The rumoured restoration of the surcharge banks pay on their
profits in the budget would see the Treasury take £5.8bn in
revenue from commercial banks by the end of the parliament,
according to analysis by the New Economics Foundation
(NEF).
NEF's research revealed that, in 202728, the surcharge increase
would represent a tiny fraction of the big four banks' (Barclays,
NatWest, Lloyds and HSBC) overall profit. With £1bn of projected
£31bn profit (before all taxes borne) taken up by the tax
change.
The chancellor is rumoured to be planning to reverse the
reduction in the surcharge banks pay on their profits made by
then chancellor restoring it to 8% in the
budget on Wednesday.
Commercial banks have made windfall profits in recent years as a
result of high interest rates and the Bank of England's
quantitative easing programme, resulting in an effective subsidy
by stealth from the taxpayer to commercial banks. Banks have also
profited from the difference in interest rates offered on lending
products, like mortgages, compared with what they offer on
savings accounts.
Abhijay Sood, economist, NEF, said:
Since the financial crisis, the government has propped up the
financial system with free money and since at least 2022, this
has been at a direct cost to the British taxpayer.
The interest paid by the Bank of England to private banks on
their reserves has pushed the Bank into a loss. The Treasury
underwrites this cost. In other words, instead of making
inflation-busting investments in our future, or supporting
the most vulnerable families in the country, we're handing money
over to the finance sector. A stronger tax than the one proposed
should be implemented by the Chancellor to recover this subsidy
that banks clearly no longer need.
The public helped the banks immensely after the financial crisis,
with bailouts and quantitative easing; this stealth subsidy is a
continuation of that support. It is only right that now, as yet
another energy crisis unfolds, the banks pitch in to help ensure
the essentials of life are affordable for ordinary people.
Alternative models for taxing commercial banks include direct
taxes on their net interest income, such as the one suggested by
Positive Money, or
IPPR's even more targeted
proposal. In the long run, NEF recommends a tiered reserves
policy, which would change the amount of interest the Bank of
England pays to commercial banks, cutting a key element of excess
profits off at its source.
ENDS
Notes
The New Economics Foundation is a charitable think tank. We are
independent of political parties and committed to being
transparent about how we are funded.
More details on NEF's analysis is available here: https://neweconomics.org/2026/10/interest-overdue-why-the-time-is-right-for-a-tax-on-banks
Revenue projections
included in this press release assume baseline profit growth in
line with the OBR's March 2026 projections, tax elasticities
in line with academic studies and previous HMRC modelling, and
revenue and profit figures from the banks themselves.
