UK banks are preparing for a possible increase in taxes on lenders’ profits as the government seeks additional revenue ahead of its 30 October Budget, putting the banking sector at the centre of a widening debate over how Britain should repair its public finances.

Industry sources told Reuters that banks are lobbying against a potential tax rise and expect the issue to be discussed when Chancellor Rachel Reeves meets senior banking representatives in the coming days. No decision has been announced, and neither Prime Minister Keir Starmer nor Reeves has confirmed that lenders will face higher taxes.

Banks brace for higher surcharge

The measure under consideration could involve increasing the existing corporation-tax surcharge applied to bank profits. The surcharge was introduced because banks are treated differently from many other companies: they benefit from a broad customer base and access to substantial financial infrastructure, while their activities can create risks for the wider economy.

Banking executives argue that a further increase could weaken the competitiveness of UK lenders, reduce their willingness to invest and make it more difficult to support households and businesses through a period of economic uncertainty. They are also expected to warn that the cost could ultimately be passed on through higher borrowing charges or lower returns for savers.

The Treasury has not confirmed the scale or structure of any possible change. The proposal remains part of wider speculation about measures that could help the government meet its fiscal objectives without placing the full burden on households.

Budget pressure intensifies

The issue comes as the government prepares its first Budget on 30 October and faces pressure to demonstrate that its spending and taxation plans are financially credible. CityAM reported that economists believe the impact of the war in Iran could eliminate Chancellor John Healey’s fiscal headroom if the Office for Budget Responsibility takes a more pessimistic view of the economy.

Higher energy prices and geopolitical uncertainty would complicate the government’s efforts to balance growth, inflation and borrowing. The pressure has increased the political attraction of targeting sectors viewed as having stronger balance sheets, although the economic consequences of doing so remain contested.

Bank taxes have previously been used by governments seeking revenue, but the sector remains a significant source of employment, investment and lending capacity. Any change would therefore be assessed not only for the money it raises but also for its effect on credit availability and financial-market confidence.

Talks to test industry concerns

Reeves’s expected meeting with banking representatives will provide an opportunity for the government to test the sector’s objections before final decisions are taken. Bankers are likely to press for clarity on whether any increase would be temporary or permanent and whether it would apply uniformly across lenders.

The debate also reflects a broader question about how the government defines a fair contribution from companies with substantial profits. Starmer has said the tax burden should fall on those with “broader shoulders”, a comment that has intensified expectations that large financial institutions could be asked to contribute more.

For investors, the uncertainty is likely to remain significant until the Budget. A higher surcharge could reduce banks’ post-tax earnings, while the government will need to weigh the immediate revenue gain against the possible impact on lending, competitiveness and the attractiveness of London as a financial centre.