UK bank chiefs meet Chancellor John Healey ahead of Budget tax debate

Senior executives from the UK’s largest banking institutions are set to meet the new Chancellor, John Healey, in a high-stakes discussion regarding the future of the banking surcharge. The gathering, which takes place on Tuesday, brings together leaders from Barclays, Natwest, HSBC, Lloyds, Nationwide and Santander. This face-to-face engagement is understood to be the second such meeting between the sector’s top figures and the Treasury chief, following an earlier assembly at Bloomberg in July. The timing of the summit is critical, as it occurs just over four weeks before Healey is scheduled to deliver his first Budget. Industry observers suggest that tax policy will be the central focus of the discussions, with banks seeking to influence the Chancellor’s approach to fiscal measures affecting the financial services sector.

The atmosphere surrounding these negotiations has shifted markedly since the tenure of former Chancellor Rachel Reeves. During her time in office, the banking sector maintained a close relationship with the Treasury, characterised by a lack of tax hikes and a stated commitment to deregulation. Reeves was known for engaging regularly with senior bank chiefs on a wide array of topics, from investment and growth to geopolitical issues. She was also reported to have firmly rebuked the left-leaning think tank IPPR when it published a report advocating for increased bank taxation. In contrast, Treasury officials have advised senior figures in the financial services sector that they should not anticipate the same level of rapport with Healey. While engagement is expected to remain robust, the frequency of the Chancellor’s presence in the Square Mile is likely to be lower than under Reeves, who actively pursued reforms in areas such as ISAs, pensions and listing rules.

Banking lobbyists had initially adopted a modest stance ahead of the 2025 Budget, with their primary objective being to prevent any increase in their already significant tax burden. However, officials are understood to have encouraged them to prioritise a reduction in the banking surcharge to counterbalance calls for a hike. Consequently, both UK Finance and TheCityUK included calls for the surcharge to be phased out in their recent submissions. The surcharge, which is levied on top of corporation tax, has remained static under Reeves. Nevertheless, there are widespread concerns within the industry that Healey may increase the tax burden on the sector. Independent banking analyst John Cronin noted that fears are prevalent regarding a potential exemption for the UK operations of international banks, a move that would leave domestic lenders facing a disproportionate cost. Cronin argued that domestic banks would be justified in their anger if such a measure were implemented, while suggesting that more sophisticated proposals could generate substantial additional fiscal revenue without the same competitive distortions.

British banks maintain that they already face an outsized tax rate compared to their European peers. This position was echoed this week by former Chancellor Jeremy Hunt, who was responsible for reducing the surcharge from eight per cent to its current level of three per cent. Data from PwC indicates that total taxes on UK banks amount to 46 per cent of profits, a figure that exceeds the 42 per cent in Amsterdam, 39 per cent in Frankfurt and 29 per cent in Dublin. Some within the City have expressed concern that Healey could go further and implement a windfall tax on banks. Activists at Positive Money have estimated that such a measure could raise £19bn from the coffers of Natwest, Lloyds, Barclays and HSBC alone. In response, UK Finance chief David Postings has written to the Chancellor, warning that the UK’s approach to tax and regulation must support investment and the sector’s capacity to finance growth, particularly as peer jurisdictions seek to improve their competitiveness.

Despite the potential for increased taxation, there may be concessions for mid-sized banks. A group of specialist and challenger banks, including Revolut, Investec and Shawbrook, has urged the Chancellor to raise the threshold at which the surcharge applies from £100m to £500m. Cronin expects some success in this lobbying effort, although he is uncertain whether Healey will agree to the full increase. The appointment of Emma Reynolds to the Treasury has also provided some reassurance to the industry. Reynolds, a former CityUK executive who previously served as City minister and environment secretary, returned to the Treasury in July. She has stated that her previous role in the industry body helped her understand the perspective of large financial institutions. A source close to the Chancellor described the upcoming meeting as part of normal stakeholder work in the run-up to the Budget, with Healey expected to be in listening mode. All banks attending the meeting were contacted for comment, while the Treasury declined to comment.