Chancellor John Healey has announced a temporary increase in the Bank Corporation Tax Surcharge from 3% to 6% to help fund energy bill support for households, with the measure running from 1 January 2027 to 31 March 2028.

In his first Budget, Healey pledged that the surcharge increase would be “time limited” to fund immediate energy bill support, with the government committing not to extend it beyond the 15-month period.

Healey said: "Our world-leading banks make a huge contribution to this country in the tax they pay, in the jobs and investment they support.

“I am looking to our banks to help fund breathing space for British families and asking a bit more of our banks to support ordinary people."

The increase is smaller than many in the City had feared. There had been speculation that the surcharge could be restored to its previous 8% level, where it stood before being cut in 2023, so the banks can breathe a sigh of relief, with shares rising after the announcement.

Under the latest Budget measures, the Government will extend the VAT cut on electricity until July 2027 and provide a further £2.6bn through the Household Energy Payment scheme. Up to 20 million households in England will receive a direct £100 payment from January 2027, distributed through the council tax system.

Charles Resnick, Chief Finance Officer, Afin Bank, commented: “The first Budget for Chancellor John Healey under the premiership of Andy Burnham was always going to be a tough balancing act, especially given that limited fiscal headroom would constrain additional spending and require careful prioritisation.

“The 3% increase in the bank surcharge was lower than had been feared and banking shares rallied as a result, but how the markets respond to The Chancellor’s package of measures will be a real test for how it has landed. Ultimately, until the global picture improves, and especially the impact on energy prices of the war in Iran, the UK economic outlook remains tough for the public for the foreseeable future”

Alex Read, CEO and founder of Portman Finance Group, warned that higher taxes on banks could make borrowing more expensive and restrict access to finance for small businesses.
“While lower than expected, higher taxes on banks is still undoubtedly bad news for small businesses,” he said. “It is likely to increase the cost of capital and make lenders much more selective about who they lend to, which is a real problem for SMEs who already face a range of barriers when trying to access finance.”

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