Lloyds CFO Challenges Logic of New Bank Tax for Energy Support

William Chalmers, the chief financial officer of Lloyds Banking Group, told reporters on Thursday that the government should not use higher bank taxes to fund household energy relief. He argued that the financial sector plays a vital role in lending to the UK economy and needs to remain cost-effective to support growth. Chalmers suggested that the current tax structure could hinder the bank's ability to compete globally while providing essential services to businesses and households.

The remarks came less than 24 hours after Chancellor John Healey announced a plan to double the bank surcharge. The levy, which sits on top of corporation tax, will rise from 3% to 6% beginning in January. Healey described the measure as temporary, with a 15-month duration specifically intended to pay for immediate support on energy bills. The Treasury intends to codify this time limit in the upcoming financial bill.

Chalmers expressed hope that the increase would prove temporary to maintain a stable business environment for long-term investment. He questioned the direct connection between energy costs and banking levies, stating that he did not see an obvious link between the two. He noted that Lloyds has already paid approximately £1.8 billion in corporate taxes this year and emphasized the need for a predictable tax regime.

The bank's financial performance improved sharply in the third quarter. Pre-tax profit rose to £2.3 billion, nearly doubling from the £1.2 billion recorded in the same period last year. This increase was partly due to the previous year's results, which were reduced by an £800 million provision for compensation related to the motor finance scandal. Lloyds also benefited from a 10% increase in net interest income, a trend seen across the industry as higher fuel prices and Middle East conflict have pushed inflation expectations and interest rates upward.

Industry leaders have raised concerns that the surcharge could be extended beyond the stated 15-month period. Some bankers have pointed to Spain, where a similar windfall tax introduced in 2022 was later extended by three years and increased from 4.8% to 7% for major lenders. Chalmers warned that keeping the higher levy in place beyond March 2028 could create uncertainty. He argued that banks lending into the real economy offers the best defense against the impact of rising energy prices.