Banks say Healey is planning Budget tax raid on their profits

UK Chancellor John Healey is preparing to increase taxes on the banking sector ahead of a Budget announcement scheduled for two weeks, according to senior banking executives who spoke with the BBC. Healey has declined to rule out additional levies despite describing banks as part of "the crown jewels" of the UK economy.

The sector's four largest banks generated around £15bn in profit during the first half of this year, prompting unions and other groups to call for higher taxation. Banks currently pay a 3% surcharge on top of the baseline 25% corporation tax rate, plus a levy on balance sheet assets.

The Treasury collected nearly £40bn from the banking sector last year when including income tax from employees. The bank levy alone generated £1.4bn and the surcharge contributed £1.2bn.

Multiple options exist for extracting additional revenue. Healey could restore the 3% surcharge to its previous 8% level, a move that could yield approximately £2bn annually. The current bank levy charges 0.1% on outstanding short-term loans and 0.05% on longer-dated loans, though mortgages are excluded.

A third option, discussed with Treasury officials, targets loss carryforwards. Banks currently offset past losses against current profits to reduce tax bills. Lloyds has particularly benefited from this practice by using financial crisis-era losses to lower taxes for nearly two decades. A temporary moratorium on loss carryforwards could generate an estimated £1bn annually while being "a lot more bearable," according to one bank executive quoted by the BBC.

UK Finance, the sector's trade body, warned that further tax increases would "weaken competitiveness, discourage investment and job creation, and work against the government's ambition to deliver growth." Jamie Dimon, JPMorgan's chief executive, cautioned that the UK already imposes one of the world's highest tax burdens on banks and that additional sector-specific taxes could discourage investment.

Industry leaders flagged a complication: taxing UK-based banks while exempting foreign banks' UK operations would contradict the government's stated commitment to supporting British business. The BBC reports that banks now expect the chancellor to pursue some form of tax increase on the sector.