UK Banks Face Potential Tax Increase in Upcoming Budget

Chancellor John Healey is poised to increase taxes on banks in the upcoming UK budget on October 28th, seeking to offset rising government borrowing costs linked to the conflict in the Middle East. Banks collectively made around £15 billion in profit in the first six months of this year, prompting calls for increased taxation from trade unions. The UK’s four largest lenders, HSBC, NatWest, Barclays and Lloyds Banking Group, have generated £200 billion in pre-tax profits over the past five years.

Industry figures anticipate Healey may reinstate the 8% bank surcharge, which was reduced to 3% under Rishi Sunak alongside a rise in corporation tax. Reinstating the surcharge could raise approximately £2 billion annually. Another option under discussion is a moratorium on banks using past losses to offset current profits, potentially yielding an additional £1 billion per year. The current bank levy generates £1.4 billion annually, while the surcharge brings in £1.2 billion.

UK Finance, the banking sector trade body, warns that further tax increases would weaken competitiveness, discourage investment, and hinder economic growth. Jamie Dimon, CEO of JP Morgan, has cautioned that the UK already has one of the highest tax burdens on banks globally. Bank executives argue that higher taxes could drive business and staff away from the UK. Lloyds has particularly benefited from using past financial crisis losses to reduce its tax bills.

Healey has acknowledged the importance of banks to the UK economy, describing them as “hardwired into the economic fabric of this country,” but has not ruled out a tax increase. The decision comes as the UK’s cost of borrowing has risen, potentially reducing the fiscal cushion built up by the previous chancellor, Rachel Reeves. The Treasury contributed nearly £40 billion last year when factoring in income tax on employees.

Where they differ

• The Guardian emphasizes the connection between the potential tax increase and the financial impact of the Middle East conflict, framing it as a means to keep deficit reduction plans on track.
• The BBC highlights the banks’ perspective, noting their surprise at not being targeted in the last budget and their concerns about competitiveness.
• The Guardian reports a figure of £200 billion in pre-tax profits for the largest four banks over five years, while the BBC cites £15 billion in the first six months of this year.

What is not yet known

• The final decision on whether or not to increase bank taxes, and if so, by how much, remains unconfirmed.
• The extent to which the conflict in the Middle East will impact the UK’s borrowing costs and necessitate additional revenue remains uncertain.

Background

• Chancellor John Healey is the current Chancellor of the Exchequer, responsible for the UK’s financial policy [Fact Refinery, 2026-10-15].
• The UK economy grew by 0.1% in August, defying earlier forecasts of contraction, and the Chancellor has indicated a commitment to fiscal discipline [Fact Refinery, 2026-10-15].
• The UK’s four largest lenders, HSBC, NatWest, Barclays, and Lloyds Banking Group, generated £200 billion in pre-tax profits over the past five years [article text].
• The bank surcharge, a tax on bank profits, was previously 8% but was reduced to 3% under Rishi Sunak alongside a rise in corporation tax [article text].
• The conflict in the Middle East is contributing to rising energy prices and impacting global economic conditions [Fact Refinery, 2026-10-14; Fact Refinery, 2026-10-15].

Our reading

Our reading is that the Chancellor is facing pressure to increase revenue due to rising government borrowing costs, likely exacerbated by the Middle East conflict, and is looking to the banking sector, which has demonstrated significant profitability, as a source. While acknowledging the banks’ importance to the economy, Healey appears prepared to reinstate or modify existing taxes on them, despite warnings from industry figures about the potential negative consequences for competitiveness and investment. The differing emphasis in reporting, on the conflict’s impact versus the banks’ concerns, suggests a debate is underway regarding the prioritization of fiscal needs versus economic growth.

What to watch

• The final details of the UK budget on October 28th, specifically regarding any changes to the bank surcharge or the implementation of a moratorium on offsetting losses [budget document, October 28th].
• The official figures for the UK’s borrowing costs in the coming weeks, to assess the extent to which the Middle East conflict is impacting the fiscal situation [Office for National Statistics, November 2026].
• Responses from HSBC, NatWest, Barclays, and Lloyds Banking Group to the budget announcement, particularly regarding any stated plans to relocate business or staff [company statements, November 2026].

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