BUDGET 2026: Banks to pay more tax – let’s hope they don’t pass it on

The Chancellor John Healey has announced a new tax on bank profits in the Budget. There has been pressure to force Britain’s biggest banks to contribute more to the public finances after years of making bumper profits.

From January, banks will pay an extra 3% on the existing 3% banks surcharge. The additional payment will be “time-limited” to pay for immediate support on energy bills, lasting for just 15 months.

The level of the bank surcharge, which banks pay in addition to corporation tax, was cut by the previous Conservative government from 8% to 3% ahead of the last election.

The move to reverse some of this cut follows calls from campaigners for banks to pay more tax, with the UK’s four biggest banking groups – HSBC, NatWest, Barclays and Lloyds Banking Group – making a combined £200 billion in pre-tax profits over the past five years, according to figures cited by the Trades Union Congress (TUC). At the same time, households have faced rising mortgage costs and increasing pressure on their finances.

What does this mean for you?

Banks could choose to absorb the extra tax, but they may also respond by changing the rates they offer customers.

If you have a mortgage or other borrowing, there is a possibility that banks could try to recoup some of the additional cost through higher borrowing rates or fees. However, this isn’t guaranteed, and rates will continue to depend on wider factors including competition and the Bank of England’s interest rate decisions.

If you invest in bank shares, higher taxes could put pressure on banks’ profits after tax and potentially affect their share prices or dividends. The extent of any impact will depend on the size of the levy and how investors view its longer-term effects.

The Government will hope the measure raises extra revenue without damaging lending or investment in the UK. Banks have previously warned that higher taxes could make the UK less attractive for investment and affect their ability to lend.

For now, there’s no need to make any immediate changes to your savings or investments solely because of the announcement. Keep an eye on the rates you’re earning and paying, and compare alternatives if your current deal is no longer competitive.