Bank tax rise expected in budget as Healey faces Bangkok IMF trip criticism

Chancellor John Healey is facing a row over a planned rise in bank taxes in the budget, after senior banking figures said they expect to be hit and bank shares fell. He met the bosses of some of Britain's biggest banks and building societies this morning, ahead of a budget in which the Treasury is widely expected to target the sector.

The big four banks, Lloyds, NatWest, Barclays and HSBC, made roughly £15bn in profits on their UK operations in the first six months of this year alone. HSBC's latest results were reported as showing profits up 26%, with nearly £10bn in the third quarter and nearly £30bn for the year so far. Banks already pay more tax than other businesses. In 2016 an 8% surcharge was added on top of corporation tax. In 2023 Rishi Sunak raised the main corporation tax rate to 25% and cut the surcharge to 3%. Last year the surcharge raised £1.2bn. Reversing it to 8% would raise an extra £2bn, though concerns about competitiveness may mean a smaller rise.

Bankers have said they expect the change. One described the sector as being 'on the menu'. The bank trade body warned that further increases would weaken competitiveness, discourage investment and job creation, and work against the government's growth aim. The Treasury has not commented on pre-budget speculation, but it has not denied the plans.

The TUC and others have lobbied for a windfall tax on banks. The TUC general secretary, Paul Nowak, said HSBC's results showed banks could afford to contribute more, and the money should go towards cutting energy bills. Shadow chancellor Andrew Griffith said a bank tax rise would mean more expensive mortgages. He also said Healey should resign if he does not announce 3% of GDP for defence by the end of the budget.

The budget is also expected to include a series of smaller measures, including cuts to import tariffs on some items, a change to carers' allowance, a crackdown on red tape, money for AI and a biosecurity lab, a feasibility study for an Olympic bid in the north of England, devolution funding for mayors, and more money for rough sleeping. Support for pensioners on tax and a fuel duty freeze are also expected, with no big increase in capital gains tax. Economic analysis shows growth at its strongest since 2022 but inflation higher, and energy bills are expected to rise by 16% in January. The government's fiscal headroom is about £23.6bn.

Healey is also under pressure over defence spending. He previously quit Keir Starmer's government, saying he wanted better spending commitments on defence. The government has said it wants 3.5% of GDP on core defence by 2035, but Healey had argued that 3% by 2030 was needed. Details of how the government will reach the 3% target may wait until next year's spending review.

The Chancellor and Foreign Secretary Ed Miliband have faced criticism over a social media video filmed in Bangkok during the annual meetings of the International Monetary Fund and World Bank. The video showed them in a tuk-tuk. Critics said it looked out of touch while households struggle with the cost of living, youth unemployment and high taxes. The ministers said they were working internationally to help solve Britain's problems. The IMF was also reported to have said Britain is raising tax at the highest rate of any country in the Western world.