Banks fear Healey is planning a Budget raid on profits as tax debate intensifies

Tax options before the Budget

UK banks and building societies pay a 3% surcharge alongside the standard 25% corporation tax rate. They also pay a levy on assets held on their balance sheets.

The levy raised £1.4bn last year, while the surcharge brought in another £1.2bn. The surcharge was cut from 8% under Rishi Sunak, when he raised corporation tax from 19% to 25%; restoring it could raise around £2bn annually.

Another option discussed with Treasury officials would change the rules allowing banks to offset current profits with past losses. Lloyds has benefited from using losses incurred during the financial crisis to reduce tax bills.

Banks warn of wider effects

Banks have previously argued that higher taxes could make the UK less competitive internationally and limit their capacity to lend, harming growth. A change to loss-offset rules would avoid an additional charge on foreign banks, including JP Morgan. Its chief executive, Jamie Dimon, has said the UK already has one of the world’s highest tax burdens on banks.

Dimon has warned that further taxes aimed specifically at the sector could deter investment and damage competitiveness. The reporting does not identify which tax approach the chancellor will choose.

Executives anticipate pressure

Executives told the BBC they expect the sector to be “on the menu” when the Budget is announced in two weeks. The strong recent profits have added to calls from trade unions and others for banks to pay more. Banks believe the chancellor is now more willing to take a larger share of their profits, although no specific proposal is confirmed in the reporting.