Lloyds Warns Chancellor Over Bank Tax Amid Surprise Profit Rise

Lloyds Banking Group has sounded an alarm to the Chancellor regarding potential increases in taxes on the banking industry, as speculation swirls about government plans to fill a significant gap in the public finances. The group, which stands as the UK’s largest domestic lender, cautioned that further levies could damage the City of London’s international competitiveness and contradict the government’s stated ambition to fuel growth in the financial services sector.

Chief executive Charlie Nunn addressed these concerns as Lloyds reported an unexpected 5 per cent rise in half year profits to £3.5 billion. This strong performance enabled the bank to announce a 15 per cent dividend hike to 1.22p, distributing around £731 million to shareholders. The market had anticipated a drop in profits, projecting figures closer to £3.2 billion compared to £3.3 billion for the same period last year. Lloyds attributed its outperformance in part to robust mortgage lending, strengthened by a surge in activity ahead of the expiry of a stamp duty discount at the end of March.

The group’s UK mortgages grew by £5.6 billion in the first half, with a remarkable £4.8 billion recorded in the initial quarter, while overall customer loans and advances edged up by 1 per cent to £471 billion. Deposits also increased by 1 per cent, reaching £493.9 billion. Lloyds experienced a notable rise in individual savings accounts as savers reacted to speculation over potential cuts to ISA allowances, a move which ultimately did not materialise after vocal opposition.

Despite the upbeat headline results, the bank did face a negative point with a sharp increase in impairments for possible bad loans, rising to £442 million from a notably low £101 million in the same period during 2024. Lloyds attributed some of this to a handful of defaults within its commercial banking segment, particularly from the fibre broadband sector where companies have struggled with costs and subscriber numbers. The group’s provision for possible compensation relating to mis sold motor finance loans stands unchanged at £1.15 billion, with the industry awaiting the outcome of a key Supreme Court case that will determine the scale of any forthcoming redress scheme.

On the regulatory front, Lloyds has upgraded its forecasts for UK house price growth, now anticipating a 2.6 per cent increase this year, followed by projected rises of 3 per cent in 2026 and 2.3 per cent in 2027. The more optimistic outlook stems from recent Financial Conduct Authority changes to mortgage affordability rules and Bank of England proposals, aiming to make it easier for borrowers to access mortgage finance. These regulatory moves contrast with more subdued property market forecasts from major players such as Savills and Rightmove.

Lloyds nudged up its outlook for UK GDP growth this year to 1 per cent but adjusted forecasts for 2026 and 2027 slightly downward, reflecting an uncertain economic environment. The bank now expects unemployment to peak at 5 per cent in 2026. Lloyds’ performance and perspectives are closely watched as key indicators for the health of the British economy, with the debate over sector tax levels set to continue into the autumn budget.