Treasury weighs windfall taxes on banks and oil ahead of Budget

Chancellor John Healey is reportedly considering introducing additional taxes on the banking and oil sectors to generate extra government revenue. According to reports, Treasury officials view windfall levies on these industries as a straightforward method to increase receipts, particularly given the substantial profits recently recorded by firms in these fields. This potential move aims to address fiscal pressures and rebuild a partly eroded financial buffer ahead of this year’s Budget.

The proposed measures are intended to help fund spending pledges related to defence and cost of living support. Healey faces the challenge of finding £4.7bn in additional revenue over four years to support the defence investment plan, alongside identifying £10bn in cuts across government departments. The fiscal buffer, originally valued at £22.7bn, has been reduced by various economic factors. The Resolution Foundation estimates this buffer could now be as low as £8bn, leaving public finances more vulnerable to external shocks such as rising energy prices. This narrowing margin limits the government’s ability to provide financial relief to households and businesses.

Industry leaders have already voiced concerns about the potential impact of such taxes. Citigroup chief executive Dame Jane Fraser has warned against the introduction of a new banking tax, while officials at UK Finance have written to the Chancellor to highlight the risks of targeting the financial services sector. These warnings come amid a period of intense lobbying and speculation in the two months leading up to the Budget. The financial sector is closely watching the Chancellor’s decisions, as any new levies could affect investment and operational costs for major institutions.

Public sector wage pressures are also contributing to the fiscal squeeze. Reports indicate that train drivers on Avanti, the line connecting London and Manchester, have agreed to a pay rise of around 3.6 per cent. This deal, secured with Andy Burnham, aims to prevent service disruptions on a route frequently used by the Prime Minister. Meanwhile, drivers on the east coast operator LNER may receive a 12 per cent pay increase over four years. These rising costs add to the financial burden on the government, further constraining the options available for fiscal policy.

Economists do not expect the Budget, scheduled for 28 October, to deviate significantly from previous economic plans. Major expansions in public spending or increased borrowing are unlikely. The government has stated that the decision to raise defence spending to three per cent of GDP will be deferred until the middle of next year, coinciding with a scheduled spending review. Barclays economist Jack Meaning suggests the fiscal statement will represent continuity from the previous administration, with Healey likely to rely on re-allocating budgets across departments. A Treasury spokesperson confirmed the Chancellor’s focus on boosting business and supporting people, underpinned by fiscal discipline. The Office for Budget Responsibility will publish its updated forecast alongside the Budget, with no comment on speculation ahead of that date.