Fears are mounting in London’s financial district that the government could target banks with higher taxes to ease pressure on the public purse.
Economists estimate that the UK faces a fiscal shortfall of at least £20bn, and policymakers are considering options such as a surcharge on banking profits or the introduction of a new levy.
For some, the sector presents an easy political target. “No one likes banks: they are seen as a whipping boy for the government,” one senior banker commented.
Labour figures have already floated the idea. In May, Deputy Prime Minister Angela Rayner suggested lifting the corporation tax rate for banks from 28% to 30%. Advisors close to the Treasury argue that such a move could reassure the party that the financial sector is contributing its fair share, with one official suggesting it could raise as much as £3bn.
A report by the Institute for Public Policy Research (IPPR) has also recommended a levy to capture “windfall” gains banks received as a legacy of quantitative easing, which left lenders with large, interest-bearing reserves at the Bank of England.
Despite this, Chancellor Rachel Reeves has stressed that economic growth is her main priority, and she remains cautious about overtaxing productive sectors. Treasury officials note that the size of the fiscal hole will only become clear after the Office for Budget Responsibility releases updated forecasts later this year.
Bank executives have already issued warnings. Lloyds chief Charlie Nunn argued that new taxes would conflict with the government’s growth agenda, while NatWest’s Paul Thwaite said that “strong economies need strong banks.” Barclays boss CS Venkatakrishnan also highlighted that the industry is already one of the largest contributors to the UK tax base.
Whether Reeves will move forward with new bank taxes in the autumn Budget remains to be seen. Treasury officials continue to emphasise that growth, alongside planning reforms and other structural measures, will be key to stabilising the public finances.
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