Battle lines are being drawn between City bosses and trade unions over a possible tax raid on UK banks to help fund Andy Burnham's package for struggling households this winter. While bankers have warned the move would be 'economic suicide', union leaders have said Britain cannot afford to be 'held hostage' by City lobbyists, given growing pressures to find money for defence and cost of living support.
Burnham's Speech Reignites Debate
In his speech on Monday, Burnham said he recognised cash-strapped households 'need a bit extra now to help with rising costs', reigniting a debate about a possible windfall tax on banks. 'I will do my very best to deliver it and, while not taking risks with the public finances, will seek to give Britain some breathing space as soon as I can,' he said. Profits at banks including NatWest, Lloyds and Barclays have been buoyed in recent years by higher interest rates, sending their share prices surging.
Union Leader Urges Radical Change
Paul Nowak, the leader of the Trades Union Congress (TUC), said the new Labour MP for Makerfield, who is widely expected to replace Keir Starmer as prime minister, should ignore 'vested interests' and urged Burnham to plot a radical change in course. 'When one in five people are skipping meals, you can't afford to be held hostage by people defending the status quo,' he told the Guardian. 'I would hope it (higher taxes on banks) is the type of policy a new prime minister would look at and say, there is real value there. We can't ask working people to pay more tax, so we need a system that is better at taxing wealth and windfall profits.'
Potential £9bn Revenue from Surcharge Reversal
The TUC said Burnham could raise £9bn over four years by reversing a decision made by the previous Conservative government to cut a surcharge on the banking industry. But a tax raid would pit the former Greater Manchester mayor against bankers, who argue they already pay uncompetitive tax rates in the UK and feel they are being penalised for their success. 'A bank tax isn't an economic policy, it is economic suicide,' a senior banker told the Guardian. 'Financial services is one of the only parts of the economy that is growing and highly productive. We need more sectors to do the same, not be taxed for being successful. The TUC needs to grow up.'
Industry Revives Battle Against Tax Hikes
It revives a years-long battle by the industry, which lobbied hard against fresh hikes in chancellor Rachel Reeves's budget last autumn, at a time when banks were again being accused of taking large profits on the back of rising interest rates. Profits have been boosted in part by an increase in net interest income, which is the difference between what a bank charges for loans and what it pays in interest on deposits. NatWest, the lender formerly known as Royal Bank of Scotland, reported £7.7bn in pre-tax profits in 2025, up 24% from a year earlier and marking its highest profits since its 2008 taxpayer bailout. Rival Lloyds Banking Group's pre-tax profits jumped 12% to £6.7bn for 2025, while Barclays' profits climbed 13% to £9.1bn, allowing its bosses to plan £15bn worth of payouts to shareholders between 2026 and 2028.
Bankers Express Concern Over Tax Regime
One City executive said the tax issue 'has been a concern ever since the general election in 2024' but has reared its head again in recent months, as interest rates started to rise in response to the US-Israeli war on Iran. 'Everyone realises a strong argument needs to be brought to the new government,' they said, adding that City bosses were hopeful the prospective prime minister had the right people in his ear. 'Burnham has sensible people like Jim O'Neill and Andy Haldane saying, 'this does not make sense'.' O'Neill, a former Goldman Sachs chief economist who has been helping Burnham frame a policy agenda, has advised against further tax hikes on business. 'We can't just keep avoiding what are seen as difficult choices and having backdoor ways of raising taxes. And we certainly shouldn't raise them on business,' he told Sky News on Tuesday.
Uncompetitive Tax Rates Risk Investment
An executive at another major bank in the UK insisted the industry was 'not naive about the scale of the fiscal challenge' facing the next prime minister. But they stressed that London was already running an uncompetitive tax regime compared with rival financial sectors, and risked losing investment and even jobs to rival cities if they were not careful. In the UK, banks face the 25% headline rate of corporate tax, as well as a 3% bank surcharge and a further bank levy, which is a charge on a portion of balance sheet assets. But lobby group UK Finance has compiled figures showing that banks are paying a total tax rate of about 46.4% when employment taxes and VAT are taken into account. That compares with a 38.9% rate in Frankfurt and 27.9% in New York.
JP Morgan's UK Plans Hang in Balance
JP Morgan revealed plans last November to build a new £3bn UK headquarters in Canary Wharf hours after Reeves spared the banks further taxes, but its boss Jamie Dimon recently warned he could scrap construction plans if Starmer's replacement proves hostile to banks. Lobbyists indicated they will start mobilising once a new chancellor is in place. The question now, they said, is who takes the top posts in the Treasury. 'We don't know who the next chancellor is going to be, and it's probably not very helpful for them [Burnham's team] as they work out next steps, to have bankers piling in. It's not an elegant start to a new relationship,' one of the executives added. 'Will we be keen to engage with the team, when it's there? Yes.'
