Banks in the UK generating substantial profits: Is it justified to impose a windfall tax?
The UK's four largest banks - Barclays, NatWest, Lloyds, and HSBC - collectively made pre-tax profits of £24.1 billion in the first half of 2025, marking a significant increase for all four institutions. Barclays reported a 23% rise in pre-tax profits to £5.2 billion, NatWest saw an 18% increase to £3.6 billion, and Lloyds' pre-tax profit rose to £3.5 billion [1]. However, HSBC experienced a 26% decrease in pre-tax profits to £11.9 billion ($15.8 billion) during the same period [2].
These impressive figures have sparked a debate on the potential implementation of a windfall tax on Britain's big banks. The proposal, put forth by the think tank Positive Money, suggests that such a tax could generate substantial revenue - estimated at around £11 to £15 billion in a single year from the four biggest banks alone [1][2]. The revenue could be used to reverse cuts in public services such as disability benefits.
Positive Money argues that banks should be considered an essential public utility, and profits should be recouped accordingly. They propose a levy of 38% on the estimated full-year net income for the UK retail banking operations of the Big Four, which could raise £11.3 billion for the Treasury [2]. This levy is similar to the Energy Profits Levy on oil and gas companies, currently set at 38% on profits [3].
However, the idea of a windfall tax on banks is not without controversy. While explicit arguments against are not detailed in the provided search results, typical critiques include concerns that such a tax could discourage investment, reduce banking sector growth, or lead to increased costs passed on to consumers and businesses.
Despite these concerns, Positive Money's case emphasizes the social benefits of redirecting unearned or excessive profits from big banks, while acknowledging that it need not harm the sector’s international competitiveness [2]. The main supporting data is the significant amount of revenue the tax could raise to fund public benefit programs [1][2].
The windfall tax on banks, if implemented in the UK, could potentially be used to cover the cost of the government's recent u-turn on welfare. For instance, Positive Money suggests that a bank windfall tax could raise enough money to scrap the two-child benefit cap, estimated to cost the Government up to £3.5 billion annually [4].
The debate on a windfall tax on banks is not a new one. Spain, for example, recoups banking windfalls through a levy of 4.8% of banks' net interest and commission from domestic retail banking above a threshold of €800 million [5]. However, an International Monetary Fund report on the Spanish economy in 2024 found that windfall levies do not constitute a growth-friendly consolidation strategy [6].
Simon Youel, head of policy and advocacy at Positive Money, states that taxing windfalls makes sense for both the banks and the government [7]. With the Big Four banks forecasted to make a record £48 billion profit in 2025, according to Positive Money's analysis, the debate on the implementation of a windfall tax on Britain's big banks is likely to continue.
[1] Barclays reports 23% rise in pre-tax profits to £5.2 billion [2] Positive Money calls for windfall tax on banks [3] Energy Profits Levy [4] Positive Money: Windfall tax on banks could fund scrapping of two-child benefit cap [5] Spain's banking windfalls recouped through levy [6] IMF Spain Report 2024 [7] Positive Money calls for windfall tax on banks
- The impressive profits made by the UK's four largest banks have led to a discussion about implementing a windfall tax on these institutions.
- The proposed tax, suggested by Positive Money, could generate significant revenue, potentially up to £15 billion annually, which could be used to reverse cuts in public services.
- Positive Money argues that banks should be considered essential public utilities and that profits should be recouped accordingly, with a 38% levy on the estimated full-year net income for the Big Four banks.
- Despite concerns about investment and growth being negatively impacted, Positive Money believes that the social benefits of redirecting profits from big banks outweigh any potential harm to the sector's international competitiveness.
