Lloyds Banking Group’s chief financial officer has called the increase in the tax on bank profits “unhelpful”, as the lender reported today that its third-quarter pre-tax profit nearly doubled to £2.3bn.
William Chalmers urged the government to keep the rise temporary after John Healey, the chancellor, announced in yesterday’s Budget that the surcharge on bank profits would rise from 3 per cent to 6 per cent from January.
The higher rate is set to last 15 months and is expected to raise an estimated £1.5bn to help households with the higher cost of energy, one of the key measures in Healey’s first Budget. Healey told MPs the increase would be time limited, “to pay for immediate support on energy bills”.
Chalmers said Lloyds needed to “reduce the cost of lending” to support growth. He said: “It is important that the UK banking sector is able to deliver banking services to businesses, households and communities in a cost-effective way in order to prompt UK growth. It is also important that the sector is internationally competitive and not disadvantaged compared to other financial centres. Additional taxes make both of these objectives harder to achieve.
“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 investments.”
Bank shares rallied yesterday after the increase came in lower than many had anticipated. On 6 October, Healey had told the heads of the biggest lenders, including Lloyds, that he had yet to decide whether to raise taxes on the industry.
HMRC figures show the surcharge, introduced in January 2016, raised £1bn in the 2024 to 2025 financial year.
BritishAmerican Business, a transatlantic trade organisation representing hundreds of firms, also came out against the tax today. It said it was “surely an act of self-harm to target a sector at which the UK excels”, adding: “This is an industry that the UK should proudly encourage rather than penalise with targeted taxes which are higher than in competing markets.”
Sir Jeremy Hunt, the former Conservative chancellor, warned in his response to the Budget that the higher surcharge could lead to higher mortgage rates.
Lloyds said it would still meet its financial targets for this year despite the higher tax burden. In its third-quarter results, the FTSE 100 lender reported pre-tax profit up 42 per cent to £6.6bn for the nine months to 30 September.
Net interest income, the difference between interest earned on loans and paid on deposits, rose 10 per cent to £11.1bn over the period, which the bank said was supported by strong demand for loans from customers. The figure missed City analysts’ expectations, and Lloyds’ shares fell 5p, or 4.8 per cent, to 99p.
Across retail and commercial lending, Lloyds’ average interest-earning assets rose to £477.5bn from £460.4bn a year earlier. Operating costs increased by 1 per cent to £7.2bn, which the bank attributed to “business growth costs, inflationary pressures” and costs tied to its wealth division.
Retail deposits fell by £3.7bn, which Lloyds put down to what it called “disciplined pricing” on savings. Chalmers said deposits had also been affected by higher energy prices and inflation, as well as “the entry of non-UK lenders gathering UK deposits”.
The bank raised its impairment charge for bad loans to £930m, from £618m a year earlier, after updating its economic forecasts to reflect the “impact of the deterioration in the economic outlook due to the Middle East conflict”. Lloyds said this was partly offset by a lower risk of “global tariff and political disruption risks” affecting clients in its commercial banking division.
Charlie Nunn, group chief executive, said in a statement: “The Group is delivering sustained strength in financial performance, with continued income growth, improving operating leverage and strong and stable credit performance.”
Gary Greenwood, banking analyst at Shore Capital, said Lloyds’ effective tax rate “should step up modestly” in its next financial year, but that the impact on earnings would be limited to around 4 per cent. He said the bank had “capacity for further shareholder distributions” after it beat equity capital buffer targets set by its management team.
