What the plan is
John Healey is set to increase the bank surcharge in Wednesday's budget, according to people who asked not to be named. They added that the bump will be temporary and will not take the rate back to the 8% level that applied until 2023.
The surcharge sits on top of corporation tax. Then chancellor Jeremy Hunt cut the rate from 8% to 3% in 2023 to balance the jump in corporation tax that year to 25% from 19%, so the combined bill for UK banks came to 28% instead of 33%, preventing a heavier burden than in many other markets.
Why banks are in the frame
Higher bank levies are among the main revenue raisers Healey will unveil as he tries to fund short-term "breathing space" policies for voters, such as help with heating bills via rebates and holding fuel duty steady, while keeping public finances tight and the City competitive.
The move follows a push from left-leaning think tanks and trade unions to draw more from lenders after a period of windfall profits supported by higher interest rates. On Thursday, Barclays said pretax profit for the quarter was £2.3 billion, roughly 12% higher than a year ago. HSBC Holdings' UK unit also posted a 12% rise in profit before tax to £1.8 billion. NatWest and Lloyds report later this week.
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Market and industry reaction
Bank stocks edged higher: NatWest climbed as much as 2.8%, Barclays rose 2.7%, and Lloyds added 2.5%.
Lenders and their trade body have warned against any return to an 8% surcharge. Industry representatives contend that restoring the rate to 8% would trim UK output by £6 billion spread across five years, with areas beyond London bearing the brunt. In a letter to Healey, UK Finance chief executive David Postings said an 8% rate would also mean the sector scales back roughly £10 billion of lending by 2029, lowering investment in the UK.
The numbers to watch
At 3%, the levy delivered £1.2 billion - equivalent to about $1.6 billion - to the Treasury in 2025-26. Each additional percentage point is estimated to bring in around £400 million a year.
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