Chancellor John Healey considering windfall tax on banks and oil firms
The countdown is on. Two months out from Andy Burnham’s inaugural autumn budget, bank executives are wringing their hands over whether the government will target their bumper profits with fresh taxes.
The chancellor, John Healey, is reportedly considering a windfall tax on both banks and oil companies in the late October Westminster setpiece.
The UK’s four largest lenders – HSBC, NatWest, Barclays, Lloyds Banking Group – have generated £200bn in pre-tax profits over the past five years, largely off the back of rising interest rates.
They are now in the crosshairs of campaigners – including the Trades Union Congress (TUC) and campaign group Positive Money – who say a tax increase could help cover rising household bills as part of Burnham’s drive to tackle the cost of living.
The TUC’s general secretary, Paul Nowak, who has been pushing hard for a new bank tax said: “Britain’s largest banks are making a fortune. Not because they’ve suddenly become more competitive or improved their services to customers, but because high interest rates mean that, right now, they can sit back and watch the money roll in. Inflated mortgages are fuelling record bonus pots.
“With energy bills edging towards record highs this winter, the government is going to need to provide more support for households – and taxing banks’ windfall profits is the obvious way to pay for it.”
Any move in the UK would echo similar efforts in mainland Europe to make lenders pay more tax to help offset surging living costs and higher defence spending. Here are some of the tools different governments used, as well as the benefits and pitfalls of targeting the profits of some of the world’s largest banks.
Spain’s prime minister, Pedro Sánchez, revealed plans for a windfall tax in 2022 that would raise €3bn from banks over the following two years to help alleviate cost-of-living pressures.
It spooked investors, wiping more than €5bn off the value of Spanish-listed bank stocks, but politicians pushed ahead: putting a 4.8% “solidarity tax” on the domestic revenue of banks whose income passed €800m. That included fees and net interest income, – the amount of money banks make from loan charges, minus what they pay on deposits.
The €800m threshold and the focus on domestic revenues meant it broadly excluded small local banks and most foreign lenders’ Spanish operations.
Big banks and lobby groups filed legal challenges over the tax, while the European Central Bank (ECB) warned that Spain risked disrupting monetary policy, and damaging lenders’ capital positions, which help to cushion the blow of economic shocks.
Politicians eventually decided to extend the levy a further three years to 2027, after successfully raising €1.3bn in the first year, and €1.7bn in 2024. Banks now face a sliding tax rate of between 1% and 7%, with the highest rate hitting lenders such as Banco Santander whose annual revenue from interest and fees surpassed €5bn.
The extension triggered a fresh spate of legal challenges by banks and lobbyists, and criticism from both the International Monetary Fund and ECB, which warned it could hit bank profits, push up borrowing costs for low-income households, and make Spain’s banks less competitive on the international stage.
Lithuania’s government decided to roll out its own windfall tax on banks in 2023, after forecasts showed lenders were due to rake in €1.3bn in net profits that year. That was three times higher than 2022, following a surge in interest rates sparked by Russia’s full-scale invasion of Ukraine.
