UK Chancellor Considers Raising Bank Tax to 8% to Capture Windfall Profits

The author argues that Britain should reclaim more of banks' windfall profits through taxation and resist financial sector lobbying. John Healey is planning to tax British banks in the forthcoming budget. The chancellor is said to favour restoring the bank surcharge from 3% to 8%, which could raise around £2 billion a year. The author argues that this would recover only a very modest share of the sector's windfall profits.

Positive Money reported this summer that Britain's four biggest banks made £29 billion in the first half of this year, up a fifth on 2025. The author argues that these windfalls owe more to higher interest rates than better products or services. Households and businesses pay more to borrow. The Bank of England pays banks tens of billions of pounds in interest on reserves, with the Treasury paying the cost.

Banks say that banks already face higher taxes than other companies. Banks argue that higher taxes would reduce lending and that bank profits will not last. However, the author argues that banks are not taxed on windfall gains and face lower levies than oil and gas companies. The Bank of England said banks spent £7.7 billion on dividends and share buybacks in the first quarter of 2026 without affecting lending. The author argues that higher taxes might reduce shareholder payouts. The author argues that no evidence suggests productive lending must suffer.

Barclays, HSBC, Lloyds and NatWest made £200 billion in profits over the past five years. These banks control the majority of UK personal and business accounts. Positive Money says households lost out on £44 billion in deposit interest in 2025. Some of this money paid for banking services. However, the author argues that banking services do not explain why the sum is five times the equivalent average figure for 2009-21.

The author argues that the chancellor could adopt a more ambitious tax. Margaret Thatcher taxed banks' windfalls in 1981. A paper by the New Economics Foundation and Positive Money suggests that a comparable 2.5% levy on today's interest-free deposits would raise more than £11 billion. Positive Money suggested in August that Britain examine Spain's success in taxing banks' net income above €800 million. Positive Money says a windfall tax could raise £19 billion from the UK operations of the four biggest banks. That estimate assumes the same tax rate as fossil fuel companies pay, applied to a comparable tax base. The author argues that £19 billion would fund a universal and comprehensive adult social care system.

The author argues that banks must serve as both public utilities and good corporate citizens. However, the sector is paying the highest bankers' bonuses since the 2008 global financial crisis. A paper published in The Manchester School journal this month concluded that most financial sector activity is negative for overall economic performance. The author argues that politicians should stop treating finance lobbyists' demands as a growth strategy. The author argues that politicians must constrain a finance sector whose size risks crises and weaker growth. Taxpayers rescued banks after banks helped crash the economy 18 years ago. The author argues that public protection carries public obligations. Author and former banker Sir Philip Augar said banks cannot be both too big to fail and too big to tax.