Britain’s biggest banks could be hit with a windfall tax to raise up to £14billion as Labour scrambles to fill a claimed £22billion ‘black hole’ in the UK’s finances.
Lenders may be in the firing line ahead of Rachel Reeves’ Budget on October 30 after their profits rocketed last year due to high interest rates.
A 35 per cent tax on the £44.3billion pre-tax profits reported by HSBC, Barclays, Lloyds and NatWest in 2023 would raise £14billion, research by campaign group Positive Money found.
Last year’s profits were more than four times higher than in 2020 before interest rates started to climb, analysis showed.
Tax hikes: UK lenders may be in the firing line ahead of Rachel Reeves’ Budget on October 30 after their profits rocketed last year due to high interest rates
Polling carried out by the thinktank last year found most Britons would support a bigger tax on banks’ profits as households struggle.
Shares in UK high street banks dipped this week after the Prime Minister warned the Budget will be ‘painful’. Sir Keir Starmer said on Tuesday that ‘those with the broadest shoulders should bear the heavier burden’.
Reeves, the Chancellor, says the Conservative government left a £22billion ‘black hole’ in public finances, as she paved the way for tax hikes.
Banks are viewed as an easy target after higher interest rates meant they raked in bumper profits last year amid the cost-of-living crisis.
A similar tax was introduced on energy firms after earnings soared when gas prices rose following Russia’s invasion of Ukraine.
Oil and gas giants must pay a 35 per cent surcharge on profits, with Labour expected to raise the levy further.
Simon Youel, head of policy and advocacy at Positive Money, said: ‘There’s nothing radical about a windfall tax – even Thatcher understood banks can and should bear the burden of fairer taxes when they’ve profited from higher rates.’
Dan Coatsworth, analyst at AJ Bell, said. ‘No one is going to shed any tears if the banks are forced to hand over more of their profits.’
But similar taxes have not proved a success elsewhere. Italy last year watered down a 40pc levy and in March admitted it had not collected any revenue through the policy.
In the UK, lenders are charged a levy on balance sheet liabilities and equity, a policy introduced after the financial crisis. Banks also pay corporation tax and a surcharge – a tax on profits.
The Tories cut the surcharge from 8 per cent to 3 per cent in April last year to offset an rise in corporation tax from 19 per cent to 25 per cent.
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