UK Finance chief: Labour must keep its promise that the bank tax is temporary
Taxes introduced in response to temporary pressures have a habit of outlasting them. Labour must keep its promise on the bank tax, writes David Postings.
In response to the recent budget, the Chancellor has maintained his pledge that the bank tax increase is only temporary, according to UK Finance chief David Postings. After weeks of speculation, the Chancellor commended the UK's leading banks for their taxes, jobs, and investment. He then doubled the bank corporation tax surcharge from three to six percent, promising it would last for only 15 months. The time limit will be written into legislation, the HM Treasury assured.
Banks play a crucial role in the UK economy, supporting home ownership, business investment, and growth while contributing billions in tax annually. They are significant employers and sources of investment across the country. However, increasing taxes on banks is not the way to boost growth or enhance international competitiveness, Postings wrote. The higher rate applies from January 2027 to the end of March 2028, providing reassurance to banks making long-term investment and lending decisions.
History shows that taxes introduced in response to temporary pressures often outlast them. The Energy Profits Levy, introduced as a temporary measure, has seen its rate increased and duration extended beyond its original December 2025 end date. Banks have also seen sector-specific taxation become established in the UK tax system, with the bank levy in place since 2011 and the bank corporation tax surcharge since 2016.
International firms consider the tax regime when deciding where to deploy capital and create jobs. A stable and predictable tax regime is crucial. Other countries are moving in the opposite direction, with EU Banking Union banks contributing to the Single Resolution Fund until 2024, and Germany reducing its corporate income tax rate to become more competitive. The UK cannot take its leading global financial center status for granted, especially when competitors work to attract business.
The government's Financial Services Growth and Competitiveness Strategy aims to make the UK the global location of choice for financial services firms. A higher and less predictable tax burden goes against this ambition. The Chancellor has made a clear promise about the bank tax, and Postings will be closely monitoring to ensure this promise is kept.
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