Chancellor Rachel Reeves has been urged to consider a new windfall tax on our biggest banks as Britain’s Big Four lenders are on track to rake in record profits of £48billion
A windfall tax on Britain’s biggest banks could raise more than £11billion of much-needed money for the Treasury, analysis has revealed.
Chancellor Rachel Reeves is under pressure to raise taxes again in the autumn Budget to tackle a hole in the creaking public finances. With limited options, one suggestion is to increase levies on banks given they have benefited from high interest rates.
HSBC became the last of the so-called Big Four to reveal eye-watering half-year profits. It raked in nearly £12billion – or £431 a second – of profits worldwide despite falling by a quarter year-on-year.
The haul follows increased profits at Lloyds Banking Group, NatWest and Barclays. The quartet have collectively made £24billion in the space of just six months, and are on track to hit a record £48billion this year.
Former Tory Chancellor Jeremy Hunt cut a bank surcharge in his 2022 autumn Statement, from 8% to 3%. But think tank Positive Money is calling for a new surcharge of 38%, in line with Energy Profits Levy on oil and gas companies.
It claims doing so would be expected to bring in £11.3billion from the Big Four banks this year, based on their results for the first half of 2025. The move could cover the cost of the welfare U-turn and scrapping two-child benefit cap, the think tank claims. It argued that lenders’ profits have been further boosted by the Bank of England paying higher interest rates on funds held at the central bank.
Positive Money is proposing the UK follows Spain with a levy targeting profits from banks’ domestic retail banking arm above a threshold of £800million.
Simon Youel, Head of Policy and Advocacy at Positive Money, said: “The public is paying the price of banks’ record profits. Recouping the bill for banks’ expensive free lunch should be a no-brainer, and can even be done in ways that protect the sector’s international competitiveness. While banks should be profitable, there is no compelling reason to allow banks to extract such enormous rents from the rest of the economy. The money and payment services banks provide are an essential public utility, like energy. Just as energy companies shouldn’t be able to profiteer, neither should banks – taxing windfalls makes sense for both.”
Bank bosses and other industry leaders have warned the Chancellor against hitting the sector, warning it could dent their ability to lend and dent the government’s stated number one mission to grow the economy.
Georges Elhedery, HSBC chief executive, warned it risked its ability to “support our customers and ultimately in delivering growth for the UK.”
Lloyds’ chief executive Charlie Nunn highlighted the Chancellor’s recent Mansion House speech where she told of “the need for a stronger economy and needing a strong financial services sector”. Mr Nunn said: “We therefore believe that’s the important thing to focus on and obviously, therefore, wouldn’t be consistent with tax rises.”
The Tories introduced a surcharge – or extra amount – of corporation tax banks paid from 2015. It was originally 8%, on top of the corporation tax at the time. But when the corporation tax rate rose, the surcharge fell to 5%. At the same time, the profit threshold on which banks had to start paying the surcharge jumped from £25million to £100million.
The Office for Budget Responsibility says the surcharge raised £1.5billion for the Treasury in 2023/24, and forecast it would bring in another £7billion over the rest of this parliament.
Positive Money is not calling for the 3% surcharge to be increased, but rather for a new levy of 38% on the profits of the banks’ retail arms. t would be applied to their net interest income – the difference between what banks make from borrowers and pay depositors – above £800million.
Trade body UK Finance says the UK banking sector paid total tax of £44.8 billion for the financial year to the end of March last year, up from £41billion the previous year, and the highest since the study started a decade ago. The figure also represented 4.7% of total UK government tax receipts last year. Comparing the UK with abroad, it says London’s total tax rate of 45.8% is way above New York’s 27.9% and the 38.6% in Frankfurt.