UK Plans to Raise Bank Tax Amid Disagreements Between Treasury and Bank of England
nashnova research
Chancellor John Healey is considering raising the bank surcharge from 3% back to 8%, a move worth roughly £3 billion in new revenue; but BoE Governor Andrew Bailey has publicly warned the tax would push up mortgage rates and threaten financial stability — setting up a head-on clash before the October budget.
How big is the proposed tax hike?
The current bank surcharge — an extra layer of tax on top of corporation tax — sits at 3%. Healey wants to restore it to 8%.
This means → the combined tax rate on UK banks would rise from 28% to 33%, above most rival financial centres.
Bloomberg Intelligence estimates the move would raise roughly £3 billion (about $4 billion) for the Treasury.
Why is the central bank governor pushing back?
Bailey's core argument: bank profitability underpins financial stability; squeezing bank margins passes costs straight to savers and borrowers.
Testifying before the House of Lords, he said cutting the interest the BoE pays on reserves — a measure he equated to a bank tax — would mean "mortgages will be more expensive and deposit rates will be lower."
In plain terms = the money banks lose does not vanish — it shows up as higher mortgage payments or lower savings returns for ordinary households.
What did Bailey say in Bangkok?
Asked about the surcharge proposal on Friday, Bailey said: "It's not my thing, I wasn't involved, it's a matter for the Treasury."
This reflects a deliberate distancing — verbally stepping back while having already issued repeated public warnings about the consequences.
Put simply = Bailey's posture is "I warned you; if it goes wrong, don't look at me."
How heavy is the tax burden already?
In fiscal year 2024–25, UK banks paid £8.8 billion in corporation tax, £1 billion in surcharge, and £1.3 billion in the separate bank levy (charged on balance-sheet size).
Employee payroll taxes added another £35.2 billion.
This means → banking is already one of the UK's single largest taxpaying sectors, and the room for additional levies is narrowing.
Could London's status as a financial hub take a hit?
JPMorgan CEO Jamie Dimon has lobbied Healey directly, hinting the bank may shelve plans for a £10 billion European headquarters at Canary Wharf if the tax burden rises.
Industry body UK Finance warned that further tax increases would "undermine UK competitiveness and discourage investment and job creation."
Wim Mijs, CEO of the European Banking Federation, echoed the concern: taxing banks ultimately just "gets passed on somewhere in the economy."
Why is the Chancellor pressing ahead anyway?
The £23.6 billion fiscal headroom Healey inherited from predecessor Rachel Reeves has, by estimates, shrunk by roughly half due to rising borrowing costs.
He has called the City of London the "crown jewel" of the UK economy — but insists public finances must be sound.
This means → the central trade-off ahead of the October 29 budget is now fully formed: plug the fiscal gap with a bank tax, or protect London's competitive edge — doing both at once looks increasingly difficult.
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