The anatomy of a bank tax: what can the UK learn from Europe?

As the UK's upcoming Budget draws near, with Chancellor John Healey expected to unveil measures targeting the banking sector, analysts are closely examining the European experience with bank taxes. In recent years, calls for a bank tax have grown louder, despite previous attempts to ward them off by City lobbyists. Under the current government, a bank tax appears to be a more likely option, with some analysts suggesting it could be the only significant tax-raising measure in the Budget.

The UK banking sector contributed a record £47.8bn to the Treasury in the year to April 2026, with additional levies already in place, including the UK banking levy and a three percent surcharge on corporation tax. While some campaigners have advocated for a windfall tax on the large banks' profits, Europe's experiences suggest that such a tax might not yield the desired results.

Italy's attempt at a 40 percent levy in 2023 failed to generate significant revenue, while Spain's 4.8 percent levy only managed to raise modest amounts. Nonetheless, the examples from Italy and Spain do show that imposing a bank tax can have unintended consequences, such as damaging market confidence, harming smaller lenders, and restricting credit growth.

In contrast, Lithuania's more targeted approach, which directed the tax revenue to the state defence fund and military infrastructure, resulted in a smaller but still significant tax revenue. The relatively concentrated banking sector in Lithuania made it easier to enforce the tax, and the country's banks were unable to easily relocate their operations.

As Healey prepares the Budget, the lessons from Europe suggest that the UK should carefully consider the potential implications of a bank tax before implementing one.