The UK's bank windfall tax is a bet on which profits can't run

The campaign to tax Britain's banks is oddly specific, and the specificity is the tell. Positive Money, the advocacy group pushing a windfall tax for the October 28 budget, isn't proposing something vague like "make banks pay more." It wants a 38% levy on the UK profits of the four big lenders — HSBC, Barclays, Lloyds and NatWest — deliberately aimed at their domestic retail businesses and pointedly not at international or investment banking, so as not to hurt London's competitiveness. In other words: tax the profits that can't move, and leave alone the profits that can.

That is the whole fight in miniature, and it explains why Jamie Dimon keeps turning up in London and why the British high-street banks can't threaten what Dimon is threatening.

Why the word "windfall" is doing the work

Britain's four biggest listed lenders just banked £29.2bn of pre-tax profit in the first half of 2026, up 21% on a year earlier. The argument for grabbing some of it rests on a single classification: that this is windfall profit — a rent produced by the Bank of England's interest-rate policy rather than by better banking. The Bank of England pays banks interest on the reserves they hold at the central bank, and as rates climbed to fight inflation, that paid more. If the profit is a gift from interest rates, the logic runs, the government can tax it without punishing skill or lending, and use the money for cost-of-living measures.

Positive Money calculates a 38% levy would raise about £19bn this year. The Trades Union Congress wants the same, pointing at £25bn of bank bonuses. On the other side, the industry — via UK Finance and Dimon personally — argues banks already pay more than their fair share, citing roughly £43bn in tax for the year ending March 2025, on top of a headline corporation-tax rate of 28% that already exceeds the 25% standard rate and the 3% bank surcharge layered onto it.

The word "windfall" is the boundary line. Call the profit a windfall and the tax is justly clawing back undeserved luck; call it a normal return on capital and the tax is a hostile act against the lending the government says it wants. Both sides know the fight is really about which those profits are.

The tax was designed around who can run

Here is the structural detail worth dwelling on. The windfall proposal carefully separates the banks by how mobile their UK profit is. The retail lending of HSBC, Barclays, Lloyds and NatWest cannot leave — it is literally the UK mortgage and savings market; there is nowhere for it to go. Investment banking, by contrast, is a footloose business that can be booked in New York, Paris or Singapore on a decision. So the campaigners tax the part that is stuck, and spare the part that would actually relocate.

This is why the loudest voice in the room is an American. Jamie Dimon has been meeting Chancellor John Healey to warn against the hike, and his leverage is convincing precisely because his UK business is the mobile kind. He has threatened to scrap a planned £3bn, three-million-square-foot tower in Canary Wharf that would house more than half of JP Morgan's 23,000 UK staff if the tax environment turns hostile, and he has cited finance-job losses in New York as evidence of what punitive taxes do. For JP Morgan, an American firm whose UK footprint is largely wholesale and trading, "we might not build that" is a real, credible sentence.

A British incumbent like Lloyds cannot say that. Its franchise is the UK. The lobbying asymmetry is the architecture of the fight: the bankers' most prominent messenger is the one with an exit option, while the tax itself is aimed at the ones without one.

What the investor actually holds

For a retail investor, the part that matters is where the money comes out of. The big four paid roughly £13.7bn to shareholders in dividends and buybacks in the first half of 2026 — nearly half their profit — and UK bank stocks are held largely as income vehicles. A windfall tax on UK profits lands first on those payouts, not on some abstract concept of the "bank."

Markets already know this. In the run-up to the autumn 2025 budget, an IPPR estimate that a windfall tax could raise £8bn helped trigger a sell-off in UK banking shares — before the government ultimately spared the sector and, days later, executives toasted "his majesty the king" at JP Morgan's New York headquarters while confirming expansion plans. The pattern repeats every budget cycle: the government needs money, Britain's banks are profitable and politically soft, and the scare hits the share price before the policy does.

Europe is the evidence about expectations

The disciplined question is what such taxes actually collect, and Europe's record is the honest answer: it depends entirely on whether the taxed base can dodge. The Czech windfall levy took in about 1bn koruna against hopes of 30bn, as businesses changed their behavior. Spain raised a more respectable €3bn and extended it to 2027, but drew warnings from the ECB and IMF about competitiveness. Lithuania's version spooked foreign firms and collected only about €500m in total. Italy's first attempt largely failed when banks simply held reserves rather than pay, though a new 5% levy on the largest banks has since been revived.

The UK version has one advantage the Czechs and Italians lacked: because it targets the immobile retail base, it is likelier to actually land. That is the same reason it is more likely to land on your dividend.

What happens on October 28 is genuinely uncertain — Healey has refused to rule tax rises in or out, and this is a brand-new Labour government's first budget, delivered against an unexpected £1.8bn July deficit, record-high borrowing costs and a chancellor under pressure to fund cost-of-living promises. But the mechanism is clear. The political logic pushes toward taxing the banks; the design of the tax assumes the British incumbents will absorb it; and the people most able to object most loudly are the ones the tax deliberately spares. Whoever wins the argument over what the profit is — windfall or earned — wins the billions, and the investor holding HSBC or Barclays is holding whichever side loses.