UK Temporarily Doubles Bank Surcharge to 6% and Extends Electricity Tax Cut
Key Facts
The UK’s 2026 budget raised the bank surcharge on corporation tax from 3% to 6% for a temporary period starting on 1 January 2027 and ending on 31 March 2028, according to the Treasury. The rate returns to 3% from 1 April 2028, according to budget documents. The move is a time-limited increase in the tax imposed on banks, alongside government measures to ease household energy bills. Chancellor John Healey said, "In the midst of global economic storms, I look to our banks to help provide breathing room for British families." The Treasury estimated that the increase would raise about £1.475 billion across the three financial years covered by its projections.
Treasury projections show the increase’s fiscal impact at £305 million in the 2026-2027 financial year, then £950 million in 2027-2028 and £220 million in 2028-2029. Reuters estimates the total proceeds at about £1.5 billion over the period the surcharge applies. The surcharge is levied on banks’ profits above a certain threshold, according to Reuters, while the increase partially reverses a cut from 8% three years ago. The government plans to include the measure in the Finance Bill 2026-2027. After the temporary period ends, the rate returns to 3% on 1 April 2028.
On energy bills, the budget extended until July 2027 the 0% value-added tax rate on eligible domestic electricity supplies in Great Britain. The Treasury said the extension, for an additional three months, would lower Ofgem’s annual price cap by about £50 in April 2027. The government also allocated £2.6 billion for household energy support payments in the budget. From January 2027, up to 20 million households in England could receive a direct payment of £100. The package places direct support for households alongside a temporary tax cut on electricity, while the bank surcharge increase begins in the same year.
An Associated Press report described Healey’s budget as his first since taking office and said it offers support to households and businesses facing winter energy bills. The report linked the energy measures to the fallout from the Iran war and disruptions to energy supplies. In his budget speech, Healey said the latest Office for Budget Responsibility projections raise UK economic growth to 1.2% in 2026. The figures come as the Bank of England’s Decision Maker Panel showed companies’ expectations for consumer price inflation a year ahead rising to 3.3% in the three months to October, from 3.1% in the three months to September. Inflation expectations three years ahead remained at 2.8%.
The Bank of England panel reported that 68% of companies expected to raise prices because of the energy shock in October, up 11 percentage points from September, while 71% of companies expected their profit margins to fall. In the banking sector, the industry warned that the tax increase could constrain lending, according to Reuters. Direct taxes paid by the UK banking sector totalled £25.7 billion in the year ending in March 2026, according to an estimate cited by Reuters.
After the budget announcement on 28 October 2026, shares in Lloyds, NatWest and Barclays rose between 2.2% and 3.7%, and Reuters said the increase was smaller than investors had feared. UK government bonds ended Wednesday’s session largely steady after the budget. Planned borrowing for the 2026-2027 financial year was about £250.6 billion, exceeding the average of market participants’ forecasts by £1 billion, according to Reuters. Attention now turns to the Bank of England’s Monetary Policy Committee meeting on 5 November 2026, when it will publish the meeting summary and minutes and the Monetary Policy Report. The bank held its interest rate at 3.75% at its previous meeting, according to its official schedule page.