UK Plans to Raise Bank Surcharge but by Less Than Expected; Bank Stocks Such as NatWest (NWG.US) and Barclays (BCS.US) Rise

UK Plans to Raise Bank Surcharge but by Less Than Expected; Bank Stocks Such as NatWest (NWG.US) and Barclays (BCS.US) Rise The UK's bank tax increase will be smaller than previously feared, as Chancellor John Healey seeks to balance the competitiveness of the City of London with funding benefits for voters in his first budget. People familiar with the matter said Healey will raise the bank surcharge in the budgetcurrently an additional 3% on top of the 25% corporation taxbut will not restore it to the 8% level in place before 2023. The measure will be temporary rather than permanent. As of press time, NatWest Group (NWG.US) shares rose as much as 2.2%, Barclays (BCS.US) rose 2.2%, and Lloyds Banking Group plc Sponsored ADR (LYG.US) rose 1.7%. Raising the bank tax is one of the key measures Healey will announce in Wednesday's fiscal centerpiece, as he seeks to fund "breathing space" policies for voterssuch as heating bill rebates and a fuel duty freezewhile keeping a tight grip on UK public finances. The 3% bank surcharge raised GBP1.2 billion ($1.6 billion) for the UK Treasury in the 2025-26 fiscal year, and each 1 percentage point increase is estimated to raise an additional GBP400 million a year. Healey's plan to raise the bank surcharge has drawn industry criticism. The industry had warned that raising it to 8% could shrink economic output by GBP6 billion over five years, with the biggest impact outside London. According to a letter to Healey from David Postings, head of industry lobbying group UK Finance, an 8% bank surcharge would curb about GBP10 billion of lending by 2029 and reduce investment in the UK. The Chancellor's approach to banks stems from lobbying by left-wing think tanks and trade unions. They have been urging the Treasury to put pressure on the sector after it enjoyed recent windfall profits driven by rising interest rates. Barclays reported quarterly pretax profit of GBP2.3 billion on Thursday, up about 12% year on year. HSBC HOLDINGS' UK business also posted a 12% increase in quarterly pretax profit to GBP1.8 billion. NatWest and Lloyds will report results later this week. In 2023, then-Chancellor Jeremy Hunt cut the bank surcharge from 8% to 3% to offset part of the impact of that year's corporation tax increase from 19% to 25%. This brought the total tax rate on UK banks down to 28% rather than 33%, which would have made UK banks more heavily taxed than elsewhere.