Banks poised to post colossal profits buoyed by higher interest rates just as Healey eyes bumper windfall tax

Banks are set to post bumper results as John Healey eyes a £7billion windfall tax raid on their profits in a bid to repair the public finances.

Lenders are resigned to being targeted by the Chancellor in his maiden Budget in ten days’ time after being spared by his predecessor Rachel Reeves.

The ‘big four’ banks – Lloyds, NatWest, Barclays and HSBC – made pre-tax profits of £29billion in the first six months of 2026, up more than a fifth on the same period in 2025.

Barclays will update investors this Thursday when it unveils profits for the first nine months of this year. Lloyds follows a day after the October 28 Budget.

Profits have been swelled by higher-for-longer interest rates, which allow lenders to widen the gap between what they charge borrowers and pay savers, boosting their bottom lines.

Banks also earn about £18billion a year at taxpayers’ expense on reserves held risk-free at the Bank of England under a controversial money-printing programme called quantitative easing (QE) that was launched in 2009 during the financial crisis but is now being unwound.

What's next? Lenders are resigned to being targeted by the Chancellor in his maiden Budget

‘Commercial banks are making very high profits by not passing on high rates to savers,’ said Carsten Jung, senior economist at the Institute for Public Policy Research (IPPR), an influential think-tank close to Labour.

Healey last week hailed banks as ‘part of the jewel in the British economic crown’ – just hours before it was reported that he was poised to hit them with a windfall tax.

Politically, lenders are seen as an easy target after they were bailed out by the taxpayer during the 2008-9 financial crisis.

But bank bosses have warned that tax increases would mean less lending to homeowners and businesses, hurting growth.

The simplest way for Healey to tax banks more would be to reverse cuts made in 2023 to the surcharge on their profits. 

Restoring the surcharge to 8 per cent from the current 3 per cent level introduced by Jeremy Hunt as chancellor would net Healey about £2billion.

But, in a letter to the Chancellor, the UK Finance trade body warned such a move could cost the economy nearly £20billion over ten years – with most of the output foregone outside London.

‘These findings illustrate how a near-term increase in tax revenue could come at the expense of the lending and investment needed to re-industrialise the economy and drive growth across the UK,’ chief executive David Postings wrote.

Since 2011, banks have also been taxed according to the size of their balance sheets in return for being bailed out by taxpayers in the 2008-9 financial crisis.

Bank windfall taxes go back a long way  

- Geoffrey Howe, as chancellor to Margaret Thatcher, slapped a 2.5 per cent levy on them in his 1981 Budget. 

- An 8 per cent surcharge on lenders’ profits was introduced by George Osborne when he was chancellor in 2015. 

- This was cut to 3 per cent in 2023, when Jeremy Hunt, was chancellor to cushion a hike in corporation tax from 19 to 25 per cent.

The Chancellor could also defer the losses being racked up by the Treasury on commercial lenders’ QE reserves.

Changing the way these losses are accounted for would save Healey ‘at least £5billion a year’ by the end of the decade – without hitting the banks’ bottom line or interfering with the Bank of England’s rate-setting policy, according to the IPPR.

Including the £2billion from increasing the surcharge would bring the total raised from banks to £7billion a year, and would go a long way to helping Healey meet his fiscal targets.

Higher Government borrowing costs have erased half the £24billion-a-year headroom – or buffer – the Chancellor has to balance the books in the Budget.

The Treasury declined to comment.

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