The banking lobby escalated pressure on Chancellor John Healey after signals he is poised to lift the sector's surcharge in the Oct. 28 budget. UK Finance chief executive David Postings wrote to Healey earlier this week, copying Prime Minister Andy Burnham, arguing the move would undercut the goal of spreading growth to every postcode.
Bloomberg News, citing people familiar, said Healey is likely to proceed with a surcharge increase, echoing an earlier Guardian report. The potential change, part of a package aimed at cost of living support and stabilizing the public finances, has been submitted to the Office for Budget Responsibility for review.
The group tested a jump in the bank surcharge to 8% from 3% - effectively reversing a 2023 cut under then chancellor Jeremy Hunt. Its analysis flags a £6 billion drag on economic output over five years and a pullback in UK investment. It further projects that, by 2029, bank lending would be lower by roughly £10 billion.
On the revenue side, UK Finance said an 8% rate would bring in £2 billion, but argued that gain would be outweighed by weaker lending, reduced bank investment, and slower job creation. Stretch the horizon to 10 years and the lobby projects lending capacity roughly £17.5 billion below the otherwise path, with around 4,230 financial services roles that would have existed no longer materializing - about two thirds of them outside London.
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Bank stocks softened in London on Friday following the reports. Lloyds Banking Group fell as much as 2.7%, NatWest Group slipped 2.4%, and Barclays dipped 0.7% before trimming the loss.
Industry voices are also wary of a one time windfall levy that could single out domestic lenders while leaving international banks untouched. JPMorgan's Jamie Dimon told Bloomberg TV last week that such an approach would be unfair; earlier this year he cautioned JPMorgan could rethink plans for a new London headquarters if the UK again turns "hostile" to lenders.
Meanwhile, pressure from the other side is building. The Institute for Public Policy Research and campaign group Positive Money urged Healey to increase bank taxes to ease costs for households and small businesses. Separate to bank levies, attention has turned to capital gains tax after the Financial Times reported the Treasury may opt for a small rise from the current 24% and has no plans to match the 45% income tax rate. Business groups have pitched ways to shield entrepreneurs, including a UK Private Capital idea to grant relief when proceeds from successful businesses are reinvested into new startups.
Tax shifts ripple through bank earnings, credit supply, and hiring plans, all of which influence valuations and the broader economy. As Hargreaves Lansdown's Anna Macdonald put it, "A confident, simple, growth-first budget is something investors would reward, which could bring down borrowing costs." The bottom line: keep an eye on Oct. 28 for the surcharge decision, any windfall language, and possible CGT tweaks that could sway UK financials and risk appetite.
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