Healey to Hit Banks with £2.25bn Tax Hike in Tough October Budget

Chancellor John Healey is set to impose a significant tax hike on UK banks in his 28 October budget, reversing former Tory chancellor Jeremy Hunt’s 2024 cut to the bank surcharge from 8% to 3% ^[1]. The move, aimed at offsetting fiscal damage from the Middle East conflict and rising government borrowing costs, could raise £2.25bn a year, according to the TUC. Healey, speaking in Bangkok at an IMF meeting, praised banks as vital to economic growth but acknowledged the need for fiscal discipline amid a shrinking fiscal buffer.

The UK’s four largest lenders—HSBC, NatWest, Barclays, and Lloyds—generated £200bn in pre-tax profits over the past five years, fueling calls for a fairer tax burden ^[1]. Paul Nowak, TUC general secretary, said banks were making a billion pounds a week while households face mortgage misery, urging the government to make them pay their fair share. The TUC has pushed for an even steeper rise to 16%, which could yield £24bn over four years ^[2].

Industry groups including TheCityUK and UK Finance warn that higher taxes could deter investment and prompt firms to shift operations abroad ^[1]. JP Morgan’s Jamie Dimon previously hinted at scrapping a £3bn London HQ if the UK became hostile to banks. Despite this, one source said banks were resigned to the surcharge rise, though surprised by the shift in tone after Healey’s earlier praise of the sector as a 'jewel'.

Healey is also considering raising the profit threshold for the surcharge from £100m to £500m, a move welcomed by specialist lenders like Revolut and Shawbrook concerned about startup competitiveness ^[1]. Meanwhile, the Institute for Fiscal Studies warns Reeves’s fiscal plans may lead to real-terms spending cuts in later years. The Conservatives and business groups argue further sector-specific taxes would harm growth and UK competitiveness ^[2].

Healey has cautioned that departments must stick to existing budgets, even if they need to cover pay rises for public sector workers ^[2]. He also urged the public to prepare for a tough Budget, citing global economic pressures. The story was first reported by The Guardian and The Independent.