Modest bank tax rise could raise £2bn with limited impact on lenders

The article argues that a modest increase in taxes on banks would be a reasonable way for Chancellor John Healey to raise money while meeting fiscal rules. Banks warn that higher taxes could reduce returns on deposits and raise borrowing costs, but the piece says current conditions are favourable enough that a limited rise is unlikely to significantly restrict capital or growth.

Banks’ returns on tangible equity are approaching 20%, while defaults remain historically low and interest rates high. Raising the bank surcharge from 3% to 8% could bring in about £2bn; UBS estimates that doubling it to 6% would cut UK banks’ profits by around 2% on average, and by 3% to 4% at NatWest and Lloyds. The article says a surcharge is a clearer option than a windfall tax, and suggests any tax rise could be weighed alongside regulatory changes or cuts to stamp duty on shares.