Bank Tax UK: Healey Targets Lenders in 28 October Budget

What is the UK bank surcharge and why is it being targeted?

Chancellor John Healey is poised to raise taxes on UK banks in his 28 October budget to help offset damage to public finances from the Middle East war and rising borrowing costs. Senior banking executives told the BBC they expect the sector to be targeted, while The Guardian reported the plan is aimed at filling a fiscal gap. The leading option is reversing Jeremy Hunt's 2023 cut to the bank surcharge, restoring it from 3% to 8% on profits above £100m. The move follows months of lobbying and is part of wider efforts to repair the UK public finances.

The bank surcharge is an additional corporation tax paid by UK lenders on their profits. It was cut from 8% to 3% in 2023 to help keep London competitive after corporation tax rose from 19% to 25%. A return to 8% would raise about £2bn to £2.25bn a year, according to Treasury estimates cited by the TUC.

The numbers behind the bank tax rise

Here is how the proposed change compares with the current regime:

• Current surcharge: 3% on profits over £100m
• Proposed surcharge: 8%, raising £2bn–£2.25bn annually
• UK banks' total tax rate: above 46%, compared with 38.9% in Frankfurt and 27% in New York
• Big four UK banks (HSBC, NatWest, Barclays, Lloyds) made £200bn pre-tax profit over five years
• KBW estimates the rise would cut lenders' earnings by about 6%

Industry analysts at Citi said the budget could be a clearing event for UK bank stocks, resolving months of uncertainty.

Why is the Middle East war driving budget decisions?

The Middle East conflict economic impact has pushed up energy prices and government borrowing costs. The Treasury is under pressure to repair public finances, and the IMF has praised UK progress on balancing the books, but warned against relying on a bank tax. Helge Berger, deputy director of the IMF's European department, said extra revenue could come from modernising property tax and broadening VAT instead. The budget will also include energy support and defence funding details, reflecting the war's fiscal toll.

Industry and political reaction

Banking groups are lobbying hard. Industry bodies including UK Finance and TheCityUK warn higher taxes could push jobs and investment abroad. Aviva CEO Amanda Blanc said: We must not deter investment in UK plc. Specialist banks want the £100m profit threshold raised to £500m so smaller lenders are not caught.

The TUC argues banks should 'pay their fair share', noting the big four made £200bn pre-tax profit over five years. The IPPR has proposed a temporary windfall levy. Healey has stressed banks are vital to growth, telling Reuters: Banks are central to the British economy and their broader contribution matters.

Market impact

Shares in UK lenders fell on 16 October. Lloyds dropped 1.8% and NatWest 1.51%, while overseas-focused HSBC and Standard Chartered gained. The decision will shape the UK fiscal policy outlook for the rest of the parliament.

FAQ

What is the UK bank surcharge?

The bank surcharge is an extra 3% corporation tax on UK bank profits above £100m, introduced after the 2015 bank levy reforms. It is set to return to 8% under the proposal.

How much will the bank tax rise raise?

Restoring the surcharge to 8% would raise about £2bn to £2.25bn a year, according to TUC and Treasury estimates.

Why is the UK increasing bank taxes?

The Chancellor is seeking revenue to offset damage to public finances from the Middle East war and higher borrowing costs, while responding to calls for banks to pay more after record profits.

Which banks are affected?

The change would hit UK-focused lenders such as Lloyds, NatWest, Barclays and HSBC's UK operations, though specialist banks want the £100m threshold raised.

When is the 28 October budget?

Chancellor John Healey will deliver the budget on 28 October 2026, his first since becoming Chancellor in July 2026.

Conclusion

The 28 October budget is set to reverse a key bank tax cut, raising about £2bn a year to help plug a fiscal gap. While banks warn of competitiveness damage, the Treasury appears determined to act. The final detail will be watched closely by markets and international lenders.