Chancellor John Healey is considering new taxes on UK banks ahead of his Budget announcement in two weeks, according to senior banking executives who told the BBC they expect the sector to face additional levies.
The UK's four largest banks earned around £15 billion in profit during the first six months of this year, prompting calls from trade unions for higher taxes on the sector. Healey has called banks "the crown jewels" of the UK economy but has declined to rule out a tax increase.
Banks currently pay a 3% surcharge on top of the standard 25% corporation tax rate, plus a levy on balance sheet assets. The sector contributed nearly £40 billion to the Treasury last year when including employee income tax. The bank levy generated £1.4 billion last year and the surcharge contributed £1.2 billion.
The BBC identified several potential options for raising revenue. The 3% surcharge could be increased to its previous level of 8%, which Rishi Sunak had reduced when he raised corporation tax from 19% to 25%. Returning to 8% could raise around £2 billion annually. The bank levy, which currently charges 0.1% on short-term loans and 0.05% on longer-dated loans, could also be increased.
A third option involves restricting banks' ability to use past losses to offset current profits. Lloyds has particularly benefited from this practice by using losses from the financial crisis to reduce tax bills. A temporary moratorium on this offset could yield an estimated £1 billion per year, according to analysts.
UK Finance, the banking sector trade body, warned that further tax increases would "weaken competitiveness, discourage investment and job creation, and work against the government's ambition to deliver growth in every postcode." Jamie Dimon, chief executive of JP Morgan, stated that the UK already has one of the highest tax burdens on banks globally and that additional sector-specific taxes could damage competitiveness and discourage investment.
Banks say they were surprised not to face additional taxes at the previous Budget, given their recent profits. Rising interest rates have expanded the margin between lending rates and rates paid to savers, boosting profitability.
Industry leaders argue that any tax rise targeting UK banks while exempting foreign banks' UK operations would contradict the government's stated commitment to backing British business.