Lloyds CFO warns Healey: don't make the bank surcharge permanent

Lloyds Banking Group's chief financial officer has publicly pushed back on the chancellor's decision to double the bank surcharge to 6%, warning the government against extending the levy beyond March 2028.

William Chalmers delivered the critique on Thursday morning, less than 24 hours after Chancellor John Healey announced the surcharge — levied on top of corporation tax — will rise from 3% to 6% from January. Healey called the increase "time limited", lasting 15 months "to pay for immediate support on energy bills".

Chalmers didn't dispute the tough fiscal backdrop. But he argued the banking sector shouldn't foot the bill for it, because banks supply the credit that fuels UK growth.

"Ultimately, it is important that the UK banking sector is able to deliver banking services to businesses and households and communities in a cost-effective way, in order to promote UK growth," Chalmers told journalists during an earnings call. He added that the sector also needs to stay internationally competitive.

"We therefore very much hope that yesterday's tax increase is indeed a temporary measure, to help ensure the business environment remains consistent with supporting long-term investment," he said.

Why the energy-bill link worries bankers

The core of Chalmers' objection is the framing, not just the rate. Healey tied the tax rise directly to soaring energy costs. That linkage, bankers fear, could justify an extension or even a further increase once the 15 months run out.

"We hope this tax rate is limited," Chalmers said. "When we look forward: what impact, if any, will energy prices have on that? Well, I don't see an obvious linkage between energy prices and bank taxes."

He went further, arguing the opposite case: "In fact, if anything, it makes it even more important that we're able to lend into the real economy and secure growth, which is the best defence against energy price impacts that might otherwise be there on the UK economy."

The Treasury has promised to legislate the 15-month limit in the financial bill. Still, senior bankers and industry lobbyists have privately questioned whether a fresh energy crisis could sweep that cap aside.

They point to Spain as the cautionary tale. Madrid's two-year windfall tax on banks, introduced in 2022 to ease cost-of-living pressures, was extended by another three years — and raised from 4.8% to 7% for the country's largest lenders.

What does this change for the banks and their shareholders?

For now, a 15-month, legislated uplift. The real risk is precedent: once a levy is framed as an emergency response, emergency follows emergency. Lloyds has put its own number on what's at stake.

"We are a major taxpayer," Chalmers said. "We paid around £1.8bn of corporate taxes year to date, and it is important to us that we have a stable and a predictable tax regime."

That's roughly £1.8 billion in corporate taxes from one bank in a single year — the scale that makes even small rate changes materially expensive for the sector.

Profits nearly doubled — with an asterisk

The tax row landed on the same day Lloyds reported third-quarter results. Pre-tax profits almost doubled year on year, from £1.2 billion to £2.3 billion.

The comparison flatters, though. Last year's figure absorbed an £800 million charge set aside for compensation over the motor finance scandal — an £800 million hit that this quarter's number doesn't carry.

Underlying momentum was real regardless. Net interest income — the spread between what the bank charges borrowers and pays savers — rose 10%, showing Lloyds continues to profit from higher rates.

That tailwind is industry-wide. Inflation expectations, driven by higher fuel prices triggered by the war in the Middle East, have pushed interest rates up across the banking sector, lifting every bank's lending margin.

The uncomfortable irony for Lloyds: the same rate environment boosting its profits is the one the government is now tapping to fund energy relief. Expect the fight over whether the 6% surcharge truly expires in March 2028 to run well beyond this budget cycle.