Banks back in Reeves’ tax targets amid Budget whiplash
Britain’s banking giants are back in the Budget crosshairs as Chancellor Rachel Reeves mulls a tax raid on lenders’ profits.
Banks had been expected to be spared from a tax grab in the forthcoming Budget due to Reeves’ inclination to protect the financial services sector, following a concerted lobbying effort by top finance chiefs.
But while the Treasury is said to be hesitant to hike the banking levy – an annual tax on the balance sheet liabilities and equity of firms – the government is reported to be ruminating raising the surcharge that sits on top of corporation tax.
Concern has been raised over the UK banking industry’s international competitiveness after a report from banking industry body UK Finance last month revealed City bank’s total tax rate rose 0.6 per cent to 46.4 per cent in 2025.
This dwarfed that of overseas rivals and raised concerns about the City’s attractiveness on the global stage. In New York, the tax rate remained unchanged year-on-year at 27.9 per cent, almost two-thirds below that in London.
As well as the sector-specific surcharge levy which effectively sits corporation tax at 28 per cent, banks are subject to VAT, property taxes, national insurance and other charged levied on businesses.
The fresh renewed speculation, as reported by the Telegraph – follow the FTSE 100’s Big Five banks – Barclays, HSBC, Natwest, Lloyds and Standard Chartered – booking an all-time high of £50.3bn in profit in 2024 and returning £35bn to investors.
Tomasz Noetszel, senior industry analyst at Bloomberg Intelligence, said: “Reeves’ tax-policy shift ahead of the Budget has reignited concern that the Treasury may revive a bank-specific levy to plug fiscal gaps.”
“With 2026-27 consensus pretax profit for Lloyds, NatWest and Barclays UK up about £8bn, banks are an easy target, though any new levy would likely be balanced to preserve lending capacity and sector support for growth.”
Budget U-turns panic markets
Earlier this month, three Treasury sources told the Financial Times a bank tax was off the table at the Budget.
But the Chancellor has faced criticism for U-turns in the run up to the Budget with most recently a dramatic bait-and-switch on income tax that led to panic markets.
On Monday, the Speaker of the House of Commons reprimanded the Treasury for a “hokey-cokey” Budget.
Throughout the road to 26 November, analysts have noted banks “have had a target on their back”.
But moves to tax lenders have faced fierce opposition.
Lloyds’ chief Charlie Nunn has also stated increasing taxes on lenders “wouldn’t be consistent” with helping boost the economy.
Meanwhile, Natwest chief Paul Thwaite said “strong economies need strong banks” as he argued he would rather use the bank’s capital for loans to boost growth “for the good of the country”.
The industry has also warned such a raid would conflict with Reeves’ mission to put financial services as the “crown jewel” in the British economy and said the industry was “at the heart” of Labour’s growth mission.