Autumn Budget 2026: Bank tax surcharge rises to 6% to fund energy support measures
Banks are being forced to pay a temporary additional tax on their profits to fund support for energy bills until 31 March 2028.
Before announcing the rise to the Bank Corporation Tax Surcharge from 3% to 6%, Chancellor John Healey said: “I want to say directly to our banks, I celebrate and am grateful for the role you play. And amid global economic storms, I am looking to our banks to help fund breathing space for British families.”
The increase in the surcharge on profits above £100m generated in the UK, which extends to building societies, will be applied for 15 months from 1 January 2027 to 31 March 2028 over which time it will raise around £1.5bn.
Breathing space
The package of energy support measures being funded by the temporary increase includes an extension to the VAT cut to electricity and a £2.6bn Household Energy Payment, which will provide a £100 payment directly into bank accounts from January 2027 for households in England in council tax bands A-D. It will support up to 20 million households.
Dan Coatsworth, head of markets at AJ Bell, said that there had been fears in the banking sector that the surcharge would revert to its pre-2023 level of 8%, therefore news of a 6% charge triggered a rise in banking shares.
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“But that may only be a temporary bounce,” he added. “While the newly-announced change doesn’t alter the point at which the surcharge kicks in – it was previously £25m of profits until 2023 – it does leave banks having to give more of their earnings to the taxman.
“Any impact would be less pronounced for the likes of Barclays and HSBC given they generate a smaller share of their earnings in the UK than Lloyds and NatWest.”
Substantial profits
Adam French, head of consumer finance at Moneyfacts, said the temporary hike came at a time when major banking groups were reporting substantial profits during a period of higher-for-longer rates.
“Higher interest rates can support bank earnings by widening the spread between lending and saving rates, although it varies by bank and over time. If interest rates remain higher, banks should have more headroom to absorb the surcharge increase than when rates were near historic lows. However, higher rates do not automatically produce higher profits, and the effect depends on each lender’s funding costs, deposit mix, lending book, credit losses and approach to managing margins.
“Competition and commercial forces will shape how banks respond, as things stand the cost felt by customers is likely to be modest, if any – particularly in a competitive market.”
However, Mark Eastwood, director of corporate sales at property lender Together, said banks may look to offset the effects of the tax by lowering interest rates deals for savers and increasing mortgage rates.
“Mortgage borrowers are already contending with a market grappling with a cauldron of unpredictable swap rates and rising inflation, so an additional upward pressure may cause first-time buyers to pause plans, and existing borrowers to cut back on additional spending to cope with increased rates,” he said.
