Chancellor John Healey is considering a tax raid on UK banks in the October 28 Budget, weighing plans to reverse a previous cut to the bank profits surcharge. The potential levy has rattled the London Stock Exchange, triggering sharp share price drops for lenders such as Lloyds and NatWest as policymakers scramble to cover rising public borrowing costs.
Financial markets reacted swiftly on Friday after reports emerged that the Treasury is weighing a tax increase on the banking sector to help plug a multibillion-pound fiscal hole caused by rising borrowing costs. Treasury officials are examining options for the upcoming fiscal event on October 28, with speculation centering on reversing a reduction made by former Conservative chancellor Jeremy Hunt.
That earlier policy lowered the profit surcharge paid by commercial lenders on top of standard corporation tax from 8% down to 3%. Restoring that levy to its former 8% level could raise more than £2 billion a year for the government.
Market Reaction and Share Price Drops on the London Stock Exchange
Bank shares tumbled during early trading on the London Stock Exchange as investors absorbed the prospect of a sector-specific tax raid. Lloyds Banking Group and NatWest Group fell in early trading, leading the downward trend among bank stocks.
Different lenders face varying levels of exposure depending on their geographic footprint. Analysts pointed out that domestically focused institutions bear the heaviest brunt of the anticipated policy shift.
According to IG senior technical analyst Angeline Ong, if Healey proceeds with the plan, the share prices of Lloyds and NatWest—which have almost total exposure to the UK—would likely suffer the most significant impact, a trend already visible in today’s market performance. She added that Barclays is partly exposed and HSBC is least exposed in the mix.
Lloyds shares dropped while NatWest also fell as investors responded to the news. Barclays shares declined 0.7pc.
Trade Unions Push for Heavier Surcharges Amid Record Profits
Labour figures and union leaders welcomed the prospect of a tougher stance on lenders, pointing to substantial financial gains amassed across the industry. Over the last half-decade, the UK’s primary lenders—HSBC, NatWest, Barclays, and Lloyds among them—have accrued approximately £200 billion in pre-tax profits, aided by the boost to earnings from elevated interest rates.
Photo: Yahoo Finance UK
Trades Union Congress general secretary Paul Nowak argued that financial institutions should contribute more as households struggle with living costs. He noted that the country’s four major banks are making a billion pounds a week while employee bonuses reach post-financial crash records.
These are bumper profits – driven by high interest rates and households’ mortgage misery.
Paul Nowak, general secretary of the Trades Union Congress
The TUC pressed the chancellor to go even further by raising the profit surcharge to 16%, a move the union calculated would generate £24 billion in tax revenue over four years. Meanwhile, the Institute for Public Policy Research proposed a temporary windfall tax on commercial banks to help build up the government’s depleted fiscal buffer.
Industry Warnings Over Competitiveness and Lending Costs
Industry representatives and political opponents cautioned that targeting financial services with extra levies risks damaging the broader economy. Banking sector advocates warned that higher tax rates could drive investment away from London and push up borrowing costs for consumers and businesses.
Photo: The Independent
Speaking from the International Monetary Fund meeting in Bangkok, John Healey described financial institutions as hardwired into the economic fabric of the country while declining to confirm specifics ahead of the official fiscal statement.
That said, I’ve got decisions to take in the Budget, and I’ll set those out in two weeks’ time.
Bank Stocks Face Test as Hawkish Rate Hike Signals Steeper Hiking Cycle
John Healey, Chancellor
Shadow chancellor Andrew Griffith criticized the reported plans, arguing that a tax raid on the financial sector would stifle economic growth and place additional burdens on business creators.
With the October 28 Budget approaching, the Treasury maintained its standard stance on upcoming fiscal decisions. A Treasury spokesperson stated that choices regarding taxation remain a matter for the chancellor to set out formally rather than through speculation.
