The Trades Union Congress (TUC) has renewed its call for an increased windfall tax on the UK's largest banks after the big four lenders reported nearly £14bn in first-quarter profits, partly driven by market turbulence caused by the Iran war.
Bank Surcharge Reduction Under Scrutiny
The current bank surcharge, which was reduced from 8% to 3% of profits above £100m by the Conservative government in 2023, is now being questioned as banks benefit from the high interest rate environment. The Bank of England held interest rates at 3.75% last week, with markets pricing in up to two increases by the end of this year. The average two-year fixed mortgage rate stood at 5.77% on Tuesday, compared with 4.83% before the conflict in the Middle East began.
Record Profits for Big Four Banks
Over the past week, Barclays, HSBC, Lloyds, and NatWest reported combined profits of £13.8bn for the first quarter. Paul Nowak, general secretary of the TUC, stated: "Getting banks to pay more tax on their profits is plain common sense when they're raking in billions and the rest of the country is struggling to get by. With Donald Trump's war abroad unleashing economic chaos at home, it's only right that banks' bumper profits are taxed fairly and used to shield households and firms from the damaging impacts of the war."
Banks Deny Profiteering Allegations
During a results call last week, William Chalmers, chief financial officer at Lloyds Banking Group, was asked whether banks were "profiteering" from the Iran war. Lloyds reported a 33% increase in year-on-year profits to £2bn in the first quarter. Chalmers said: "Banks have had many years of very low margins, of low profitability in the context of a low-rate environment. The sector always expected a gradual increase in the profitability of banks when rates rise. That is the way the financial services industry works."
TUC's Tax Proposals
The TUC estimates that returning the bank surcharge to the 8% level it was at three years ago would raise £9bn over four years. Doubling it to 16% would deliver £24bn over four years. The big four banks made profits of almost £46bn last year, resulting in bumper annual pay packets for bosses. "After the Tories cut the bank surcharge tax, banks enjoyed a profits bonanza because of high interest rates," said Nowak. "Now they could be set to make even more if interest rates remain high for longer. The last economic shock caused by Putin's illegal invasion in Ukraine led to a bumper payday for banks at the expense of mortgage payers – we can't allow the same thing to happen again."
Last year, the IPPR thinktank argued for a new bank tax to be introduced by chancellor Rachel Reeves in the November budget, a proposal that the industry managed to see off after intense lobbying.
