Chancellor Rachel Reeves is reportedly stepping back from plans to raise taxes on banks in this month’s budget, signalling a desire to keep the sector strong and internationally competitive.
News of the decision sent UK bank shares higher on Thursday, with NatWest and Lloyds both gaining more than 2%. Investors saw the move as a sign of reassurance that the government values stability within the country’s financial system.
For months, speculation swirled that banks could face new levies to help the Treasury close fiscal gaps. Yet Reeves appears to have taken a different approach, opting to avoid changes that could dampen business confidence or risk capital flight from London.
UK banks currently pay a total corporation tax rate of 28%, made up of the general 25% rate and a 3% banking surcharge. Even without new measures, this remains among the highest effective rates for banks anywhere in Europe.
The banking industry has long argued that further taxation would place the UK at a disadvantage compared to other global financial hubs. UK Finance noted that recent increases in employer national insurance contributions had already raised the effective cost of doing business for lenders.
PwC data shows that banks contribute tens of billions of pounds annually to public finances. Last year’s £43.3 billion contribution accounted for more than 4% of total tax receipts, reflecting both direct and indirect taxes.
Reeves’s decision, seen as pragmatic, suggests she is balancing fiscal discipline with the need to support growth. Analysts say her focus now will be ensuring banks channel their strong profits into lending that benefits the wider economy.