Exclusive:Chancellor to target sector in his first budget, to help offset Iran war’s damage to public finances
John Healey is poised to tax Britain’s banks in his 28 October budget, to help offset the damage inflicted on the public finances by war in the Middle East, the Guardian understands.
The chancellor is in Bangkok, where the International Monetary Fund has praised the UK’s progress towards balancing the books, urging him to “stay the course”.
To keep the Treasury’s deficit reduction plans on track in the face of rising government borrowing costs, the Guardian understands Healey has decided to tap the financial sector for additional revenue.
One option understood to be under discussion – reversing cuts to the bank surcharge made by Jeremy Hunt – would raise upwards of £2bn a year.
Lenders have been logging strong earnings on the back of rising interest rates, with the UK’s four largest lenders – HSBC, NatWest, Barclays and Lloyds Banking Group – alone having generated £200bn in pre-tax profits over the past five years.
Thinktanks and trade unions have repeatedly urged Healey to tax Britain’s banks more heavily, an option considered but rejected by his predecessor Rachel Reeves, who was wary of deterring future investment.
Paul Nowak, the general secretary of the Trades Union Congress (TUC), said: “Britain’s big four banks are making a billion pounds a week, while bonuses have hit a post-crash record. These are bumper profits, driven by high interest rates and households’ Healey is understood to be willing to accept a narrower “headroom”, but is also keen to convince bond markets he is wedded to deficit reduction. Bank bosses have been lobbying intensively against tax rises since narrowly escaping higher levies during last year’s budget. UK bosses of lenders including HSBC, Lloyds, NatWest, Barclays and Santander met Healey last week but were given no reassurance that bank tax hikes had been ruled out. Their lobby groups – including UK Finance and TheCityUK – wrote to Healey days later, saying that on top of “weakening investors confidence and damaging UK attractiveness”, higher taxes would force them to move staff and Healey said he wanted his first budget as chancellor to give “breathing space” to both consumers and businesses in the face of rising energy prices. There will be little additional funding for other Whitehall departments, however, which he stressed would have to stick to the budgets Reeves set out at her spending review in June 2025. “It’s important that they do manage within what they’ve got, and it’s part of the job,” Healey said. “You have to reprioritise if you want to do fresh things, or more.” The Institute for Fiscal Studies has said Reeves’s plans could result in real-terms spending cuts for some departments in the later years of the spending review period. The Conservative leader, Kemi Badenoch, used a visit to a financial services firm in Edinburgh Andrew Griffith, the shadow chancellor, said: “Britain needs growth. But a raid on the financial services sector will stifle it. Labour should be backing businesses and wealth-creators, not making their lives even harder. Rather than hiking taxes yet again, Labour should cut spending.” As well as an energy support package for households and businesses, Healey’s first budget is expected to set out more details of plans to devolve income tax to mayoralties, and explain how the government will fully fund the four-year defence investment plan announced by Keir Starmer before he stepped down as prime minister. Healey is expected to duck the longer-term question of when the UK will spend 3% of gross domestic product on defence, the issue over which he resigned as defence secretary in June, contributing to Starmer’s downfall.
