John Healey is expected to raise the bank surcharge from 3 per cent to as high as 8 per cent in his Budget on 28 October, a move that will affect lenders across the UK. The increase comes after HSBC reported a 32 per cent jump in third quarter profits to £7.2billion, with £1.4billion generated from its UK operations. The Trades Union Congress claimed that increasing the levy to 8 per cent would raise more than £2billion a year, while hiking it to 35 per cent could deliver £15billion annually, amounting to a £60billion windfall over four years.
The timing of HSBC's results has intensified the debate around taxing the banking sector. TUC general secretary Paul Nowak urged Healey to press ahead with a tax raid to fund help lowering household energy bills, saying HSBC's latest results 'make it blatantly obvious banks can afford to contribute more'. However, Shadow Chancellor Andrew Griffith warned that higher taxes would push up 'the cost of credit for businesses and mortgage-holders' while also 'rendering the City less competitive than its international rivals'. Julian Jessop, economics fellow at the Institute of Economic Affairs, said calls for a windfall tax were 'both predictable and misguided', cautioning that shareholders, savers who own bank shares through pension funds, and customers would all lose out through lower profits, dividends and higher bank charges.
HSBC's results also delivered concerning news on the UK economy. The lender cut its growth forecasts for the UK to just 1.1 per cent for 2027, down from a previous forecast of 1.4 per cent, citing higher inflation and interest rates dampening consumer spending and the housing market. HSBC shares fell more than 5 per cent on Tuesday, losing the bank its crown as the most valuable company in the FTSE 100 to oil giant Shell.
The current bank surcharge was cut by the previous Conservative government from 8 per cent to 3 per cent in 2023, at the same time corporation tax was raised from 19 per cent to 25 per cent. If the rate rises again, HSBC is not expected to be hit as hard as other lenders such as Lloyds and NatWest because it makes most of its money outside the UK. HSBC finance chief Pam Kaur dismissed suggestions the bank may relocate its headquarters from London in response to a higher levy.
UK Finance has warned that a fresh tax raid will make the UK an international outlier. UK banks are currently taxed at a rate of 46.5 per cent once employment levies and VAT are included, compared with 39.1 per cent in Frankfurt and 27.9 per cent in New York. Banks in London already face higher taxes than financial centres such as New York, the organisation said.