The UK government’s decision to raise the corporation tax surcharge on banks has drawn sharp criticism from lenders, despite the increase being less severe than some had anticipated. Chancellor John Healey announced that the surcharge on bank profits would rise to 6 percent from the previous 3 percent, effective from January for a 15-month period. The measure is expected to generate approximately £1.5 billion in revenue, aimed at helping to fund support for households facing rising energy costs linked to the conflict in the Middle East.
The banking sector responded with frustration and concern. JP Morgan Chase, which employs around 23,000 people in the UK, criticized the levy as lacking principle, stressing that the industry is already a significant contributor to economic growth and employment. The bank also emphasized the competitive pressures it faces in a global marketplace. Jamie Dimon, JP Morgan’s CEO, had earlier hinted that steep tax hikes could jeopardize the bank’s multibillion-pound plans for a new office tower in Canary Wharf, although the project reportedly remains on track despite the surcharge increase.
Other industry voices expressed similar discontent. One bank chief executive described the tax rise as misguided, citing it as a harmful approach to fiscal policy that could hinder growth. Another executive highlighted concerns that linking the surcharge to energy bill support risks entangling the financial sector with geopolitical uncertainties, potentially undermining investor confidence.
Market reaction to the announcement was muted, with shares in NatWest, Lloyds, and Barclays rising modestly, reflecting some relief that the increase did not exceed 6 percent. Analysts noted that the banks had avoided a harsher tax environment, with some speculation prior to the budget suggesting rates could have climbed to 8 percent, a level seen between 2016 and 2023.
Despite the backlash, the Treasury insisted the 15-month duration of the surcharge would not be extended. However, some analysts warned that the surcharge hike could lead to higher costs for consumers, such as increased mortgage rates or reduced deposit returns, potentially dampening demand and slowing economic growth.
The industry association UK Finance had urged caution in raising bank taxes, highlighting the sector’s existing fiscal obligations, including a balance sheet levy, and warning that further increases could suppress lending and prompt international banks to shift investment elsewhere. David Postings, the head of UK Finance, acknowledged the challenging fiscal environment but maintained that elevating bank taxes was not the optimal route to sustain economic expansion.
The Office for Budget Responsibility projected that the surcharge would yield less than anticipated due to some banks potentially moving profits out of the UK in response to the higher tax rate. It estimated a reduction of around £190 million in receipts for this reason, with the tax burden expected to fall equally on domestic and international banks operating in Britain.
On a related note, the Chancellor abandoned a previous proposal to reduce the annual tax-free cash ISA allowance for individuals under 65 from £20,000 to £12,000, a move welcomed by building societies and lenders alike. This reversal offers a modest reprieve to the sector amid broader concerns over the increased corporation tax surcharge.