UK Finance chief: Labour must keep its promise that the bank tax is temporary
Taxes introduced in response to temporary pressures have a habit of outlasting them. The Chancellor must keep his promise that the bank tax rise is only temporary, writes David Postings
After weeks of speculation in the run-up to the Budget, the Chancellor stood at the despatch box and praised the UK’s world-leading banks for the tax they pay and the jobs and investment they support. But he then doubled the bank corporation tax surcharge from three to six per cent. The Chancellor promised that the increase would last for only 15 months, and HM Treasury has stated that the time limit will be written into legislation.
He was right about the industry’s contribution. Banking is a vital part of the UK economy, and one I have been proud to be involved in for almost 50 years. Banks help people buy homes, support businesses to invest and grow, and already contribute billions of pounds in tax every year. They are major employers and major sources of investment right across the country, helping to drive growth in every postcode.
Every Chancellor faces difficult choices and competing demands on the public finances. But increasing taxes on banks is not the way to drive growth or enhance the UK’s international competitiveness.
The higher rate will apply from January 2027 to the end of March 2028. The fact that the increase is time-limited matters. It provides some reassurance to an industry making investment and lending decisions over many years. But that reassurance will hold only if the government honours the promised end date.
Energy Profits Levy is a case study in trusting ‘temporary measures’
History gives us reason to be cautious. Taxes introduced in response to temporary pressures have a habit of lasting longer than originally intended.
The Energy Profits Levy is a recent example. It was introduced as a temporary measure and was originally due to end by December 2025, but its rate has been increased and its duration extended.
Banks have also seen sector-specific taxation become an established part of the UK tax system. The bank levy has been in place since 2011, while the bank corporation tax surcharge has applied since 2016. Over the longer term, the government should be looking to reduce this additional burden, not increase it.
This is not an abstract concern. International firms decide where to deploy capital and create jobs. A stable and predictable tax regime is one important factor in those decisions.
Other countries are moving in the opposite direction. Banks in the EU Banking Union contributed to the Single Resolution Fund until it reached its required level. No regular annual contributions have been collected since 2024. This lowered the total tax rate on banks operating in countries such as Germany. Germany is also reducing its corporate income tax rate by one percentage point a year between 2028 and 2032. Its government has been explicit that the purpose is to make Germany more competitive and attractive to international investment.
The UK cannot take its position as a leading global financial centre for granted, particularly when our competitors are working hard to attract business.
The government’s Financial Services Growth and Competitiveness Strategy set an ambition for the UK to be the global location of choice for financial services firms looking to invest, innovate and grow. A higher and less predictable tax burden pulls in the opposite direction.
The Chancellor has made a clear promise that the increase will end after 15 months.
Having introduced a tax rise that does not support growth or competitiveness, we will be watching closely to ensure that a promise made is a promise kept.
David Postings is chief executive of UK Finance