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The UK’s bank surcharge could rise from 3% to as much as 8% in the Budget, according to the report, while the TUC is calling for a 35% rate. The union says that higher rate could raise £15 billion a year, but the government has not confirmed a decision and industry critics warn of costs for customers and the economy.
UK banks face a possible tax increase in the Budget, with the Chancellor expected to raise the bank surcharge from its current 3% rate to as much as 8%. The Trades Union Congress (TUC) is urging a much larger increase, claiming a 35% surcharge could bring in £15 billion a year; no final government decision is confirmed in the report.
The TUC estimates that raising the surcharge to 8% would generate more than £2 billion a year. It says a 35% rate would bring in £15 billion annually, or £60 billion over four years. Those figures are the union’s estimates, not confirmed Treasury revenue projections, and the report does not specify the assumptions behind them.
The dispute sharpened after HSBC reported third-quarter profit of $7.2 billion, up 32% year on year, according to the report. Less than a fifth of the profit came from its UK operations, which amounted to $1.4 billion. HSBC also announced a $750 million share buyback, while lowering its UK growth forecast for 2027 to 1.1% from 1.4%.
The report says the surcharge is added to corporation tax, meaning banks face a higher tax burden than many other companies. The rate was reduced from 8% to 3% in 2023, when the main corporation tax rate rose from 19% to 25%. A higher surcharge could affect banks differently: HSBC earns most of its income outside the UK, while lenders such as Lloyds and NatWest may have greater exposure to domestic taxation.
How a Higher Levy Could Affect Banks
The argument goes beyond how much banks pay in tax. A higher surcharge could bring additional revenue for public spending, with the TUC proposing that it help lower household energy bills. But the eventual effect would depend on the rate chosen, the tax rules and how banks respond.
Critics warn that banks could pass some costs on through higher fees or borrowing costs, reduce jobs and investment, or move some activity abroad. These are warnings, not confirmed outcomes. The debate also touches on the UK’s appeal as a financial centre: industry representatives say British banks already face a comparatively high tax burden.
For households and businesses, the outcome could matter through the cost and availability of loans, mortgages and banking services, as well as through any government support funded by extra receipts. The report does not establish how much the proposed changes would ultimately raise or who would bear their costs.
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The Surcharge and the Budget Dispute
The bank surcharge is an additional tax on banks’ profits, paid on top of the main corporation tax. It was cut to 3% in 2023, down from 8%, at the same time the corporation tax rate increased to 25%. The current Budget debate concerns whether the surcharge should rise again and whether the increase should be substantially larger than the level reportedly under consideration.
HSBC’s results brought the issue into sharper focus, following strong profits reported by Barclays the previous week, according to the report. However, HSBC’s international operations matter when considering the impact of a UK levy: the bank said less than one-fifth of its quarterly profit came from the UK. Its shares fell by more than 5% on Tuesday after the results, and it lost its position as the FTSE 100’s most valuable company to Shell.
UK Finance says UK banks’ overall tax rate, including employment levies and VAT, is 46.5%, compared with 39.1% in Frankfurt and 27.9% in New York. Those are figures supplied by the industry body and refer to a broader tax measure than the bank surcharge alone.
“The case is now irrefutable – it’s time to tax the banks to cut bills.”
— Paul Nowak, TUC general secretary
The Rate and Revenue Remain Unsettled
The government has not confirmed the surcharge rate it intends to set in the Budget, or whether it will adopt a change at all. The reported possibility of an increase to as much as 8% is distinct from the TUC’s call for 35%; the report does not indicate that ministers have endorsed the union’s proposal.
The TUC’s revenue estimates are not accompanied in the report by detailed modelling, including how the tax base or banks’ behaviour could change. It is also unclear whether a higher levy would lead banks to alter lending, employment, investment, fees or their UK operations. HSBC’s finance chief rejected the suggestion that the bank’s headquarters move was under consideration, but that does not resolve broader questions about industry activity.
Budget Decision Will Set the Rate
The next key development is the government’s Budget announcement, when the Chancellor is expected to set out any changes to bank taxation and the wider fiscal measures. Until then, the 8% figure remains a reported expectation, while 35% is the TUC’s proposal rather than an announced policy.
After any announcement, details to watch include the rate, when it would take effect, which profits and institutions it would cover, and whether the Treasury publishes an estimate of expected receipts. The effects on bank charges, lending and investment will depend on the final design and cannot be established from the current report alone.
Key Questions
What bank tax increase is reportedly under consideration?
The report says the Chancellor is expected to consider raising the bank surcharge from 3% to as much as 8%. The government has not confirmed a final rate.
Why is the TUC calling for a 35% surcharge?
The TUC argues banks can contribute more and says a 35% surcharge could raise £15 billion a year, which it wants used to help lower household energy bills. This is the union’s estimate and proposal, not an announced government plan.
What did HSBC report?
HSBC reported third-quarter profit of $7.2 billion, up 32% year on year, and announced a $750 million share buyback. It also cut its UK growth forecast for 2027 to 1.1% from 1.4%.
Could a higher bank surcharge affect borrowers?
Critics, including shadow chancellor Andrew Griffith, warn that banks could pass costs on through higher borrowing costs or charges. That is a stated concern, not a confirmed consequence; the effect would depend on the policy and how banks respond.
Has the government decided to raise the surcharge?
No confirmed decision is given in the report. The possible increase to 8% is described as expected, while the TUC’s proposed 35% rate remains a campaign demand.
Source: thisismoney.co.uk
