Lloyds finance chief questions link between bank tax rise and energy bill support

A senior executive at Lloyds Banking Group has criticised the chancellor for tying a rise in bank taxes to help with household energy bills, and has warned against keeping the higher levy in place beyond March 2028.

William Chalmers, the bank's chief financial officer, spoke to journalists on an earnings call on Thursday morning. He accepted that the economic backdrop was "challenging" but argued that the banking sector should not be made to carry the burden, since it provides the loans that can drive growth in the UK.

"Ultimately, it is important that the UK banking sector is able to deliver banking services to businesses and households and communities in a cost-effective way, in order to promote UK growth," he said. He added that it was also important for the sector to remain internationally competitive.

His remarks came less than 24 hours after the chancellor, John Healey, announced plans to double the bank surcharge, which is charged on top of corporation tax, from 3% to 6% starting in January. Healey described the increase as "time limited", running for 15 months to "pay for immediate support on energy bills".

Chalmers said he hoped the rise would prove temporary, to help keep the business environment consistent with long-term investment. He also questioned the logic of connecting bank taxes to energy costs, a link that has prompted concern that the surcharge could be extended, or raised again, once the 15 months end. "I don't see an obvious linkage between energy prices and bank taxes," he said. If anything, he argued, the situation made it more important for banks to lend into the real economy and secure growth, which he called the best defence against the effects of energy prices.

The Treasury has promised to write the 15-month limit into law in the financial bill. Even so, senior bankers and industry lobbyists have privately wondered whether another energy crisis could override it. Some have pointed to Spain, where a two-year windfall tax on banks, introduced to ease cost of living pressures in 2022, was eventually extended by three years and raised from 4.8% to 7% for the country's largest lenders.

"We are a major taxpayer," Chalmers said, noting that Lloyds had paid around £1.8bn in corporate taxes so far this year. "It is important to us that we have a stable and a predictable tax regime."

Lloyds also reported that its third-quarter pre-tax profit almost doubled from a year earlier, rising from £1.2bn to £2.3bn. The jump largely reflected the previous year's results, which took an £800m hit after the bank set aside another £800m to cover compensation linked to the motor finance scandal.

Results were further helped by a 10% rise in net interest income, the gap between what the bank charges borrowers and what it pays savers. That shows Lloyds continues to benefit from higher interest rates. Net interest income has climbed across the banking industry as inflation expectations, driven by higher fuel prices stemming from the war in the Middle East, have pushed rates up.