The clock is ticking as the UK prepares for Andy Burnham’s first autumn budget in two months, prompting bank leaders to express concern over the possibility of new taxes targeting their substantial profits.
Chancellor John Healey is said to be contemplating a windfall tax aimed at both banks and oil companies during the key budget presentation scheduled for late October.
The four largest banks in the UK—HSBC, NatWest, Barclays, and Lloyds Banking Group—have collectively amassed £200 billion in pre-tax profits over the last five years, a significant portion of which stems from climbing interest rates.
These banks are now facing scrutiny from various advocacy groups, including the Trades Union Congress (TUC) and the organization Positive Money. They argue that increasing taxes on bank profits could provide essential funding to assist households grappling with rising living expenses, aligning with Burnham’s initiatives to address the cost-of-living crisis.
Paul Nowak, general secretary of the TUC, has been a vocal proponent of a new tax on banks, stating, “The largest banks in Britain are reaping enormous profits not due to enhanced competitiveness or improved customer services, but because current high interest rates allow them to effortlessly accrue wealth. Rising mortgage rates are contributing to record bonuses.”
He added, “As energy bills are projected to reach historic highs this winter, the government must find additional ways to support households, and taxing the windfall profits of banks is a clear and logical solution.”
Such a move in the UK would mirror similar initiatives across Europe, where governments have sought to impose higher taxes on banks to help alleviate escalating living costs and increased defense expenditures. Various countries have employed different strategies to target the profits of major banks, each with its own advantages and challenges.
In 2022, Spanish Prime Minister Pedro Sánchez revealed plans for a windfall tax that aimed to generate €3 billion from banks over two years to help mitigate cost-of-living pressures. The announcement caused a stir among investors, resulting in a decline of over €5 billion in the market value of Spanish bank stocks, yet policymakers proceeded with a 4.8% “solidarity tax” on domestic revenues exceeding €800 million.
This tax included various income streams, such as fees and net interest income—essentially the money banks earn from lending activities after accounting for what they pay on deposits. The €800 million threshold meant that smaller local banks and the majority of foreign lenders were largely exempt from this tax.
Legal challenges emerged from major banks and lobbying groups, while the European Central Bank (ECB) cautioned that Spain’s approach could disrupt monetary policy and weaken the financial resilience of banks against economic downturns. Politicians later opted to extend the tax for an additional three years until 2027, successfully raising €1.3 billion in the first year and €1.7 billion in 2024. The tax now features a sliding scale of 1% to 7%, with the highest rate impacting banks like Banco Santander that earn over €5 billion annually from interest and fees.
This extension has resulted in renewed legal disputes and criticisms from organizations such as the International Monetary Fund and ECB, which warned that it could adversely affect bank profitability, raise borrowing costs for lower-income households, and diminish the competitiveness of Spanish banks on an international scale.
In 2023, Lithuania also implemented a windfall tax on banks after projections indicated they would achieve €1.3 billion in net profits for the year—three times the amount from 2022, driven by rising interest rates following Russia’s invasion of Ukraine. This 60% tax applied to net interest income that exceeded the average from the previous four years and was intended to fund infrastructure and bolster defense spending in response to security threats.
To ensure banks continued to provide loans, the tax exempted income from newly issued loans. The levy collected approximately €250 million in 2023 and €247 million in 2024, accounting for 0.3% of Lithuania’s annual GDP, before being extended for an additional year. The European Commission voiced support for the initiative, highlighting its role in reducing public debt amid regional security challenges.
However, this tax has reportedly deterred foreign firms, with the central bank struggling to attract new lenders, as noted in an EU report. The banking sector claimed it unfairly burdened local banks while allowing entities like Revolut, which primarily serves non-residents, to evade the tax.
In Czechia, a three-year windfall tax on banks was introduced in 2022 to help offset rising electricity and gas prices. This temporary measure, running from 2023 to 2025, imposed a 60% tax on profits exceeding 120% of the average from the previous four years. The tax faced significant backlash from the business community and created internal discord within the ruling ODC party, which felt it contradicted free market principles.
While Finance Minister Zbyněk Stanjura contemplated abolishing the tax earlier than planned, he later acknowledged that the revenue generated had not met state expenses linked to the energy crisis. Originally, the finance ministry anticipated collecting over 30 billion Czech koruna from the six largest banks, but it quickly became evident that this target was unattainable.
A law firm report in 2024 suggested that the shortfall could be attributed to unrealistic revenue expectations and the unforeseen reactions of businesses to the delayed implementation of the tax. Ultimately, the country raised only 1 billion Czech koruna before the tax was set to expire in December 2025, according to reported figures.
