UK bank tax is more a case of how than if
XLF•A new tax on UK banks is probably coming, but a modest levy paired with regulatory relief could soften its impact, a Reuters Breakingviews columnist argues. Lloyds and NatWest analysts’ net interest income forecasts have risen by roughly £500 million combined since before the Iran war, while the bank levy and surcharge raised £2.3 billion in 2024-2025, down from £3.9 billion two years earlier.
1. Banks’ gains and tax receipts
UK lenders are facing the prospect of higher taxes as government finances come under pressure. Analysts’ forecasts for net interest income at Lloyds Banking Group and NatWest have risen by roughly £500 million combined since before the Iran war; extrapolated across the sector, that implies a boost of more than £1 billion. Lloyds, Barclays, HSBC and NatWest are expected to average a 17% return on tangible equity this year, according to Visible Alpha consensus data.
2. Higher rates have costs
Higher rates can also weigh on lenders through slower credit growth. Jefferies analysts estimate that a 0.5 percentage point rise in the yield curve could eventually reduce bank loan balances by 2-3 percentage points compared with a scenario of steady rates. Bank levy and surcharge receipts fell to £2.3 billion in the 2024-2025 tax year from £3.9 billion two years earlier.
3. Possible compromise
The columnist suggests a possible compromise: a modest extra bank tax in exchange for regulatory relief. The article notes that UK lenders face complex capital rules and ring-fencing requirements, and suggests reforms could include changing rules that deduct technology assets from equity capital. More bank taxes are probably coming, the columnist argues, but need not be a disaster for the sector.
