UK banks face potential tax hikes in upcoming October Budget

UK Chancellor John Healey is considering tax increases for the banking sector in the upcoming October 28 Budget to address fiscal deficits and rising borrowing costs. One primary option under discussion is reversing a 2023 decision by the previous administration to reduce the bank profits surcharge from 8% to 3%. Restoring this surcharge to 8% could potentially raise approximately £2 billion annually.

Speculation regarding these potential hikes has already impacted the London Stock Exchange. Shares in domestically focused lenders, including Lloyds Banking Group and NatWest Group, saw declines of over 2% on Friday. In contrast, banks with larger international footprints, such as HSBC and Barclays, showed more resilience to the news.

The banking industry, represented by trade body UK Finance, has warned that increased taxation could undermine the UK's economic competitiveness, discourage investment, and hinder job creation. Conversely, trade unions have advocated for higher levies, citing the significant profits reported by the UK's largest banks during the first half of the year.