John Healey is drawing up plans to raise taxes on Britain's biggest banks in his Budget on 28 October, as the Chancellor searches for ways to fund cost-of-living support and steady the public finances with borrowing costs at their highest since 1998.
A bank tax rise is understood to be among the major measures Mr Healey has submitted to the Office for Budget Responsibility, the government's independent forecaster, which is preparing its verdict on the package ahead of the statement at the end of the month. The most likely route is an increase in the bank surcharge, the additional levy banks pay on top of standard corporation tax.
A surcharge reversal on the table
The surcharge currently stands at 3 per cent, after the former chancellor Jeremy Hunt cut it from 8 per cent in 2023. Reversing that reduction is one of the options under discussion in the Treasury, a move analysts estimate could raise more than 2 billion pounds a year for the Exchequer.
Mr Healey needs the money. The yield on 30-year gilts touched 6 per cent this month for the first time in 28 years, halving the headroom against his fiscal rules, while the Institute for Fiscal Studies has warned his Budget will be a "work of fiction" without credible answers on 35 billion pounds of spending pressures. Help with energy bills, including an expanded Warm Home Discount, is among the measures the proceeds of a bank levy could fund as oil prices surge on the back of the American war with Iran.
The Bank Tax Plan at a Glance
- John Healey is drawing up a bank tax rise for his first Budget on Wednesday 28 October.
- The plan is expected to raise the bank surcharge, currently 3 per cent, cut from 8 per cent in 2023.
- Reversing that cut could raise more than 2 billion pounds a year, funding cost-of-living support.
- NatWest, Lloyds and Barclays shares all fell on Friday as the reports emerged.
- The Conservatives have warned against the move, calling it a raid on growth.
Markets take fright
The City gave its first verdict on Friday. NatWest shares fell 2 per cent to 660.4p, Lloyds dropped about 2.5 per cent to 103.4p and Barclays slipped 0.4 per cent to 430.5p, as traders digested the prospect of the sector being asked to plug part of the Chancellor's gap.
Speaking to reporters at the IMF meetings in Bangkok on Thursday, Mr Healey declined to rule out the move, insisting only: "I will meet those fiscal rules." He described the banks as key to the British economy but kept his tax options open, a formulation allies say is deliberate while final decisions are locked down.
The political battle lines
The opposition response has been swift. Kemi Badenoch, the Conservative leader, and Mr Hunt have both warned against a bank tax, arguing it would be passed on to households and businesses through dearer credit at the very moment the economy can least afford it. Reform UK is expected to make similar arguments, while pointing to the government's broader tax record.
On the government's left, the campaign group Positive Money has claimed a full windfall tax could raise as much as 19 billion pounds from NatWest, Lloyds, Barclays and HSBC alone, a figure ministers are quick to note is a campaign estimate rather than an official calculation. With ten days to the Budget, the argument over who pays for Britain's straitened finances is only just beginning.