Restore higher bank taxes

Policy baseline

Party costings claim GBP 4.25bn from reversing cuts to bank taxes. Incidence may fall on shareholders, borrowers or workers.

• Targets large banks and banking groups.
• Tax base can shift across jurisdictions.
• Credit-market pass-through is possible.

Core trade-offs

The direct beneficiaries are the exchequer and public services. The costs fall mainly on banks, shareholders and some customers. The main economic question is higher sector taxes can affect lending margins.

• The exchequer and public services gain most directly.
• Costs fall mainly on banks, shareholders and some customers.
• Key risk: higher sector taxes can affect lending margins.

Fiscal impact by 2028-29

-GBP 5.0bn to -GBP 1.0bn. Central estimate: -GBP 3.5bn.

• Positive numbers mean net fiscal cost; negative numbers mean Exchequer savings.
• Main channel is the scored tax, spending or delivery change.
• Offsets depend on tax receipts, behaviour and pass-through.
• Range reflects uncertain implementation and economic response.
• This is not an official costing.

Economic impact by 2028-29

• Jobs: Little direct job effect; sector-specific taxes can reduce hiring in affected industries.
• Wages: Legal taxpayers may shift costs to workers, owners or consumers over time.
• Prices: Some pass-through likely where market power or fixed demand exists.
• GDP / productivity: Usually mildly negative before spending use; stronger if investment or mobility responses rise.

Assessment

This is a real trade-off, not a free gain. The exchequer and public services benefit, while banks, shareholders and some customers bear most costs. Overall output depends on behaviour, capacity and pass-through.

Confidence: Medium-low. Higher on the policy target and fiscal channel; lower on behaviour, pass-through and economy-wide effects.

Main risks

• Behavioural response: Avoidance, timing and relocation can reduce receipts.
• Incidence uncertainty: Legal taxpayers may shift costs to workers, consumers or investors.
• Investment risk: Higher taxes can reduce investment where returns are mobile.

Safeguards

• Use HMRC microsimulation before legislating.
• Close avoidance routes before rate rises.
• Review receipts and investment annually.

Academic evidence

UK government evidence

Sources

• PolicyLens illustrative scenario methodology for restore higher bank taxes Internal - PolicyLens, 2026
• Corporate Income Tax Reforms and International Tax Competition Academic article - Devereux, Griffith and Klemm, Economic Policy, 2002
• The Effect of Corporate Taxes on Investment and Entrepreneurship Academic article - Djankov, Ganser, McLiesh, Ramalho and Shleifer, American Economic Journal: Macroeconomics, 2010
• Funding a Fair Deal: Liberal Democrat Manifesto Costings Party costing - Liberal Democrats, 2024
• For a Fair Deal: Liberal Democrat Manifesto 2024 Party policy source - Liberal Democrats, 2024

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• Scrap two-child and benefit caps
• Recruit 8,000 more GPs
• Guarantee urgent NHS dentist access
• Put counsellors in schools
• Extend free school meals