The UK’s biggest banks look set to avoid a fresh tax rise in this month’s budget, following reports that Chancellor Rachel Reeves wants to protect the sector’s competitiveness and maintain investor confidence.
The announcement immediately lifted bank shares, with NatWest and Lloyds both surging on the FTSE 100. Analysts said the rally reflected relief that a potential windfall-style tax had been ruled out.
The government currently taxes banks at a combined rate of 28%, which includes a 3% surcharge added to the 25% corporation tax. The surcharge has been a fixture since the post-crisis reforms designed to ensure banks contribute more to public revenues.
Officials had examined the profitability of major lenders amid growing concern that strong earnings — helped by high interest margins — might warrant additional contributions to the Treasury. However, ministers ultimately prioritised market stability.
Industry leaders have warned that frequent tax changes could deter investment in London and risk driving financial activity to rival centres in Europe and the US. The sector already employs hundreds of thousands across the UK and plays a vital role in supporting small businesses.
According to PwC’s latest figures, banks paid £43.3 billion in taxes last year, equivalent to 4.3% of all UK receipts. That total has increased by nearly one-third since 2014.
Economists say Reeves’s stance signals that her first budget will emphasise credibility and predictability — two qualities financial markets crave after years of volatility.