UK Chancellor Healey Reportedly Plans to Increase Bank Profit Taxes in Budget

UK Chancellor John Healey is reportedly planning to raise taxes on the banking sector in the upcoming budget, according to senior banking executives who spoke to the BBC. These executives anticipate the sector will be "on the menu" during budget discussions later this month. This potential tax hike follows calls from trade unions for additional taxes on banks.

Highlights

• Chancellor John Healey is rumored to be planning increased profit taxes for banks.
• The UK's four largest banks collectively earned approximately £15 billion in profit during the first six months of this year.
• The banking sector contributed nearly £40 billion to the Treasury last year, including employee income taxes.
• UK Finance, the banking sector's trade body, warned that further tax increases would harm competitiveness and discourage investment.
• Sir Philip Augar, a former banker, suggested there is "room for a moderate increase" in sector taxes, potentially raising up to £3 billion annually.

Details

Currently, major UK banks and building societies pay a 3% surcharge on top of the standard 25% corporation tax rate. They also pay a levy based on their balance sheet assets. The 3% surcharge was previously reduced from 8% under Rishi Sunak. Reverting this surcharge to its former 8% level could generate an additional £2 billion per year for the Treasury.

Another option being considered is a temporary moratorium on banks using past losses to offset current profits, a practice that has significantly benefited some institutions like Lloyds since the financial crisis. Suspending this for a few years could yield an estimated £1 billion annually. However, figures like Jamie Dimon, CEO of JP Morgan, have cautioned that the UK already imposes one of the highest tax burdens on banks globally, and further sector-specific taxes could deter investment and damage competitiveness.

Why it matters

These potential tax increases are part of the government's efforts to boost public revenues. However, they spark debate over their impact on the banking sector's competitiveness and the overall investment climate in the UK. With banks currently enjoying higher profits due to rising interest rates, these taxes are likely to find support among the public and trade unions, despite opposition from banking lobbyists.