The Chancellor of the Exchequer, John Healey, is reportedly considering a significant tax increase on the banking sector's profits as part of an upcoming Budget, amid calls from trade unions to ensure financial institutions pay their "fair share". The move comes as the government seeks to raise revenue and manage a growing budget deficit, exacerbated by rising borrowing costs.
Speculation suggests that Mr Healey may reverse a previous cut made by former Tory chancellor Jeremy Hunt, which reduced the surcharge banks pay on their profits from 8% to 3%. The Guardian newspaper reported this reversal as one option under consideration for the Budget, scheduled for October 28.
Paul Nowak, General Secretary of the Trades Union Congress (TUC), has strongly advocated for the tax hike. The TUC calculates that merely reinstating the 8% surcharge would generate an additional £2.25 billion annually. Mr Nowak stated: "Britain’s big four banks are making a billion pounds a week, while bonuses have hit a post-crash record. These are bumper profits – driven by high interest rates and households’ mortgage misery."
He added: "The Treasury has already lost £6 billion in revenue from the Tories’ senseless bank tax cut – now it’s time to make sure banks pay their fair share."
The TUC has gone further, proposing an even more substantial surcharge increase to 16%, which it estimates could raise £24 billion in tax revenues over four years. This aligns with broader lobbying efforts from trade unions and think tanks for heavier taxation on banks.
The Institute for Public Policy Research (IPPR), an influential think tank in Labour policy-making circles, also recently recommended a temporary surcharge on commercial banks’ windfall profits, aiming to generate £1 billion. This was part of a larger package of measures designed to raise an extra £16 billion to support struggling households. The IPPR believes these proposals would help to restore the Chancellor’s fiscal buffer, which it estimates has depleted by up to £15 billion since the spring.
However, the prospect of increased taxation on banks has drawn criticism from industry bodies and the Conservative Party, who argue it could harm the UK’s economic competitiveness. Louise Hellem, Chief Economist at the Confederation of British Industry (CBI), cautioned that the financial services sector is "vital to driving investment, innovation and business growth across the economy."
Ms Hellem stated: "Government has set the right direction through its Financial Services Growth and Competitiveness Strategy and the Leeds Reforms – the priority now is delivery. The autumn Budget should set the agenda for a competitive and predictable environment that turns those reforms into tangible progress, unlocking domestic investment, deepening UK capital markets and helping more firms to scale and grow."
She further warned against "measures that would undermine competitiveness or weaken incentives to invest." Highlighting that business tax contributions are already at a record share of receipts, Ms Hellem argued against "further sector-specific taxation, including on a banking sector already facing a higher tax rate than competing international financial centres."
Andrew Griffith, the Tory Shadow Chancellor, echoed these concerns, saying: "Britain needs growth. But a raid on the financial services sector will stifle it. Labour should be backing businesses and wealth-creators, not making their lives even harder."
A Treasury spokesperson, responding to the speculation, maintained the standard position: "As has always been the case, decisions on tax are a matter for the Chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals."
Chancellor Healey has publicly prepared the public for a "tough Budget" on October 28. Speaking from the International Monetary Fund meeting in Bangkok on Thursday, he acknowledged the challenging economic climate. "It’s a tough time. People can people can see the global economic conflicts, they know the pressure it’s putting on them, they understand it’s putting pressure on the Government," he told the BBC.
Both Mr Healey and Prime Minister Andy Burnham have pledged to support families and businesses grappling with cost-of-living pressures. These pressures have intensified as government borrowing costs have escalated, reportedly driven by fears over inflation stemming from the US’s conflict with Iran.
In a further indication of fiscal restraint, Mr Healey hinted that government departments might not receive additional funding to cover pay increases for public sector workers, such as doctors and nurses. He stated: "Where we want to do things, we have to make sure that we can pay for them within the budgets that we’ve got and control spending."
The Chancellor also faced recent criticism for an online video. The footage showed him and Foreign Secretary Ed Miliband tasting Thai snacks in a tuk-tuk in Bangkok, less than two weeks before a critical fiscal announcement.
