UK banks expect Healey’s first Budget to tax their profits as he promises to stay the path on the deficit

Senior banking executives have told the BBC they expect to be “on the menu” in the chancellor’s Budget later this month, in what the broadcaster described as a planned tax raid on bank profits¹. John Healey, the chancellor, promised to “stay the path” on reducing the UK deficit, the Financial Times reported, speaking at the International Monetary Fund’s annual meetings in Bangkok on Thursday².

The market read the pledge as discipline. The FTSE 100 hit a near one-month high after Healey backed fiscal discipline, Reuters reported³. At home the chancellor has been pressing his cabinet colleagues to find savings for the Budget, according to The Times⁴, and the Telegraph tracked the economy slowing ahead of what it called his maiden Budget⁶.

Why it matters to investors

A levy on bank profits is the most direct form of fiscal consolidation available to a chancellor, because it falls on a concentrated, profitable and politically exposed sector. The executives quoted by the BBC are describing an expectation rather than a published measure¹, and no rate, base or start date appears in this coverage.

The gilt and equity reaction suggests the market is pricing the fiscal stance rather than the sector risk, at least for now³. Reuters noted in the same report that the Bank of England’s chief economist, Huw Pill, said any future interest rate increase should not be interpreted by investors as the start of a series³, which separates the fiscal story from the monetary one.

The international endorsement is part of the chancellor’s case. The Financial Times noted that the IMF’s managing director, Kristalina Georgieva, had spoken about the UK this week², and the BBC’s economics editor reported that top IMF officials praised UK plans to reduce annual borrowing on three occasions in the space of 24 hours⁵. That praise is an assessment by an institution of a plan, not a verdict on whether the Budget’s measures will work.

What to watch

The Budget itself is the event, and the bank levy is the line to find in it¹. The savings exercise Healey has set his cabinet⁴ will show how much of the consolidation comes from spending rather than taxation.

Watch, too, whether the slowdown the Telegraph is tracking⁶ changes the arithmetic the chancellor is working with, and whether the FTSE’s response to fiscal discipline³ survives the detail.