Stages of tax grief: Is it time for bankers to bargain?

Banks are in the firing line at the Budget and in a meeting with bosses on Tuesday chancellor John Healey played coy on any increased rates. In this week’s column Samuel Norman looks at what trade-off could be made. Also on the cards, fresh data shows fintechs are lurching ahead of the incumbents on customer satisfaction and Iwoca’s annual report reveals a legal drama.

There are five stages of grief: denial, anger, bargaining, depression, and acceptance. As we head towards another Budget with bank tax chatter high, some think bankers might have to shift towards step three. 

Chancellor John Healey was tight-lipped on any tax hikes when confronted by top bank bosses on Tuesday but warned the fiscal situation in the UK was “challenging”. His reluctance to give any hints away leaves a number of levers at his disposal. Hiking the sector surcharge that sits on top of corporation tax to five per cent is one, and was urged by housing secretary Angela Rayner last year. Or potentially a return to the eight per cent it stood at before former Chancellor Jeremy Hunt handed some reprieve.

The more nervy option is chatter of a windfall tax raiding the soaring profits of top lenders.

While lobbying campaigns persist, Jefferies have suggested a trade-off could be on the cards. Jonathan Pierce, equity analyst at the investment bank, said lenders could temporarily give up their deferred tax asset (DTA) privileges in a boost for the Treasury coffers as well as more flexibility in the stringent capital rules for the lenders.

Banks use DTAs essentially as an accounting tax credit, which are generated when a company experiences heavy financial losses, such as those seen in the 2008 financial crisis. Under tax regulations, banks can roll those historical losses forward to offset future taxable earnings, meaning DTAs can apply to today’s profits to lower corporate tax bills. 

Jefferies suggests banks could agree to pause using DTAs for five years and pay a two per cent annual fee in exchange for an explicit government guarantee on those assets if a bank fails. 

Lloyds Banking Group is estimated to hold the most DTAs at around £4bn. It is able to cut its tax payment by around £400m each year and at the current rate will be able to do so well into the 2030s. Jefferies forecasts the DTA shakeup would hit Lloyds with just a one per cent pre-tax profit downgrade through an £80m fee, while it also coughs up the full tax bill. In return, however, regulators would no longer deduct the £4bn pool from Lloyds’ capital buffer, unlocking a massive boost to its CET1 ratio overnight.

The CET1 ratio measures a bank’s core, highest-quality capital used to absorb unexpected financial losses without forcing the institution into insolvency. It must make up a minimum of 4.5 per cent of its risk-weighted assets. Lenders could free up billions in capital through the DTA change, a move that would actually expand the lending power of the banks. It would also deliver opportunities for more bumper buybacks and dividends – a major sigh of relief for investors compared to tax jitters. 

Meanwhile, Healey would net around £1bn to £2bn a year in upfront tax and fee receipts and avoid a spat with the City over investment prospects. More importantly, politically it would be a major win for Healey who could gleefully frame it as a windfall tax to satisfy the hunger of the Labour left. While a little more complicated in detail, Jefferies estimates the move would have a similar impact on raising revenue to lifting the surcharge to eight per cent. 

In theory, everyone gets a piece of the pie. But the Chancellor may find the simple lure of a blanket tax hike – yielding steady cash well into the 2030s – too tempting to resist. The end result may very well shift bankers into stage four of grief but given the clear warnings of consequences, acceptance might take a bit longer.

High street can’t dim the fintech glow

High street banks are pumping millions into tech revamps in a bid to stave off digital rivals.

Lloyds has tried to position itself as the UK’s biggest fintech, meanwhile Natwest has a whopping £1.2bn budget for tech, data and AI. And even as Barclays rebuilds its physical presence on the high street, it is deepening its tech capacity after most recently broadening its tie-up with Anthropic. 

Yet, is this even coming close to taking some of the shine off of their neobanking opponents? According to a new report from credit analytics firm CRIF, quite the opposite. 

The figures show Brits believe traditional banks and building societies are the only financial providers that have worsened on average in the last three years. Near 30 per cent believe the incumbents’ quality has dropped, giving them a net score of minus three. That’s compared to the digital banks and fintechs, which boast a net score of 36 points, with 43 per cent believing their quality has improved. 

The proof is in the annual reports, too. Revolut is now estimated to have 13m UK customers, that’s compared to 10m in late 2024. Meanwhile in the last year alone, Monzo ballooned its base by a quarter to 15.2m. 

In the traditional field, the bigger challenge would be turning those customers into bigger depositors. Brits may love avoiding exchange fees on holiday or splitting their dinner bills but shifting life savings into another account has continuously proven to be a stickier task. The big four are estimated to hold around 60 per cent of the industry’s £2.5tn in deposits. 

But holding massive cash reserves to dish out loans may no longer be the primary objective for the new guard. Revolut chief Nik Storonsky has already made clear he is aspiring for a low-risk model with a low loan-to-deposit ratio. Instead it has unlocked more revenue through its tiered subscription model, which generated £708m in income last year – a 67 per cent jump that marks its fastest-growing division. Could this be a model that’s a broader crowd pleaser for Brits? In the UK, Revolut has added free access to Deliveroo Plus and Uber One to its subscription perks, while Monzo Perks users get a free Greggs sausage roll every week. That is one way to shoot up the satisfaction rankings.

Iwoca’s share whoopsie 

Small business lender Iwoca released its annual report last week. Beside a booming top line, with revenue up 56.4 per cent and pre-tax profit near doubling to £112.9m, one little tale caught my eye.

In a section titled “Other developments” the firm revealed it had repaid part of an old loan using £12.3m in cash and the rest in handing out company shares to investors. Standard procedure. Except when calculating how many shares to give out, Iwoca applied a discount on the share price.

The company would later realise the contract didn’t actually legally allow for a discount, and because Iwoca had handed out shares at a cut-price, they had accidentally given the investors too many shares.

This took the firm to court in February 2026, where a judge ordered the official shareholder list to be fixed. 

Even though the court forced Iwoca to take the extra shares back, its board and existing shareholders decided they wanted to honour the spirit of the original agreement anyway. They voted to give the investors back the extra shares as a voluntary bonus, undoing the court’s hard work before the ink was even dry.