According to Zhitong Finance APP, the increase in the UK bank tax will be smaller than previously feared, as Chancellor John Healey seeks to balance the competitiveness of the City of London with raising funds for voter benefits in his first budget.
People familiar with the matter said Healey will raise the bank surcharge in the budget, currently an additional 3% on top of the 25% corporation tax, but will not restore it to the 8% level seen before 2023. The measure will be temporary rather than permanent.
As of press time, shares of NatWest Group (NWG.US) rose as much as 2.2%, Barclays PLC (BCS.US) gained 2.2%, and Lloyds Banking Group (LYG.US) climbed 1.7%.
Raising the bank tax is one of the key measures Healey will announce in Wednesday's fiscal centerpiece, as he seeks to fund voter "breathing space" policies such as heating bill rebates and fuel duty freezes while keeping tight control over UK public finances.
The 3% bank surcharge raised 1.2 billion pounds ($1.6 billion) for the UK Treasury in the 2025-26 fiscal year, and each 1 percentage point increase is estimated to raise an additional 400 million pounds annually.
Healey's plan to raise the bank surcharge has drawn criticism from the industry. The industry has warned that an increase to 8% could shrink economic output by 6 billion pounds over five years, with the greatest impact felt outside London.
According to a letter from David Postings, head of industry lobbying group UK Finance, to Healey, an 8% bank surcharge would curb about 10 billion pounds of lending by 2029 and reduce investment in the UK.
The Chancellor's approach to banks stems from lobbying by left-wing think tanks and trade unions. They have been urging the Treasury to pressure the sector after it enjoyed recent windfall profits driven by rising interest rates.
Barclays reported quarterly pre-tax profit of 2.3 billion pounds on Thursday, up about 12% year-on-year. HSBC Holdings' UK business also saw pre-tax profit rise 12% in the quarter to 1.8 billion pounds. NatWest and Lloyds will report results later this week.
In 2023, then-Chancellor Jeremy Hunt cut the bank surcharge from 8% to 3% to offset part of the impact of raising corporation tax from 19% to 25% that year. This brought the total tax rate for UK banks down to 28% instead of 33%, which would otherwise have left UK banks with a higher tax burden than elsewhere.
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