Bank taxation | TUC

Our estimates for the revenue these options will raise are all very conservative. This is because they are based on OBR forecasts from March 2023 which have not been adjusted for the larger than expected bank profits that have come in over the course of this year. In practice these policy options are likely to raise more than our estimates.

Put the Bank Surcharge back to 8% reversing the recent cut in full

Raises: £6bn – £6.5bn over 4 years

The Chancellor could reverse the bank surcharge cut. This would increase the rate from 3% back to 8%. Below is the March 2023 OBR forecast for receipts from the bank surcharge.

In 2022/23 the bank surcharge was forecast to collect £2.4 billion at a rate of 8%. After transitioning to the 3% rate in full, the bank surcharge is forecast to collect £0.9 billion a year. This is a reduction in revenue of £1.5 billion per year. Reversing this tax cut would raise £6 billion a year over four years.

This is a conservative estimate because bank surcharge receipts[9] turned out to be higher than the OBR forecast in March. The OBR based its March forecasts on underestimates of the severity of interest rate rises. They forecast that interest rates would peak at 4.3 in 2023Q3 and then fall but instead interest rates went from 5% to 5.25% over the course of 2023Q3. The latest HMRC statistics show the outturn for Bank Surcharge receipts to be £2.6 billion in 2022/23, roughly 8% higher than forecast. If this continues, a reversal in the tax cut would raise a further £0.5 billion over four years.

And finally, it is worth noting the analyses done by Positive Money and Unite looking at bank profits from the first half of 2023. This suggests that profits have risen even higher and that even more could be raised by reversing the surcharge cut.

Raise the Bank Surcharge to 10%

Raises: £7.5bn – £8.1bn over 4 years

A second option would be to raise the bank surcharge to 10%. By grossing up the above costings we can forecast a benefit to the exchequer of £7.5 billion to £8.1 billion over four years.

Alongside the corporation tax rate of 25% this would create a total tax rate of 35% on bank profits. This is attractive because it mirrors the rate of the Energy Profits Levy which has been set at 35% from January 2023 and is set to run until March 2028.

This proposal would still be well below the overall tax rate on oil and gas production profits. The Energy Profits Levy of 35% is paid on top of a 40% rate of corporation tax for these companies. The total tax rate on profits from oil and gas production is currently 75%.

A 35% headline corporation tax rate was last in place from 1986 to 1990.

Windfall tax surcharge of 35%

Raises: £26bn – £28bn over 4 years

This is the primary proposal put forward by Positive Money.[10] It would raise the bank surcharge to 35% in line with the Energy Profits Levy. Like the windfall tax on energy profits, this would be paid on top of corporation tax. The total tax rate would be 60%, so still lower than the 75% currently levied on oil and gas production.

By grossing up the costings made above for an 8% bank surcharge, we can predict that this would raise approximately £25 billion to £28 billion over four years. This is a conservative estimate based on forecasts from March 2023 and the outturn for tax receipts in 2022/23.

Positive Money get a much larger figure based on profits in the first half of 2023. They claim this policy could raise £20.3 billion in one year from the 2023 profits of the big 4 banks alone.

Reverse cuts to the Bank Surcharge and the Bank Levy

Raises: £15bn over 4 years

The Lib Dems published analysis[11] in November 2022 showing that cuts to the bank surcharge and bank levy would cost £18 billion over the following five years. This is based on maintaining revenues from these two taxes in real terms at 2016-17 levels.

By replicating this analysis using OBR March 2023 forecasts we find that this policy could raise £15 billion over the next four years.