Banks set to report stronger profits as they face prospect of tax hike

Bank profits are the money banks have left after costs, losses, and other charges. The article says several major UK banks expect stronger results, while the government may raise their extra profit tax, called a surcharge, from 3% to 8%.

Barclays provides a concrete example. It reported £2.3 billion in pre-tax profit for the third quarter, 12% higher than last year. Its chief executive called an increased surcharge “bearable” because Barclays earns much of its money outside Britain. The surcharge would take a larger share of the bank’s taxable profits.

Forecasts show Lloyds reaching £2.3 billion, nearly double last year’s £1.2 billion. Last year’s figure included a £1.95 billion compensation provision. NatWest is expected to make £2.2 billion, while HSBC’s forecast rises to $9.7 billion, or £7.3 billion. Analysts warn the tax change could cut earnings by about 6%, especially affecting domestic banks such as Lloyds and NatWest.

Barclays’ third-quarter pre-tax profit rose 12% year on year, reaching £2.3 billion. The result matters because major banks are reporting stronger earnings while facing a possible increase in their UK tax surcharge.

Lloyds, Britain’s largest mortgage lender, is expected to report £2.3 billion, nearly twice its £1.2 billion profit last year. However, last year included a £1.95 billion provision for possible compensation linked to mis-sold car loans. NatWest is forecast to post £2.2 billion, unchanged from the previous year.

HSBC is expected to report a $9.7 billion pre-tax profit, equivalent to £7.3 billion, up from $7.3 billion. These forecasts show a strong quarter, but a surcharge rise from 3% to 8% could reduce banks’ earnings. Analysts estimate the increase could cut earnings by about 6%, especially affecting domestic lenders such as Lloyds and NatWest.

The bank surcharge is an extra tax on banks’ profits, proposed to rise from 3% to 8%. A higher charge leaves less money after tax, potentially reducing funds for investment, lending, or shareholder returns. It could also make UK-based banks less attractive than rivals operating where business taxes are lower.

Richard Hunter of Interactive Investor said the increase could reduce banks’ earnings by about 6%. That would happen because more of each pound of profit would go to the government, while banks face corporation tax. He warned this could weaken competitiveness, because UK corporation tax rates are already among the world’s highest.

Domestic lenders Lloyds and NatWest may feel the biggest effect because they rely on UK business. Lloyds is forecast to report £2.3 billion in third-quarter pre-tax profit, while NatWest is expected to report £2.2 billion. However, Lloyds is developing insurance, credit cards, and wealth management, while NatWest benefits from shareholder returns and acquisitions, including Evelyn Partners.

The proposed surcharge would apply to banks’ profits, so its impact depends partly on where those profits are made. Lloyds and NatWest rely more heavily on UK business, while internationally focused banks have overseas earnings to cushion the increase.

Barclays illustrates the difference: its chief executive said a tax rise would be “bearable” because the bank makes much of its money outside the UK. By contrast, analysts specifically identified Lloyds and NatWest as potentially most affected. A higher surcharge would therefore take a larger share of their mainly domestic earnings.

The proposed change would lift the surcharge from 3% to 8%, reversing a previous cut. Richard Hunter estimated the increase could reduce banks’ earnings by a possible 6% and weaken global competitiveness. Lloyds may soften the impact through insurance, cards and wealth management, while NatWest has recently benefited from shareholder returns and acquisitions.

A bank’s profit can rise when it expects fewer compensation costs. Setting money aside for possible claims is an expense recorded before payouts happen. If the expected bill falls, that expense shrinks and reported profit increases.

Lloyds shows this clearly. Its third-quarter pretax profit is forecast at £2.3 billion, compared with £1.2 billion last year. Last year included a £1.95 billion provision for potential costs from the Financial Conduct Authority’s compensation scheme for drivers mis-sold car loans.

This does not necessarily mean Lloyds generated twice as much new business cash. It mainly reflects a smaller expected cost in the accounts. The final impact remains uncertain because the scheme is currently on hold during legal challenges. Other banks may also benefit from changing provisions.

Banks make money by charging for borrowing, managing money, and arranging protection. Mortgages and credit cards earn interest, while insurance earns premiums. Wealth management and other services add fees, spreading income beyond one product and helping banks stay profitable when rates or demand change.

The article gives Lloyds as a clear example. It is Britain’s largest mortgage lender, but it is also building insurance, credit-card and wealth-management income. These services work differently: borrowers pay interest, insurers collect premiums and cover claims, and wealth managers charge for advice or managing investments. Diversifying can reduce reliance on mortgages.

That matters because Lloyds faces a possible higher bank surcharge, rising from 3% to 8%. Analysts expect its third-quarter pre-tax profit near £2.3bn, versus £1.2bn last year, though last year included a £1.95bn compensation provision. Its broader income should help absorb future tax pressure, but the article gives no exact revenue split.

Rising profits do not mean banks can stop seeking savings. They cut jobs and invest in artificial intelligence to lower costs, improve efficiency, and stay competitive if taxes rise.

Barclays reported pre-tax profits of £2.3 billion, up 12% from a year earlier. At the same time, it announced plans to cut 5,000 jobs, about 5% of its workforce, through cost savings. Chief executive CS Venkatakrishnan said AI would help make the bank more efficient. He called it “the icing on the cake” of technology investment.

These results show banks can grow profits while preparing for tougher conditions. Lloyds is forecast to nearly double third-quarter profit to £2.3 billion, while NatWest is expected to make £2.2 billion. Yet the government is considering raising the bank surcharge from 3% to 8%, potentially reducing earnings. Job cuts and AI therefore help protect margins and keep services competitive, even during profitable periods.