Andy Burnham explained the thinking behind the tax rise (Image: Getty)
Andy Burnham has explained the reasoning behind a six per cent tax hike outlined in the Budget which takes effect on January 1, 2027. Chancellor of the Exchequer John Healy proposed a number of headline-grabbing measures in last week’s announcement, including a £100 energy payment for 20million households, shifting the green levy onto general taxation, and scrapping the standing charge on gas bills.
The energy payment alone comes at a cost of £2.6billion for the Government. Named ‘Breathing space for today, hope for the future‘, the Budget forms part of the Prime Minister’s plan to introduce small changes to help people with the cost of living.
To pay for some of these measures, Mr Burnham has introduced a banking tax. It sees the banks’ surcharge increased from the current three per cent rate to a maximum of six per cent.
It is on top of the corporation tax of 25 per cent that they currently pay. Banks had feared that the increase would be even higher, and shares in many of the big banks climbed after their fears were alleviated.
It is due to start on January 1 and will last for 15 months. It is thought the measure will raise around £1.5billion. “Amid global economic storms, I am looking to our banks to help fund breathing space for British families,” Mr Healey told Parliament.
Explaining the measure, Mr Burnham said that he would always ask ‘those who can contribute to support the wider common good’. He said: “People helped banks when the banks needed support (in 2007-09), and now to ask banks to return that favour.
“We did do that (in the Budget), and other companies that we would say create challenges in communities, gambling particularly, we asked gambling companies to pay more so we could help those high street shops. So the principle is there. What we will do is always ask those who can contribute to support the wider common good.”
Big British lenders have reported bumper profits in recent years, fuelled by favourable interest rates, which boosted lending income.
UK Finance, the industry lobby group, has said Britain already taxes banks higher than in other major financial centres. It estimated in a report this month that the UK banking sector paid £25.7 billion in direct taxation in the year to end-March. Bank profits will now be taxed temporarily at a total rate including corporation tax of 31%, following the new surcharge.
Angeline Ong, analyst at investing and trading platform IG, said the temporary nature of the measure will be of huge relief to the banks. She said: “The fixed end date matters as much as the size, because it turns a potential reset of bank earnings into a one-off charge, and investors appear to be reading it as a bump rather than lasting damage to their earnings base.”
Commenting on the change, Carlota Estragues Lopez, equity strategist at SJP, said: “The UK government has increased the bank surcharge by 3 per cent, taking it to 6 per cent, but stopped short of the more significant increase some lenders had feared. The decision reflects recognition of the banking sector’s importance to the UK economy and the risk that a heavier tax burden could weigh on growth and investment. While the UK tax regime remains relatively uncompetitive internationally, markets welcomed the more measured approach, with major UK bank shares rising 3–4 per cent following the announcement.”
Andy Burnham Offers a “Those That Can Contribute” Argument for the January 2027 Tax Rise
The issue of taxation has once again become a major topic of political debate in the United Kingdom following Prime Minister Andy Burnham’s announcement of a temporary increase in the tax surcharge imposed on banks, effective from 1 January 2027. Defending the decision, Burnham argued that the government should always ask “those who can contribute to support the wider common good.” His statement reflects the Labour government’s commitment to making wealthier businesses contribute more towards national economic and social objectives. However, the policy has also raised important questions about economic fairness, business confidence, government responsibility and the impact of higher taxation on the country’s financial sector.
The government’s decision forms part of a broader economic strategy designed to ease the cost-of-living crisis facing millions of British households. Under the new policy, the banking surcharge will increase from its existing rate of 3 per cent to 6 per cent. This represents an increase of three percentage points in the surcharge rate, rather than a six-per-cent increase. The measure is expected to generate approximately £1.5 billion in additional government revenue over a period of 15 months. The money will help finance several measures announced in the Budget, including a £100 energy payment for approximately 20 million households, as well as changes to energy bills intended to reduce financial pressure on consumers.
Burnham has justified the tax increase by referring to the financial support banks received during the global financial crisis of 2007–2009. During that period, the British government intervened to prevent the collapse of major financial institutions, using public resources to stabilise the banking system and protect the wider economy. According to Burnham, ordinary taxpayers helped banks when they were in serious difficulty. Therefore, it is reasonable to expect successful financial institutions to contribute more towards society when economic conditions allow them to do so. His argument is based on the principle of mutual responsibility: businesses benefit from operating within a stable economic system and should accept some responsibility for maintaining it.
There is considerable strength in this argument. Banks are among the most profitable institutions in the British economy, and their financial performance has benefited from favourable interest rates and strong lending income in recent years. At a time when millions of households are struggling with rising living costs, it is understandable that the government wants profitable corporations to shoulder a greater share of the financial burden. Ordinary citizens often have limited opportunities to increase their income, whereas major banks possess substantial financial resources and the ability to absorb additional costs. Asking such institutions to contribute more may therefore appear fairer than imposing further taxes on workers and low-income families.
Furthermore, the government’s proposed energy support package demonstrates an attempt to address an urgent social problem. Energy costs represent a significant proportion of household expenditure, particularly for pensioners, unemployed people and families with limited incomes. A £100 payment could provide some immediate financial relief, helping households pay their bills and maintain a reasonable standard of living. The government has also proposed transferring certain green energy levies to general taxation and removing the standing charge on gas bills. These measures suggest that the administration is attempting to combine economic reform with practical assistance for ordinary people.
Nevertheless, the policy is not without controversy. One major concern is the potential impact of higher taxation on the banking industry and the wider British economy. Financial institutions play an essential role in economic development by providing loans to businesses, supporting investment and helping individuals purchase homes. If banks face a significantly higher tax burden, they may respond by increasing borrowing costs, reducing lending or limiting investment in new financial products and services. Small businesses and households could ultimately experience some of the consequences, even though they are not directly targeted by the new surcharge.
This concern is particularly important because economic growth depends heavily on access to affordable finance. British businesses, especially small and medium-sized enterprises, often rely on bank loans to expand their operations, purchase equipment and create employment opportunities. If banks become more cautious about lending because of additional taxation, economic activity could weaken. Consequently, a policy originally designed to help households might produce unintended effects that undermine employment, investment and long-term prosperity.
Another important issue is Britain’s international competitiveness. The United Kingdom is one of the world’s leading financial centres, and London competes with major international cities such as New York, Singapore and Frankfurt. Financial institutions consider taxation, regulation, political stability and operating costs when deciding where to locate their headquarters and expand their businesses. According to industry representatives, British banks already face a relatively high overall tax burden compared with some international competitors. Increasing the surcharge could therefore make the UK less attractive as a destination for financial investment.
However, the government’s decision to make the increase temporary may help reduce these concerns. The additional surcharge is scheduled to operate for 15 months rather than becoming a permanent change to the tax system. This gives financial institutions greater certainty about the duration of the measure and allows investors to distinguish between a temporary fiscal contribution and a fundamental restructuring of the banking tax regime. Indeed, market analysts have suggested that the limited duration of the increase has reassured investors, with major British bank shares reportedly rising following the Budget announcement.
Beyond the economic arguments, Burnham’s statement also raises a broader political question: what does it mean for those who can afford to contribute more? The principle of social solidarity is central to many democratic societies. People and organisations with greater financial resources are often expected to make a larger contribution towards public services, infrastructure and social protection. Progressive taxation is based on the idea that the financial burden should reflect people’s ability to pay rather than being distributed equally regardless of income or wealth.