Chancellor John Healey is facing calls to increase taxes on banks' «bumper profits» in the upcoming Budget, as the Government seeks to repair public finances damaged by the economic fallout of the Iran war. The Trades Union Congress has urged Healey to target the banking sector, arguing that lenders have benefited from higher interest rates while households and public services bear the cost of conflict-driven instability.
The Chancellor is reportedly considering the measure as one option to offset the fiscal damage inflicted by the war, which has disrupted energy markets, pushed up borrowing costs and weakened growth forecasts. Treasury officials have not confirmed which taxes will be raised, but the political pressure to act is mounting ahead of the Budget statement.
The call from the TUC reflects a broader argument that banks have enjoyed a period of exceptional profitability while the wider economy has struggled. Higher central bank rates have widened lending margins, boosting net interest income for major lenders. Critics argue that a windfall levy or an increase in the bank surcharge would be a fair way to recoup some of that gain for the public purse.
However, the proposal has met resistance from other quarters. A former Labour cabinet minister has warned that Britain is stuck in a tax «doom loop» and has urged Healey to drop plans for Budget tax hikes altogether. The intervention suggests that the debate inside the party and beyond is far from settled, with concerns that further increases could stifle investment and weaken the City of London's competitiveness.
The banking sector has itself warned that higher taxes could reduce lending capacity and drive activity to other financial centres. Industry bodies have consistently argued that the UK's tax burden on banks is already high relative to international peers, and that additional levies would ultimately be passed on to customers through higher borrowing costs or lower savings rates.
Healey's Budget will need to balance these competing pressures. The Government has committed to fiscal discipline while also protecting public services and supporting households through the economic disruption caused by the Iran conflict. The war has added billions to anticipated borrowing, reduced tax receipts from slower growth and increased spending on energy support measures.
The Chancellor's room for manoeuvre is limited. With inflation still above target in some measures and the Bank of England cautious about cutting rates too quickly, the Treasury cannot rely on a rapid growth rebound to fix the shortfall. That leaves tax rises, spending restraint or higher borrowing as the main options — each with political and economic consequences.
Business groups are watching closely. A tax raid on banks could be presented as a populist measure that avoids hitting ordinary workers, but it risks undermining a sector that contributes significantly to GDP and employment. The financial services industry supports hundreds of thousands of jobs across the UK, particularly in London, Edinburgh and Leeds, and any reduction in its profitability could have knock-on effects for investment and tax revenue over the longer term.
The TUC's intervention is likely to be followed by further lobbying from both sides as the Budget approaches. Unions argue that banks can afford to pay more, pointing to strong profits and generous bonuses. Industry representatives counter that the sector is already heavily taxed and that stability is needed to support growth.
For Healey, the decision is as much political as economic. He must satisfy Labour's traditional support base, which favours higher taxes on wealth and finance, while avoiding measures that could be portrayed as anti-business. The former cabinet minister's warning about a «doom loop» highlights the risk that repeated tax increases could dampen confidence without solving the underlying fiscal problem.
The Chancellor is expected to set out his plans in the coming weeks. Whether he chooses to target banks' profits directly or opts for a broader approach will signal the Government's priorities as it navigates the economic aftermath of the Iran war. What is clear is that the Budget will be closely scrutinised by financial markets, business leaders and voters alike.