Taxing the windfall profits of banks

The previous Tory government slashed taxes on banks. This led to billions of lost revenues for the exchequer as the Bank of England subsequently raised interest rates and banks have been making huge windfall profits while enjoying low rates of tax.

But these eye-watering bank profits don’t just come from higher net interest revenues. They are also being topped up directly by the government, which is footing the exorbitant bill for payments to banks linked to the Bank of England’s money-printing programmes.

While millions of workers are dealing with hardship, banks are making more money than they were in the bonanza years ahead of the global financial crisis. The situation demands a response from government. Bank profits should be taxed fairly, and the government should recoup some of the public money that is flowing into the pockets of bank shareholders.

The TUC has published a report today on how to approach this.

Tory tax cuts for banks

Despite soaring profits, the tax take from banks has barely budged. In 2023/24, the main bank taxes raised £12.2bn, only slightly more than the inflation-adjusted £11.8bn collected in 2017/18. This is because Tory governments drastically cut the taxes targeted at banks before they left office:

• The Bank Surcharge was slashed from 8% to 3% in April 2023. This is a profit on bank profits paid in addition to corporation tax.
• The Bank Levy was halved between 2015 and 2020. This is a tax on bank balance sheets bought in in the aftermath of the financial crisis.

Windfall profits

Banks made £37bn of profit in 2023-24, up by 41% from £26.3bn in 2019-20. In real terms the increase was 19% despite significant inflation. More recent figures from Positive Money show the big four banks made £45.9bn profits in 2024 and £24.1bn in the first half of 2025. Profits have risen significantly from pre-pandemic levels and OBR forecasts show that profits will remain high over coming years.  

Higher interest rates have caused pain for those paying their mortgages and other borrowers up and down the country. But they have also meant that banks have widened the gap between what they charge borrowers and what they pay to savers. Profits from higher net interest margins mean that banks have made billions of unexpected profits.  

On top of this, banks are making huge risk-free returns through the interest paid to them on reserves they hold at the Bank of England. The Treasury is in effect funding these payments to banks at a time when the public finances are under serious strain.

A windfall tax on bank profits

The TUC is now calling for a windfall tax on bank profits. This can be done by raising the Bank Surcharge which directly taxes bank profits, and was cut from 8% to 3% by the previous Tory government. An increase in the bank surcharge could raise between £20-50bn over the next four years. The government could:

• Raise an additional £20bn over the next 4 years by increasing the Bank Surcharge to 16%. The original rate of the Bank Surcharge was 8% before the previous government cut it to 3%. This proposal doubles the original rate.  
• Raise an additional £50bn over the next 4 years by increasing the Bank Surcharge from 3% to 35%. This is the same level as the windfall tax the Conservatives imposed on energy companies.

Even just reversing the Tory cuts and setting it at 8% – the bare minimum – would raise an additional £8bn over four years.

The TUC is not alone here. Both Positive Money and the IPPR have drawn attention to these serious injustices and proposed approaches to recouping these losses to the taxpayer.  

Banks are making huge windfall profits while public services suffer from underinvestment and families struggle with rising costs. A windfall tax on bank profits is not just about sorely needed revenue; it is about fairness and restoring trust in the system.