In 2023, then-Chancellor Rishi Sunak slashed the bank surcharge from 8% to 3%, ostensibly to offset the rise in corporation tax from 19% to 25%. The rationale was competitive parity with New York. The timing was catastrophic for the public purse: interest rate hikes were already inflating bank profits to record levels, meaning the cut landed precisely when the levy would have generated the most revenue. The TUC's analysis of HMRC corporate tax receipts puts the cumulative cost at £6bn over three years — £2.3bn in 2023-24, £1.7bn in 2024-25, and £2bn in 2025-26. Meanwhile, the UK's four largest lenders — HSBC, NatWest, Barclays, and Lloyds Banking Group — have generated £200bn in pre-tax profits over five years. The banks paid out a record £25bn bonus pool last year alone. The core mechanism is straightforward: rising interest rates handed banks windfall profits on existing lending books without any corresponding increase in productivity, innovation, or new lending. The surcharge cut then compounded this windfall by reducing the tax rate on these profits at exactly the wrong moment. The public bore higher mortgage costs while simultaneously collecting less tax from the institutions benefiting most from rate hikes. The TUC is now pushing Chancellor John Healey to go beyond a simple reversal. Three scenarios are on the table: restoring the 8% surcharge (raising £9bn over four years), doubling it to 16% (£24bn), or matching the energy windfall tax rate at 35% (£60bn over four years). Campaign group Positive Money is backing the push, arguing banks are "making record profits without lifting a finger." The banking lobby is fighting hard. Jamie Dimon personally warned Burnham and Healey that further levies could cost investment and jobs, and threatened to cancel JP Morgan's planned £3bn London headquarters. UK Finance chief David Postings argues the UK already imposes a "materially higher total tax rate" than competing financial centres and that increases would "weaken the UK's competitiveness." The competitive-threat argument deserves scrutiny. The original surcharge cut was justified as neutralising a corporation tax rise — but that rise hit all sectors, not just banking. Banks received a bespoke offset that no other industry got. The question is whether a sector generating windfall profits from a macroeconomic shift (rate rises) that simultaneously squeezed households deserves special tax treatment, or whether that is simply incumbent protection dressed as growth policy. The 28 October budget is the decision point. Healey's choice will signal whether the government treats windfall bank profits as a legitimate tax base or continues treating the financial sector as too fragile to tax at parity with energy companies who faced a windfall levy under the same Conservative government.
