It has been a stellar week for UK banks. Fuelled by high interest rates and market turbulence rippling out from the US war on Iran, major lenders have revealed soaring half-year profits that allowed bosses to boost bonus pots and give billions of pounds to shareholders.
Collectively, the UK’s four largest lenders – HSBC, NatWest, Barclays and Lloyds – reported £29.2bn in profits over the first six months of the year, with almost half, £13.7bn, pledged to investors through dividends and share buybacks.
Those bumper figures have turbocharged calls for a tax increase on banks. Campaigners say raising taxes on their earnings could yield £19bn from the big four banks alone, helping to offset the price of the prime minister Andy Burnham’s ambitious plans to slash living costs and overhaul the UK’s social care system.
“This is not a ‘hard choice’,” the TUC’s general secretary, Paul Nowak, said last week. “Banks can easily afford to pay more tax. This is a chance for the new prime minister and chancellor to show whose side they’re on.”
The campaign group Positive Money echoed those sentiments, saying: “We’re calling on Andy Burnham to break with his predecessors by resisting the demands of City lobbyists and reclaiming these lost billions with a windfall tax on bank profits, the proceeds of which could be used to fund truly life-changing support for the households and businesses struggling to pay their bills right now.”
Burnham has not made any specific comments about a bank tax so far. However, in June he said people needed help now with rising costs. “While not taking risks with the public finances, [I] will seek to give Britain some breathing space as soon as I can,” he said.
The TUC’s Nowak said: “Andy Burnham has rightly prioritised cost of living measures in his first days as prime minister, but as the war in Iran rumbles on, energy prices will rise further – and the government will need to do more to protect households. That’s why it’s time to increase the tax on bank profits to cut bills.”
So the City is steeled for battle, having spent the better part of two decades fighting the levies it was forced to shoulder as recompense for the disastrous 2008 banking meltdown.
Some influential executives have already fired warning shots, saying crucial lending could be throttled and that lucrative investments – such as JP Morgan’s £3bn Canary Wharf HQ – could be on the line. “We paid probably $10bn (£7.4bn) in extra taxes by now, I don’t think that’s right or fair. If that happens too much, we will reconsider,” the Wall Street bank’s chief executive, Jamie Dimon, said.
The NatWest chief executive, Paul Thwaite, said tax rises would hold back lending and harm the economy. As he reported a 29% profit increase, he said: “If you want strong economies, you want strong banks. It’s really important to have consistency and stability of policies.”
Barclays said its loans would be crucial to supporting Burnham’s growth agenda, suggesting any constraints on its finances could weigh on the funding available to business and consumers.
“We think that the track record that we and the other banks have, in terms of supporting UK growth and indeed leaning into UK lending in the way we have … is really important for the health of the economy,” the chief financial officer, Anna Cross, said last week. “We hope that that will be considered.”
The banks’ lobby machine will now be keen to prove that Burnham’s growth plans could be dead in the water without the City’s support.
Windfall taxes on banks have long been controversial, even as bank bosses have struggled to shake off the reputational damage of the 2008 financial crisis.
Left to clean up the mess from a series of taxpayer-funded bailouts, Tory ministers in the coalition government saw banks as an easy target for fresh taxes, at the same time as they embarked on a period of state austerity.
First came the bank levy, which the then chancellor, George Osborne, imposed on the industry as part of an emergency budget held weeks after the Cameron-Clegg coalition government took power in May 2010. The measure, based on proposals by the International Monetary Fund, looked to recoup billions of pounds from the UK’s largest banks by taxing a portion of their balance sheets.
However, bosses went on the attack. By 2015, HSBC’s then chief executive, Stuart Gulliver, incensed by the growing regulatory burdens and the £700m annual charge of the bank levy, revealed that the bank was considering shifting its headquarters out of the UK to Hong Kong. “This is not a threat, it’s a very objective review,” Gulliver said.
Spooked by the prospect of losing one of the City’s most important lenders, Osborne backed off, scaling back the bank levy to ensure it covered only UK-based balance sheets – rather than global assets – in a direct boost to HSBC.
Osborne also bowed to banks’ complaints that the levy had been raised too often and without warning, agreeing to reduce the rate from 0.21% to 0.10%, in a move that would halve annual tax takings from £8bn to £4bn.
But he had another tool at the ready, albeit one meant to spread the tax burden more widely across the sector, with an 8% charge on banks’ profits.
A later chancellor, Rishi Sunak, pledged to slash this charge to 3% from April 2023, amid growing concerns that Brexit was putting London at a disadvantage to other big financial centres such as New York and Hong Kong.
However, a post-Covid rise in interest rates and a resulting cost of living crisis as inflation soared to 11% put bank profits back in the public’s crosshairs.
In July 2023, MPs on the Treasury committee lambasted City bosses, accusing lenders of profiteering and failing in their social duty while consumers suffered.
Pressure mounted in the UK as governments across mainland Europe, including Italy and Spain, imposed windfall taxes on banks in order to support struggling households.
The looming threat of increased taxes put banks back on the defensive, with the Lloyds Banking Group chief executive, Charlie Nunn, urging policymakers to keep their hands off profits.
When Labour swept into Downing Street in 2024, some frontbenchers did not heed Nunn’s call. The then deputy prime minister, Angela Rayner, in early 2025 reportedly urged the chancellor, Rachel Reeves, to increase the corporation tax rate on banks, triggering familiar warnings from Lloyds, HSBC and NatWest that such a move risked “eroding investment” and damaging the government’s economic recovery plans.
However, campaigners and thinktanks have offered creative alternatives to claw cash from the big banks. The Institute for Public Policy Research thinktank pointed to the 4% interest that commercial lenders earn from reserves held at the Bank of England, at a £22bn-a-year loss to the public finances. It called for a levy, akin to a tax on deposits introduced by the Conservative prime minister Margaret Thatcher in 1981.
Ministers asked Treasury officials to look into the profitability of the UK’s largest banks as a consequence of quantitative easing, while lobbyists quickly totted up fresh sums.
Banks in the UK were paying a total tax rate of about 46.4% when employment taxes and VAT were taken into account, according to UK Finance. That compared with a 38.9% rate in Frankfurt and 27.9% in New York.
As both sides rehearse their arguments and counterarguments, they wait to see whether the new prime minister does indeed plan to revive a policy that, if the past is any guidance, will put him at loggerheads with the City.
