Chancellor John Healey is planning to increase taxes on the banking sector at this month’s Budget, reports suggest – which experts say could have an impact on savings and mortgages rates.
The big four banks – HSBC, Barclays, Lloyds Banking Group, and NatWest Group – collectively made around £15bn profit in the first half of 2026, and there have been calls for them to face higher taxes.
So what could change? And what would it mean for your finances?
What additional taxes could Healey introduce?
Healey previously called banks part of “the crown jewels” of the UK economy, but multiple reports now suggest he could raise taxes on the sector.
Former Conservative chancellor Jeremy Hunt reduced a surcharge that banks pay on corporation tax, from 8 per cent to 3 per cent, back in 2023.
It came at the same time that headline corporation tax – a tax on UK company profits – rose from 19 per cent to 25 per cent.
One option is a reversal of that surcharge cut – which would raise about £2bn.
Another option is to increase a tax called the bank levy – a tax on money that a bank owes to its customers and other banks.
Can banks afford a tax rise?
Banks have certainly become more profitable in recent years.
The International Monetary Fund said that the UK banking sector’s return on equity – the amount of profit the industry generated relative to the money invested by its shareholders – rose from 3.6 per cent in 2019 to 9.2 per cent in 2025.
“This is suggesting greater scope to absorb a modest tax increase rather than automatically passing the full cost to customers,” said Alper Kara, a professor of economics, finance and accounting at Brunel University.
Robert Webb, a professor of banking and applied economics at Stirling University, said that banks tend to make larger profits “when interest rates spike”.
In 2021, interest rates set by the Bank of England were as low as 0.1 per cent, but rose to 5.25 per cent in 2023 and still sit at 3.75 per cent today.
A large part of the profits banks make is through the gap between the interest they earn on loans and mortgages versus the interest they pay out on customer deposits. This gap tends to rise when interest rates are higher or look like they will go higher.
In fact, banks were criticised repeatedly in 2023 and 2024 for upping mortgage rates but not making the same increases to savings rates.
The average advertised mortgage rate on Friday 16 October this year stands at 5.88 per cent, compared with an average savings rate of 3.76 per cent, a gap of 2.12 percentage points, data from analytics firm Moneyfactscompare.co.uk shows.
Over this year on average, this gap has been 1.91 percentage points – far higher than the 1.42 percentage point gap seen in 2019 for example.
What will a tax rise do to mortgage and savings rates?
Higher taxes definitely have the capability to make mortgage and savings rates worse, if they eat into banks profits, and banks feel they need to recuperate some of that loss.
But experts generally don’t think this will be a sharp change.
Kara explains: “Banks may try to protect their profitability through less generous savings rates, higher rates on new mortgages and loans, or increased fees. However, competition would limit their ability to do this.
The Bank of England has raised interest rates multiple times in recent years (Photo: Henry Nicholls/AFP)“The mortgage market is highly competitive, while digital banks and newer entrants give savers alternatives to established banks. Banks offering poorer deals risk losing customers.”
Kara said the customers who could be most affected would be savers “who rarely switch”.
Webb agrees, saying: “Taxing banks is a decent idea and should not affect consumers.”
Adam French, head of consumer finance at Moneyfactscompare, said that in a low interest rate environment, customers might feel the effects of an extra tax more, but the current situation with high rates may allow banks to shoulder extra costs.
“Assuming we settle into a higher interest rate environment than we experienced through much of the 2010s and early 2020s, banks should have more breathing space to absorb a tax increase than they did when rates were close to historic lows,” he added.
He said banks would likely protect their profits, but that any impact on consumers would probably be “marginal”.
He explained: “History teaches us that additional taxes ultimately find their way to customers. That could mean a touch less generous savings rates, slightly more expensive mortgages or simply higher fees and charges.
“The effect is likely be marginal, but it is something households should be conscious of.”
What about bank shares?
The UK’s biggest banks make up a large part of the stock market.
In fact, the big four make up close to 15 per cent of the total weight of the FTSE 100 – an index of 100 of the biggest firms listed in Britain.
Some people invest individually in the big four, but many will also invest in them without realising, for example if they own a FTSE tracker fund in their stocks and shares ISA or their pension.
Because the banks make up a large part of the sector, if their share price dips, it can have a large impact on your ISA or pension value.
The big four banks have broadly seen their share price dip since August as speculation they could face extra taxes has mounted.
Experts say new taxes would be likely to cause a dip, but that it would not be particularly large.
“Customers with bank shares may see a dip in the share price and potentially the level of dividends paid out. Those with bank shares as part of a stocks and shares ISA or a pension portfolio may see a slight impact but nothing to get too worried about”, said Andrew Hagger, founder of personal finance website Moneycomms.
The banking industry argues that its prosperity is essential to the UK economy.
A spokesperson for UK Finance, the trade association representing banks, said: “An increase in bank taxes at the Budget would weaken the UK’s competitiveness, discourage investment and job creation, and work against the government’s ambition to deliver growth in every postcode.”
Ultimately, the exact impact will only be clear once the policy is, with Kara explaining: “Much depends on the size of the tax increase and how individual banks respond.”
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