The tax rate on the UK banking sector rose in the last financial year as the industry braces for a potential hike to its financial burden in the Autumn Budget.
A fresh study from banking industry body UK Finance and PwC revealed London lender’s total tax rate rose 0.6 per cent to 46.4 per cent in 2025.
This dwarfed that of overseas rivals and has spiked concerns about the City’s attractiveness on the global stage. In New York, the tax rate remained unchanged year-on-year at 27.9 per cent, almost two-thirds below that in London.
The report showed the UK banking sector contributed £43.3bn in tax for the financial year to the end of March 2025, with the rise namely due to Reeves’ increase to employer’s national insurance contributions.
The analysis projects a further rise to 46.6 per cent in 2026, as London’s global competitiveness continues to slip.
Banks are subject to a sector-specific levy that sits on top of corporation tax as well as VAT, property taxes, national insurance and other taxes levied on businesses.
The surcharge stands at three per cent, after being lowered from eight per cent under the Conservative government.
However, banks have feared a hike to the levy in the budget. Former Deputy Prime Minister Angela Rayner floated the idea of raising the surcharge to five per cent earlier this year in a memo to the Chancellor.
David Postings, the chief executive of UK Finance, warned: “Uncertainty around future bank taxation, combined with permanent sector-specific taxes, sends a negative signal to international investors.”
Banks brace for Reeves tax raid
It comes amid elevated fears of Chancellor Rachel Reeves launching a fresh cash grab on the lenders when she delivers her second Autumn Budget on November 26.
Reeves has touted financial services as the “crown jewel” in the British economy and said the industry was “at the heart” of Labour’s growth mission.
But she has faced calls from think tanks and opposition politicians to turn to the banking industry to help plug the fiscal gap left by a hefty spending review, policy u-turns and growth downgrades.
The left-leaning think tank the Institute for Public Policy Research (IPPR) said Reeves could raise up to £8bn a year from a fresh levy on the bank’s profits from quantitative easing.
Economists said last month banks were expected to “bear the brunt of higher taxes”.
The top bosses of Britain’s Big Four banks – Natwest, Lloyds, HSBC and Barclays – sounded the alarm on a bank tax’s implications on growth following the half-year reporting season.
Lloyds’ chief Charlie Nunn has also stated increasing taxes on lenders “wouldn’t be consistent” with helping boost the economy. Meanwhile, Natwest chief Paul Thwaite said “strong economies need strong banks” as he argued he would rather use the bank’s capital for loans to boost growth “for the good of the country”.