A banking surcharge tax showdown is set to take place as John Healey hosts the chief executives of Barclays, NatWest, HSBC, Lloyds, Nationwide and Santander, with the sector braced for a potential increase to its already heavy tax burden ahead of the Chancellor’s first Budget.
The meeting, first reported by Sky News, is the second in-person gathering bank bosses have had with Healey since he took over at No.11, following a session at Bloomberg in July. A source close to the Chancellor said he would be in ‘listening mode’, describing the summit as part of ‘normal stakeholder work [the Treasury does] in the run-up to the Budget’. The Treasury declined to comment further.
The banking surcharge tax showdown: what is at stake
At the centre of the dispute is the banking surcharge, a levy that sits on top of corporation tax. The surcharge currently stands at 3 per cent, reduced from 8 per cent by former Chancellor Jeremy Hunt. Both UK Finance and TheCityUK called for the surcharge to be phased out entirely in their 2025 pre-Budget submissions, a shift in lobbying strategy that came after officials advised the industry to push for a cut in order to counter the louder calls for a hike.
Figures from PwC illustrate the scale of the sector’s grievance. Total taxes on UK banks amount to 46 per cent of profits, compared with 42 per cent in Amsterdam, 39 per cent in Frankfurt, and 29 per cent in Paris. Dublin, at 28 per cent, presents perhaps the starkest contrast.
John Cronin, independent banking analyst, said fears were ‘now widespread that the Chancellor is set to increase the tax burden for the sector with a potential exemption for the UK operations of international banks.’ He argued domestic lenders would ‘rightly be furious’ if such a move came to fruition, and suggested there could be ‘more sophisticated suggestions which could raise substantial additional fiscal revenues’.
Beyond the surcharge debate, some in the City have raised the spectre of a windfall tax on the major banks. Activists at Positive Money have argued such a move could raise £19bn from the coffers of NatWest, Lloyds, Barclays and HSBC alone, though no such policy has been confirmed by the Treasury.
Healey is no Reeves for the City
The backdrop to Tuesday’s meeting is a relationship between the financial sector and No.11 that has shifted considerably since Rachel Reeves left the role. During her tenure, Reeves maintained close ties with bank chiefs, holding regular summits on investment, growth and regulation, and reportedly delivered a sharp rebuke to the IPPR, a left-leaning think tank, when it published a market-moving report calling for a bank tax. She kept the surcharge steady and championed deregulation.
Treasury officials have since told senior figures in financial services not to expect the same kind of relationship with Healey. Engagement is expected to continue, but the City is likely to see less of the new Chancellor in the Square Mile.
UK Finance chief David Postings has already written to Healey with a direct warning. ‘At a time when peer jurisdictions are seeking to improve their competitiveness, it is vital that the UK’s approach to both tax and regulation pull in the same direction, supporting investment and the sector’s capacity to finance growth across the economy,’ Postings wrote in a letter seen by City AM.
Some in the industry have drawn reassurance from the appointment of Emma Reynolds to the Treasury. Reynolds previously held a senior role at TheCityUK before serving briefly as City minister under Sir Keir Starmer, and returned to the Treasury in July. Speaking at the Labour party conference, she said her time at the industry body helped her ‘see things from the point of view of big financial institutions.’
Challenger banks press for surcharge relief
Not all the lobbying has centred on the largest lenders. A group of specialist and challenger banks, including Revolut, Investec and Shawbrook, wrote to Healey calling for the threshold at which the surcharge applies to be raised from £100m to £500m, an outcome that would benefit mid-sized institutions championing small business lending.
Cronin said he expected ‘some success in their lobbying effort,’ though he added he was ‘not sure Healey will go all the way to £500m.’ For the blue-chip bosses attending Tuesday’s meeting, any relief targeted at smaller rivals would likely be greeted with considerably less enthusiasm.
With the Budget now weeks away, the industry’s position is clear. Whether Healey chooses to hold the line, raise the surcharge, or offer selective concessions to challenger banks will define the terms of the sector’s relationship with this Chancellor for years to come.
