. 16 revealed that the Treasury is considering raising the surcharge from 3% to 8%, reversing a cut made in 2023 by then Chancellor Jeremy Hunt.

According to modeling by UK Finance, an 8% surcharge would raise £2 billion annually for HM Treasury. However, the group projected that total bank lending would drop by £10 billion by 2029 and by £17.5 billion over 10 years. The study also estimated that the higher tax rate would result in 4,230 fewer financial sector jobs, with two-thirds of those positions located outside London.

The tax proposal has been submitted to the Office for Budget Responsibility for review as part of a package targeting public finances and cost-of-living support, according to reports. The UK's top four banks—HSBC, NatWest, Barclays, and Lloyds Banking Group—generated £200 billion in combined pre-tax profits over the last five years.

Following reports of the potential tax increase, banking shares dropped in London trading. Shares in Lloyds Banking Group fell by up to 2.7%, NatWest Group dropped 2.4%, and Barclays declined 0.7%.

Campaign groups including Positive Money and the Institute for Public Policy Research urged Healey to proceed with higher bank taxes to support households and small firms. Conversely, JPMorgan Chief Executive Jamie Dimon told Bloomberg TV that selective tax increases were unfair to domestic lenders, adding earlier in the year that hostility toward banks could prompt his firm to reconsider its London headquarters plans.