Trade union leaders are advocating for an increase in the windfall tax on the UK’s largest banks, following the announcement of nearly £14 billion in profits for the first quarter by the major four lenders. This financial surge has been partly attributed to the market fluctuations linked to the ongoing conflict in Iran.
The Trades Union Congress (TUC) has reiterated its demand for the bank surcharge to be raised from its reduced rate of 3%—which was lowered from 8% by the Conservative government in 2023. This reduction has allowed banks to significantly profit from the current high-interest rate scenario.
Last week, the Bank of England opted to maintain interest rates at 3.75%, while market forecasts suggest the possibility of up to two rate hikes by the end of the year. As of Tuesday, the average two-year fixed mortgage rate was reported at 5.77% by Moneyfacts, a noticeable increase from 4.83% prior to the outbreak of conflict in the Middle East.
The UK’s leading four banks—Barclays, HSBC, Lloyds, and NatWest—collectively declared profits amounting to £13.8 billion for the first quarter.
Paul Nowak, the TUC’s general secretary, remarked, “It is only logical to require banks to contribute more in taxes on their substantial profits while many individuals across the country are facing financial difficulties.”
He further stated, “In light of the economic disruptions caused by Donald Trump’s foreign policies, it is essential that the substantial profits of banks are taxed appropriately to help mitigate the adverse effects on households and businesses.”
During a media briefing last week, William Chalmers, the CFO of Lloyds Banking Group, was questioned about whether banks were exploiting the situation created by the Iran conflict for profit. Lloyds, which encompasses brands such as Halifax and Bank of Scotland, noted a 33% year-on-year profit increase to £2 billion in the first quarter.
Chalmers explained, “The banking sector has experienced years of low margins and profitability due to a low-interest environment. There was always an expectation of a gradual increase in bank profitability with rising rates, as is typical within the financial services industry.”
The TUC suggests that reinstating the bank surcharge to its previous level of 8% could generate £9 billion over four years, which it considers the “bare minimum.” A proposed increase to 16% could yield £24 billion over the same period.
Last year, the four major banks collectively earned nearly £46 billion, leading to substantial compensation packages for their executives. Nowak commented, “Following the Conservative cuts to the bank surcharge, banks experienced a windfall due to elevated interest rates. They are now poised to earn even more if these rates persist.”
He emphasized, “The previous economic disruption caused by [Vladimir] Putin’s unlawful invasion of Ukraine resulted in significant profits for banks at the expense of mortgage holders; we cannot allow a similar situation to arise again.”
In the past year, the IPPR think tank had proposed that Chancellor Rachel Reeves introduce a new bank tax in the budget scheduled for November, a recommendation that was ultimately thwarted through extensive industry lobbying.
