Chancellor Doubles Bank Surcharge Amid Profit Surge
Fiscal measures target banking sector with increased taxes, sparking debate over economic impact and competitiveness.
Callum Smith
The Chancellor has doubled the bank surcharge from 3 per cent to 6 per cent for 15 months, starting in January.
Corporation tax previously surged from 19 percent to 25 percent in 2023. Now, a temporary surcharge increase is set to conclude on March 31, 2028.
Major UK banks experienced varied market reactions following the Budget announcement. Lloyds and NatWest shares each climbed around 3 percent; Barclays gained over 2 percent; Standard Chartered soared more than 4 percent.
HSBC shares, however, plummeted over 5 percent on Tuesday. This decline occurred despite the bank reporting a 32 percent jump in third-quarter profits to £7.2 billion, alongside plans to return more cash to investors through a £750 million share buyback.
Chancellor John Healey directly addressed the banking sector. "As Chancellor, I want to say directly to our banks, I celebrate and am grateful for the role you play," he stated, adding, "Amid global economic storms, I am looking to our banks to help fund breathing space for British families."
As Chancellor, I want to say directly to our banks, I celebrate and am grateful for the role you play. Amid global economic storms, I am looking to our banks to help fund breathing space for British families.
UK banks currently face an effective tax rate of 46.5 percent, once employment levies and VAT are factored in. This figure significantly surpasses rates in Frankfurt at 39.1 percent and New York at 27.9 percent. UK Finance warns a fresh tax raid would further isolate the UK internationally.
Andrew Griffith suggests higher taxes would inevitably push up the cost of credit for businesses and mortgage-holders. This move would also render the City less competitive than its international rivals. Mark Eastwood claims banks may look to offset the tax effects by lowering interest rate deals for savers and increasing mortgage rates.
The TUC, conversely, proposes a significantly higher levy. They claim a 35 percent surcharge on bank profits would generate £15 billion annually. They also suggest hiking the levy to 8 percent would raise more than £2 billion each year, with an increase to 35 percent delivering a staggering £15 billion annually.
Receipts from the surcharge jumped by a fifth year-on-year due to increased industry profits. Yet, an attack on bank profits will push up borrowing costs for households and businesses, ultimately holding back the economy.