A rise in UK bank taxes, which reports suggest could be one of the new measures announced in the Budget next week, could weigh on domestic lenders but is not seen as a long-term problem for earnings, according to analysts at UBS.
As policymakers weigh revenue options ahead of the 26 November budget, the Telegraph reported that the government is considering an increase in the 3% surcharge on bank profits above £100 million.
UBS estimates that a 2% increase could raise an additional £0.6 billion in 2026 from banks under its coverage, which includes Lloyds Banking Group PLC (LSE:LLOY), NatWest Group PLC (LSE:NWG) and Barclays PLC (LSE:BARC).
Analyst Jason Napier said that such measures are a cost of equity issue, "though not a long-term EPS one".
"While the government has previously professed support for UK financial services, the potential for bank taxes should not be discounted," the analyst said in a note, adding that such developments reflect concerns about policy stability.
UK domestic banks trade at a discount to the sector, with a 7.3x FY26E P/E and an implied cost of equity of 12%.
Napier's feeling on the wisdom of a bank levy was that "a growth economy needs a lower hurdle rate, in our view".