Natwest and Nationwide set for biggest profit hit from Healey’s bank tax raid

Natwest, Nationwide, and Lloyds are expected to suffer the greatest profit losses due to Chancellor John Healey's bank tax increase, according to analysts at RBC. The trio, who primarily operate in the UK market, are the most vulnerable to the doubling of the surcharge, as stated by RBC analysts. This levy, added to corporation tax, was raised to 6% in the Budget and is projected to generate an extra £1.5bn for the Treasury.

RBC predicts a 4% decrease in net attributable profit (NAP) for both Natwest and Nationwide in the upcoming fiscal year. While the FTSE 350 bank index initially rallied in response to the tax hike, it settled at a nearly unchanged level as investors weighed the implications. Analysts suggest that a portion of this tax increase may be passed onto customers through increased mortgage rates or reduced deposit rates, potentially hindering customer demand and UK economic growth, which the government considers its top priority.

UK Finance, a specialist bank trade body, argued that the surcharge increase is not an ideal approach to stimulate growth. The Office for Budget Responsibility (OBR) projects the surcharge receipts will increase to £2.4bn by 2027-2028, up from £1.2bn in the previous year. Lloyds Banking Group's finance chief, William Chalmers, emphasized that additional taxes were "unhelpful" for achieving economic growth and international competitiveness.

Specialist lenders, including Paragon and Shawbrook, will also face consequences as the government maintained the minimum profit threshold for the charge at £100m. These mid-tier and specialist banks wrote to Healey requesting a higher threshold earlier this year, warning that the increase would negatively impact their financial performance and investor sentiment.