Britain Grew When It Was Meant to Shrink. The Treasury Is Eyeing the Sectors That Did It
August GDP rose 0.1 per cent against forecasts of a fall, with output 2.1 per cent higher than a year earlier, the strongest annual rate since 2022. Production did all the work. Twelve days before the Budget, the Chancellor is being pressed to raise taxes on banks and North Sea oil.
The UK economy grew by 0.1 per cent in August, the Office for National Statistics said on Thursday, after 0.4 per cent in July and an upwardly revised 0.4 per cent in June. Economists had expected a 0.1 per cent fall. Over the three months to August output rose 0.7 per cent, the eighth consecutive three-month expansion, and GDP was 2.1 per cent higher than in August 2025, the fastest annual rate since October 2022. The month's growth came entirely from production, up 0.8 per cent, with manufacturing up 1.2 per cent and mining and quarrying up 1.4 per cent. Services were flat and construction fell 0.2 per cent, its fourth monthly decline in a row.
The numbers land in a week when the IMF has raised its UK growth forecast for 2026 to 1.3 per cent and the Chancellor, speaking in Bangkok, called the economy "resilient". They also land twelve days before John Healey's first Budget on 28 October, and the reporting around that Budget has settled on two sectors. Senior bank executives told the BBC they expect to be "on the menu". The Guardian reported on Thursday that Healey is poised to tax banks, with a reversal of Jeremy Hunt's 2023 cut to the bank surcharge, from 3 per cent back to 8 per cent on top of the 25 per cent corporation tax rate, among the options. The Telegraph has reported since August that Treasury officials regard windfall taxes on banks and oil companies as a way to fill a £4.7 billion gap without touching individual taxpayers, and that extending or raising the energy profits levy beyond 2030 is under consideration.
The next data points before the Budget are September inflation on 21 October and public sector finances on 22 October.
From the analysisHealey, pressed by reporters in Bangkok on Thursday, said banks were central to the country's economic future before adding, Reuters reported: "I've got decisions to take in the budget and I will." The Treasury's line is that tax decisions are for fiscal events. The arithmetic being passed around is small relative to the IFS's £35 billion of spending pressures. Returning the surcharge to 8 per cent would raise about £2 billion a year, the BBC reports, and a moratorium on banks using crisis-era losses to offset profits perhaps £1 billion more. The four largest banks made about £15 billion in the first half of the year. PwC figures cited by the City's trade bodies put the total tax take on UK banks at 46 per cent of profits, against 42 per cent in Amsterdam and 39 per cent in Frankfurt.
We think a windfall tax on a windfall the Bank of England created is a tax on monetary policy, and a poor way to fund a spending problem the IFS has already diagnosed. Bank profits rose because Bank Rate rose to 3.75 per cent to fight an imported energy shock. North Sea profits rose because the Strait of Hormuz closed. Neither sector did anything new to earn the money, which is the political case for taking it, but neither did anything new to deserve a marginal rate above 50 per cent on London profits, which is what an 8 per cent surcharge would produce. The energy profits levy already takes 78 per cent and has raised £9.1 billion since 2022 while North Sea operators have cut investment and Britain has imported more liquefied gas.
The August data make the point more sharply than the lobbying does. Manufacturing and extraction carried a month that services could not, and the IMF expects growth to slow to 1.2 per cent next year as energy prices and interest rates bite. A Chancellor who wants "growth in every postcode" has just been handed evidence that the postcodes with refineries, factories and rigs are the ones growing. Taxing them more to protect departmental budgets is a choice to shrink the base rather than the bill. The IFS's alternative, setting spending totals the government is genuinely prepared to live within, is less popular and more honest.
The next data points before the Budget are September inflation on 21 October and public sector finances on 22 October. The OBR's forecast arrives with the Budget itself. Until then the question is whether Healey treats the 2.1 per cent as a cushion that lets him cut less, or as a windfall to be taxed.
The Semaform
UK GDP grew 0.1 per cent in August and 2.1 per cent on the year, the ONS reported on 15 October, driven by production; the Chancellor has kept open the option of higher taxes on banks and oil ahead of the 28 October Budget.
Bank and North Sea profits rose because of interest rates and an oil shock, not new activity. Taxing them to fund departmental budgets shrinks the growing part of the economy; the honest fix is credible spending totals.
Trade unions and some think tanks argue banks received an unearned boost from higher rates and that restoring the 8 per cent surcharge merely reverses a 2023 giveaway worth £22 billion over six years; the Treasury says no decisions have been taken.
Sources
- Office for National Statistics, GDP monthly estimate, UK: August 2026, 15 October 2026
- Reuters, UK's Healey says banks are key to economy but keeps tax options open, 15 October 2026
- BBC News, Banks say Healey is planning Budget tax raid on their profits, 15 October 2026
- The Telegraph, Cabinet concerns over Healey's potential bank tax, 3 October 2026
- City AM, City chiefs warn Healey bank tax hike could drive businesses out of UK, 15 October 2026
- Institute for Fiscal Studies, IFS Green Budget October 2026
- Sox News, The IMF Has Marked Britain Up for This Year and Down for Next, 13 October 2026
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