Leadership1 publisher3 min readPublished
Bank chiefs meet Healey amid fears his first Budget will raise their tax bill
Bosses of Barclays, HSBC, Lloyds and three other lenders make their tax case to John Healey on Tuesday, just over four weeks before his first Budget. Signals from his Treasury leave lenders that wanted the 3% surcharge phased out defending against a rise.
The Board Room · Leadership desk
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What happened
- In the 2025 Budget round, bank lobbyists had barely listed a tax cut and were ready to settle for any outcome that kept their bill from rising, City AM reports.
- Treasury officials have told senior City figures not to expect the same relationship with Healey that they had with Rachel Reeves, City AM reports.
- PwC puts total taxes on UK banks at 46% of profits, against 42% in Amsterdam, 39% in Frankfurt and 29% in Dublin.
- Positive Money says a windfall tax, which some in the City fear Healey could impose, could raise £19bn from NatWest, Lloyds, Barclays and HSBC alone.
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Why it matters
- decision The lobby now has to choose between repeating a phase-out ask that began as a bargaining counterweight and arguing openly for the rate to stay where it is.
- exposure An exemption for international banks' UK operations would leave domestic lenders carrying any rise on their own.
- constraint With Healey spending less time in the Square Mile, the banks' case rests more on written submissions and cross-border tax comparisons than on the regular summits Reeves held.
The cut became a lobbying priority because officials advised it. According to City AM, before the 2025 Budget officials told the banks' advocates to make a cut a top priority, to balance out fierce calls for a hike [3]. UK Finance and TheCityUK both went on to ask for the surcharge, which sits on top of corporation tax, to be "phased out" [4]. The rate still stands at the 3 per cent set by Jeremy Hunt [11]. It never went up under Rachel Reeves [5].
Reeves kept the rate flat and kept the sector close. Her ties to the banks rested on the lack of tax rises and a promise of deregulation, and she is understood to have given the IPPR a dressing down over a market-moving report that called for a bank tax [16]. Healey has met bank bosses in person once before, at a gathering at Bloomberg in July [7]. A source close to the Chancellor said he would be in "listening mode" on Tuesday and described the meeting as part of the normal stakeholder work the Treasury does in the run-up to the Budget [14].
The risk the banks face has a particular shape. "Fears are now widespread that the Chancellor is set to increase the tax burden for the sector with a potential exemption for the UK operations of international banks," John Cronin, an independent banking analyst, said [9]. He said domestic lenders would "rightly be furious" if that happened, and argued there could be more "sophisticated suggestions which could raise substantial additional fiscal revenues" [10].
The banks' main defence is comparison. On PwC's figures, UK lenders pay 17 percentage points more of their profits in tax than banks in Dublin, and 7 points more than those in Frankfurt [19]. Hunt, who took the surcharge down from 8 per cent, made the same case about an outsized rate this week [11]. UK Finance chief David Postings wrote to Healey that "it is vital that the UK's approach to both tax and regulation pull in the same direction, supporting investment and the sector's capacity to finance growth across the economy" [13].
Some in the industry have been reassured that Emma Reynolds, a former CityUK executive, returned to the Treasury in July [15]. At Labour's conference she said her old job helped her "see things from the point of view of big financial institutions" [15]. She is one voice in a Treasury where the Budget is Healey's to deliver [6].
For a finance team setting capital and payout plans this quarter, I think the evidence supports a narrow base case. A cut is the least likely outcome. It got into the lobby's pitch as a counterweight [3], and the Chancellor who held the rate flat has been succeeded by Healey [6]. The record does not show that Healey has settled on a rise, or how big one would be. A plan built on the current 3 per cent [11] is the optimistic case this quarter. If the Budget lifts the rate, the shortfall shows up in next quarter's numbers.
What to watch
- Whether Healey's first Budget raises the 3% surcharge or adds a separate levy on bank profits.
- Any exemption for the UK operations of international banks, the carve-out John Cronin said domestic lenders would oppose.
- Whether the Treasury takes up a windfall tax of the kind Positive Money costs at £19bn across four lenders.