Chancellor John Healey is considering imposing a windfall tax on banks and oil firms to generate revenue for the government, a move that would avoid increasing taxes on the general workforce. The proposed levy is intended to help meet a £4.7 billion commitment for the Armed Forces, a pledge inherited from former leader Sir Keir Starmer.
This strategy of taxing company profits is seen by the government as an accessible method to raise funds. It comes as BP recently reported its strongest quarterly profits in four years, partly attributed to volatile energy prices influenced by the conflict in the Middle East. The oil giant's replacement cost profit for the second quarter of 2026 surged by approximately 78 percent to £4.2 billion compared to the previous quarter.
However, the potential for a new windfall tax has drawn some criticism. Lord Jim O'Neill, a former Conservative minister, has cautioned against such measures, suggesting they indicate a government afraid to tackle issues like welfare reform and the pensions triple lock. Separately, Jamie Dimon, the CEO of JP Morgan, has reportedly warned Chancellor Healey against increasing taxes on bank profits, citing concerns that such moves could lead to job losses and the relocation of financial services, drawing parallels to a decline in finance roles in New York attributed to its tax burden.
The Chancellor is reportedly looking at options that include a temporary tax on bank profits, similar to the levy imposed on oil and gas companies following price increases after the 2022 invasion of Ukraine. There is also a possibility of extending the duration or increasing the rate of the existing energy levy, which is currently set to expire in 2030.
Healey is scheduled to present his first Budget on October 28, following his appointment by Prime Minister Andy Burnham. His fiscal plan faces the challenge of securing additional funding for Burnham's devolution initiatives and increased defense spending, alongside measures to address the cost of living, such as reducing VAT on energy bills and lowering business rates for pubs.
Economic experts, including those at the National Institute of Economic and Social Research (NIESR), have advised Healey that raising taxes or cutting spending will be necessary due to pressure on public finances that limits further borrowing. Prime Minister Burnham's administration has reportedly postponed changes to the welfare system until next year, with a focus on prioritizing the defense spending boost. Reviews into the welfare system are not expected to conclude until shortly before the Budget.