Borrowing could get ‘pricier’ if Chancellor raises bank taxes
A higher tax burden on UK banks would impact borrowers and savers, the industry has said in reaction to the rumoured policy.
Reports suggest Chancellor John Healey could impose higher taxes on the banking sector at the upcoming Budget to boost the government’s finances amid high borrowing costs.
It has been speculated that this could be a reversal of the reduction to the surcharge that banks pay on corporation tax, which was lowered from 8% to 3% by the then-Chancellor Jeremy Hunt in 2023.
Following reports of the possible tax raid on banks, shares in NatWest, Lloyds and Barclays fell.
A ‘tax on lending’
Nigel Green, CEO of the DeVere Group, said the sector was “hardly undertaxed”, as tax paid by banks rose 8.5% to £39.1bn in the 2025/26 tax year.
Episode 4: New Build: Powered by Partnership podcast from Newcastle for Intermediaries
Sponsored by Newcastle for Intermediaries
Further, corporation tax has risen from 19% to 25%, meaning banks already face a 28% tax rate.
Green added: “Raising bank taxes might look like an easy win on a Treasury spreadsheet, but it’s a tax on lending, and lending is how Britain grows.
“Every extra pound taken from the banks is a pound that doesn’t go into a first-time buyer’s mortgage, a growing firm’s overdraft, or the tech that keeps UK finance ahead of the world.”
Green said higher tax could also mean that “borrowers pay through pricier loans, savers through thinner returns, and millions of ordinary people through pension funds and ISAs that hold bank shares and rely on their dividends”.
He said a “tax sold as hitting the City ends up hitting households”, adding that leaving bank taxes alone would result in “more lending, more investment and, over time, more tax revenue”.
This echoes research from the Association for Financial Markets in Europe (AFME) earlier this year, which suggested that bank-specific taxes were “rarely absorbed entirely by financial institutions” and were usually “passed through to customers, either directly via increased fees or indirectly through less favourable lending and deposit terms”.
Higher tax would weaken competition
A UK Finance spokesperson said a strong banking sector was “essential to a strong UK economy”.
They added: “Profitable banks can invest in better services for customers, lend to households and businesses, and deliver returns that support people’s savings and pensions. Banks also make a major contribution to the public finances and already face a materially higher total tax rate in the UK than in other leading financial centres.
“An increase in bank taxes at the Budget would weaken the UK’s competitiveness, discourage investment and job creation, and work against the government’s ambition to deliver growth in every postcode.”
