British banks in crosshairs as pressure mounts on Burnham to tax profits

The chancellor, John Healey, is reportedly considering a windfall tax on both banks and oil companies in the late October Westminster setpiece.

The UK’s four largest lenders – HSBC, NatWest, Barclays, Lloyds Banking Group – have generated £200bn in pre-tax profits over the past five years, largely off the back of rising interest rates.

They are now in the crosshairs of campaigners – including the Trades Union Congress (TUC) and campaign group Positive Money – who say a tax increase could help cover rising household bills as part of Burnham’s drive to tackle the cost of living.

The TUC’s general secretary, Paul Nowak, who has been pushing hard for a new bank tax said: “Britain’s largest banks are making a fortune. Not because they’ve suddenly become more competitive or improved their services to customers, but because high interest rates mean that, right now, they can sit back and watch the money roll in. Inflated mortgages are fuelling record bonus pots.

“With energy bills edging towards record highs this winter, the government is going to need to provide more support for households – and taxing banks’ windfall profits is the obvious way to pay for it.”

Any move in the UK would echo similar efforts in mainland Europe to make lenders pay more tax to help offset surging living costs and higher defence spending. Here are some of the tools different governments used, as well as the benefits and pitfalls of targeting the profits of some of the world’s largest banks.

Spain: taxed and undeterred

Spain’s prime minister, Pedro Sánchez, revealed plans for a windfall tax in 2022 that would raise €3bn from banks over the following two years to help alleviate cost-of-living pressures.

It spooked investors, wiping more than €5bn off the value of Spanish-listed bank stocks, but politicians pushed ahead: putting a 4.8% “solidarity tax” on the domestic revenue of banks whose income passed €800m. That included fees and net interest income, – the amount of money banks make from loan charges, minus what they pay on deposits.

The €800m threshold and the focus on domestic revenues meant it broadly excluded small local banks and most foreign lenders’ Spanish operations.

Big banks and lobby groups filed legal challenges over the tax, while the European Central Bank (ECB) warned that Spain risked disrupting monetary policy, and damaging lenders’ capital positions, which help to cushion the blow of economic shocks.

Politicians eventually decided to extend the levy a further three years to 2027, after successfully raising €1.3bn in the first year, and €1.7bn in 2024. Banks now face a sliding tax rate of between 1% and 7%, with the highest rate hitting lenders such as Banco Santander whose annual revenue from interest and fees surpassed €5bn.

The extension triggered a fresh spate of legal challenges by banks and lobbyists, and criticism from both the International Monetary Fund and ECB, which warned it could hit bank profits, push up borrowing costs for low-income households, and make Spain’s banks less competitive on the international stage.

Lithuania: a defence spending boost

Lithuania’s government decided to roll out its own windfall tax on banks in 2023, after forecasts showed lenders were due to rake in €1.3bn in net profits that year. That was three times higher than 2022, following a surge in interest rates sparked by Russia’s full-scale invasion of Ukraine.

The 60% tax, which applied to any net interest income that was 50% higher than the previous four-year average, was used to fund infrastructure projects and boost defence spending amid Russian threats.

Politicians agreed to exclude income from any newly agreed loans, to prevent a situation where banks stopped issuing mortgages and business loans to avoid paying tax.

The levy helped raise around €250m in 2023 and €247m in 2024, representing 0.3% of the country’s annual GDP, before being extended by an extra year. The European Commission appeared to support the move, saying it helped cut public debt at a time of regional security threats.

But the tax is said to have spooked foreign firms, with the central bank having repeatedly tried to lure new lenders “with no significant success”, according to an EU report.

The banking sector said it also disadvantaged lenders serving local customers, while letting others such as Revolut, which is registered in the country but serves mostly non-residents, off the hook.

Czechia: ‘unrealistic expectations’

Czechia announced its own three-year windfall tax on banks to help cover consumers’ soaring electricity and gas prices in 2022. The temporary measure, lasting from 2023 to 2025, involved a 60% tax on any profits that were more than double (120%) the previous four-year average.

Deeply unpopular with businesses, the tax also caused friction within the far-right ODC civic democratic party, which said it was interfering with the free market and contradicted core conservative values.

Czech finance minister, Zbyn?k Stanjura, talked about scrapping the tax a year earlier than planned, but later admitted the levy had not yet covered state costs linked to the energy crisis. While the finance ministry originally hoped to collect more than 30bn Czech koruna from the country’s six largest banks, it quickly became clear they would fall short of those targets.

“It is unclear whether this was due to unrealistic expectations driven by a vision of easy extra revenue and convenient scapegoating of big corporations, or whether the delayed implementation of the tax (from 2022 to 2023) and the behavioural responses by businesses were not duly considered,” the law firm A&O Shearman said in a 2024 report.

The country ended up raising just 1bn Czech koruna, months before the tax expired in December 2025, according to figures reported by local broadcaster Ct24.

Italy: a tax