Chancellor Rachel Reeves is reportedly finalising a significant new tax on UK banks as she prepares to deliver the Labour government's crucial Autumn Budget next week.
The Budget Challenge and Banking Focus
With the Treasury facing an estimated £40 billion black hole in the public finances, all eyes are on how the Chancellor will balance the books when she presents her budget on November 26. According to multiple reports, increasing the bank surcharge has emerged as a key option that could raise at least £2 billion for government coffers.
The Daily Telegraph confirms the plan remains "on the table" following initial reporting by The i Paper earlier this year. This potential tax increase represents one of the most significant revenue-raising measures under consideration for what will be the Labour Party's second budget since taking office.
Potential Impact on Consumers and Economy
Financial experts have warned that higher taxes on banking profits could have direct consequences for ordinary consumers. Professor Shampa Roy-Mukherjee, an economics specialist at the University of East London, explained the likely chain reaction: "As a result of higher taxes on bank profits, banks may pass on costs by lowering savings deposit rates and raising lending rates."
She further cautioned that "overall this will discourage traditional saving and investment and hamper economic growth."
Richard Dana, founder and CEO at Tembo, echoed these concerns, stating: "This would most likely result in higher borrowing rates for mortgage holders and lower savings rates for depositors. Banks would need to fill the gap in their profits by increasing the margin they make on consumers."
Double Blow for Savers with ISA Changes
In what could represent a second major blow to savers, the Chancellor is also considering reducing the tax-free Cash ISA allowance from £20,000 to as low as £10,000. This move would particularly impact those who rely on Cash ISAs for their financial security.
New research from Nottingham Building Society reveals the scale of potential impact, showing that 44% of savers do not save regularly, while almost half of over-60s (47%) prefer Cash ISAs for their savings.
Sue Hayes, CEO of Nottingham Building Society, delivered a strong message to the Chancellor: "Savers deserve choice. Cash ISAs are a trusted, straightforward way for people to save for the future - whether that's a first home, retirement or an emergency fund. Restricting that choice risks doing real damage to financial confidence."
She emphasised the particular importance for mutual lenders, noting that "ISAs held with building societies directly support lending to aspiring homeowners, and cutting the Cash ISA allowance would restrict that lending power."
Harriet Guevara, the society's Chief Savings Officer, added: "We understand the Government's ambition to promote a stronger investment culture, but cutting the Cash ISA allowance is the wrong lever to pull. Cash ISAs remain one of the few straightforward, low-risk tools that help people build financial security."
With the Autumn Budget just days away, both banking and savings policy appear set for significant changes that could reshape the financial landscape for millions of Britons.
