Banks Face Fresh Budget Tax Raid Despite Lobbying Efforts
Chancellor Rachel Reeves is reportedly preparing to target Britain's banking giants with a tax increase in the upcoming Budget, scheduled for 26 November 2025. This marks a significant shift, as banks were widely expected to be spared following a concerted lobbying effort by top finance chiefs to protect the financial services sector.
Competitiveness Clash as UK Tax Rate Dwarfs Rivals
The Treasury is said to be hesitant to increase the banking levy but is actively considering raising the bank surcharge that sits on top of corporation tax. This move comes despite major concerns about the UK banking industry's international standing. A recent report from UK Finance revealed that the total tax rate for City banks rose to 46.4 per cent in 2025, a 0.6 per cent increase.
This figure starkly contrasts with the tax burden on overseas rivals. In New York, the tax rate remained unchanged at 27.9 per cent, almost two-thirds lower than in London. This disparity has raised serious questions about the City's long-term attractiveness as a global financial hub.
Record Profits and Budget U-Turns Fuel Speculation
The renewed speculation, first reported by the Telegraph, follows an unprecedented year for the UK's largest banks. The FTSE 100's Big Five – Barclays, HSBC, Natwest, Lloyds, and Standard Chartered – recorded a combined £50.3bn in profit for 2024, a record high. These institutions also returned a staggering £35bn to investors.
This potential tax raid represents a dramatic U-turn from earlier Treasury signals. Earlier this month, three Treasury sources told the Financial Times that a bank tax was off the table. The Chancellor has faced criticism for such reversals in the run-up to the Budget, with a recent bait-and-switch on income tax causing market panic. The Speaker of the House of Commons even reprimanded the Treasury for a hokey-cokey Budget.
The proposed tax increases have faced fierce opposition from industry leaders. Lloyds' chief, Charlie Nunn, stated that raising taxes on lenders wouldn't be consistent with helping boost the economy. Similarly, Natwest's chief, Paul Thwaite, argued that strong economies need strong banks, preferring to use the bank's capital for growth-boosting loans for the good of the country.
The industry has warned that such a tax raid would directly conflict with Chancellor Reeves' stated mission to position financial services as the crown jewel of the British economy and place the sector at the heart of Labour's growth agenda.
