UK banks have been handed a reprieve ahead of the 26 November budget, as Chancellor Rachel Reeves has reportedly decided against increasing taxes on the sector. The move, aimed at maintaining competitiveness and supporting economic growth, has already lifted investor confidence.
Shares in Britain’s biggest lenders surged following the reports. NatWest climbed 2.5%, while Lloyds Banking Group rose 2.3%, ranking among the FTSE 100’s top performers. Analysts described the rise as a clear indication of relief in the financial markets.
The decision comes after weeks of speculation that Reeves might target the banking sector with higher taxes to help plug gaps in the public finances. Treasury officials had been reviewing the profitability of major banks, especially after a period of strong earnings driven by higher interest rates.
Currently, UK banks pay a corporation tax rate of 28%, made up of the standard 25% rate and an additional 3% surcharge applied to large financial institutions. That surcharge was originally introduced to ensure banks made a greater contribution after the 2008 financial crisis.
Industry leaders had warned that any further increases could make the UK less competitive compared to rival financial centres such as New York and Frankfurt. The banking trade group UK Finance pointed out that Britain’s overall tax burden on banks already exceeds that of most global peers.
According to research by PwC, the sector contributed an estimated £43.3 billion in total taxes last year, representing about 4.3% of all UK government receipts. That figure has grown steadily from £33.4 billion in 2014, reflecting both higher profits and increased employment.
Reeves’s decision has been welcomed by markets but may draw criticism from those who argue banks could afford to contribute more. Supporters counter that the stability of the financial sector is vital to sustaining broader economic recovery.