The UK banking industry has been spared an expected tax hike in the upcoming budget, as the government looks to encourage competitiveness and economic recovery.
Investors reacted with optimism. NatWest’s stock climbed by 2.5% and Lloyds increased by 2.3%, helping boost the overall FTSE 100 index.
The decision reflects Reeves’s belief that a strong banking system is essential for business lending and economic resilience. The Chancellor reportedly told colleagues that imposing higher taxes now could damage confidence among international investors.
At present, banks pay a 28% corporation tax rate — one of the highest among major global economies. The figure includes a 3% surcharge unique to large financial institutions.
Industry bodies have stressed that the UK’s total banking tax burden already exceeds that of centres such as New York, Dublin, and Amsterdam. Many warn that extra levies could drive activity offshore.
Banks’ contributions to the Treasury have grown steadily in recent years. PwC’s study shows that the sector paid £43.3 billion in taxes last year, up nearly a third from a decade ago.
While critics may argue that the government is giving profitable banks a free pass, Reeves appears to be betting that long-term growth will deliver greater fiscal rewards than short-term tax grabs.