UK Temporarily Doubles Bank Surcharge to 6%, Allocates £2.6 Billion for Energy Support
Key Facts
The UK government raised the surcharge on bank profits from 3% to 6% for 15 months, a move the Treasury said would raise £1.5 billion to help fund support for households and businesses. The budget also announced a £2.6 billion programme for a direct energy payment of £100 to up to 20 million households in England from January 2027. The payment targets households in local council tax bands A to D. The government also extended the cut in value-added tax on electricity bills until 1 July 2027. It expects the extension to reduce Ofgem’s annual cap by about £50 in April 2027.
The government described the bank surcharge as a temporary contribution to funding support measures for households and businesses, and said it would last 15 months. Revenue from the tax will contribute to funding, while the budget allocated £2.6 billion to the energy payment programme. Eligible households will receive the payment directly, rather than it being a general grant for all households. The programme sets January 2027 as the start of payments, while the cut in value-added tax on electricity will continue until July of the same year. The government estimated that the cut would lower the energy price cap by about £50 in April 2027.
The measures come as consumer confidence declines and some spending indicators weaken. The GfK consumer confidence index fell 11 points to -24 in October, its lowest reading since April and below all economists’ forecasts in a Reuters poll. GfK said the decline was not driven by a single factor, citing rising inflation, the conflict in the Middle East and pressure on household budgets. In separate data, retail sales volumes fell 0.4% month on month in September. The statistics office said warmer weather hurt online sales of autumn and winter clothing ranges, while department store sales declined after growing in July and August.
The inflation outlook adds further pressure to household budgets during the period when energy support is in place. Consumer price inflation was 3.5% in September, and the Office for Budget Responsibility expects it to peak at 3.8% in the first quarter of 2027 before returning to the 2% target in the third quarter of 2028. By contrast, the office raised its forecast for UK economic growth in 2026 to 1.2%, up 0.1 percentage point from its March estimate. But it expects growth to slow to 1.0% in 2027 as the effects of higher energy prices and interest rates feed through. The budget therefore combines direct energy support with a weaker growth outlook for the following year.
The budget said the government’s available fiscal headroom had narrowed to £15 billion, compared with the £24 billion Rachel Reeves set aside in March. The government pledged to rebuild that headroom to £22 billion by 2030-31. In equity markets, the FTSE 100 rose 0.2% by 14:28 GMT on 28 October. Shares in Lloyds, NatWest and Barclays rose between 2.2% and 3.7% after the announcement that the bank surcharge would rise to 6% from 3% for 15 months, an increase smaller than investors had feared. The Guardian reported that some industry representatives had expected an increase to 8%, while shares in NatWest and Standard Chartered rose more than 4% after the announcement.
Debt and currency markets recorded mixed moves on budget day. The yield on 10-year UK government bonds fell 2 basis points to 5.323%, while the 30-year yield declined 3 basis points to 5.711%. Sterling fell 0.1% against the dollar to $1.3298, after earlier reaching its lowest level in a week and a half. By contrast, the FTSE 250 rose 0.4%. The Bank of England is due to publish its October monthly Decision Maker Panel survey on 30 October, followed by the Monetary Policy Committee meeting minutes and Monetary Policy Report on 5 November.