Global banks warn UK windfall tax will trigger shift away from London
Chancellor John Healey is looking for revenues in next month’s Budget to compensate for hit from higher borrowing costs due to Iran war
Global banking executives have warned that they will divert investment away from the UK if taxes on the sector are raised, telling Andy Burnham’s government that it risks further damaging London’s position as a financial centre.
Senior bankers said they would no longer choose the UK as their main European hub in the same way as they did before Brexit, according to a survey of US, EU, Asian, African and Middle Eastern lenders with large British operations by the sector’s main lobby group.
The warning shows bankers are becoming increasingly worried about being hit by a windfall tax in next month’s Budget. Chancellor John Healey is looking for revenues to compensate for the hit from higher borrowing costs due to the Iran war.
“I think already we’re very highly taxed,” David Postings, chief executive of bank lobby group UK Finance, told the FT. “To go further than that, really I think would reach a tipping point and would be very risky on the part of the government.”
Bankers outlined two scenarios that would trigger a serious rethink of their operations in the UK: if the tax and regulatory burdens on banks are increased or if stricter immigration rules make it harder to move staff to Britain.
Banks have become a tempting target as their profits have risen.
NatWest, Lloyds Bank, and the UK arms of Barclays and HSBC, the country’s traditional “Big Four” lenders, increased their pre-tax profits by 16 per cent year-on-year to a combined £13bn in the first half of 2026.
Paul Nowak, general secretary of the Trades Union Congress, said that there was “a mountain of evidence” that banks could afford to pay higher tax, “not least the record £25bn bonus pool they paid out last year”.
However, Jamie Dimon, chief executive of JPMorgan, has previously criticised the idea of higher UK bank taxes, warning they could have “adverse consequences” for the sector and the economy in a thinly veiled threat to reconsider its planned £3bn London office.
London-based corporate and investment banks pay tax equal to 46.5 per cent of their profits, already the highest among major US and European financial centres, according to new research by PwC for UK Finance.
If the government raised the corporation tax surcharge levied on the sector back to the level it was before a reduction three years ago, it would push the total tax rate for banks in London above 50 per cent for the first time.
The tax rate for UK banks has already risen above rivals, such as 42 per cent in Amsterdam, 29 per cent in Dublin and 28 per cent in New York, the report said. German government reforms are due to lower the total tax rate on Frankfurt-based banks from 39 per cent to 34 per cent by 2032.
“While international banks continue to value the UK’s deep capital markets, world-class talent pool, legal certainty, optimal timezone, regulatory expertise and global connectivity, these core strengths are facing unprecedented pressure,” said the UK Finance report seen by the FT.
After interviewing executives at 14 international banks that employ 35,000 people in the UK, the report warned: “The accumulation of individually manageable pressures has, over time, weakened the case for locating additional activity in the UK.”
They also warned the UK risked “falling behind” other countries on AI.
“It is not about anyone saying they will shut down in London,” said Jonathan Herbst, global head of financial services at law firm Norton Rose Fulbright, which carried out the survey. “It is more about decisions on where to invest and where to grow. I would say the jury is out.”
Problems the executives identified included high taxes, Brexit, diverging regulation, rising costs, obstacles to moving staff, slow policymaking and costly judicial actions, such as the recent car finance scandal.