Investors warn bank tax rises could squeeze fintech funding

City AM reported on 19 October 2026 that Sanchit Dhote, a principal at Outward VC, warned that higher taxes on banks could weaken fintech partnerships and reduce banks' willingness to provide venture debt. The report also carried warnings from investors it did not name, and framed them as directed at John Healey ahead of the Budget.

The businesses this would reach are UK fintechs that sell to banks, run regulated services on a bank's infrastructure, or borrow from a bank alongside their equity funding. They are a different group from the fintechs that would pay a bank tax directly, although the material reviewed for this article does not establish how many businesses sit in either category.

It matters now because of the calendar. HM Treasury announced on 31 July 2026 that the Budget would be held on 28 October 2026. The lobbying and the expectation of higher bank taxes come from press reporting rather than from HM Treasury: Sky News reported a draft industry letter on 2 October 2026, and City AM reported the investor warnings on 19 October 2026. No new surcharge rate, allowance or commencement date was found in the official sources reviewed for this article at a 20 October 2026 cut-off, which is a limit on what those sources showed rather than a finding that no government statement exists anywhere. On that material, the effects investors describe are forecasts, and the detail of any measure was not established.

What UK banks pay now

Three separate charges are in play, and they do not share a tax base. Figures below were checked at a 20 October 2026 editorial cut-off.

The surcharge allowance is £100m a year, allocated across a banking group or held by a qualifying standalone banking company. It is not a separate £100m for every bank within a group, and HMRC's guidance makes clear that unused allowance cannot be carried forward. The allowance applies to surcharge profits rather than turnover or a simple accounting-profit figure, so 25% plus 3% is not an effective rate that bites on every pound of every bank's accounting profit.

The Bank Levy is different again: a balance-sheet charge rather than a further percentage on profits. Since 1 January 2021 its scope has broadly excluded the overseas activities of UK-headquartered banking groups. It should not be confused with the Bank of England's separate funding levy.

Who would be taxed directly

The banking surcharge applies to banking companies and building societies within the charge to UK Corporation Tax. It does not attach to a business because that business calls itself, or is described as, a fintech. Establishing direct exposure means working through the statutory banking-company definition and the allowance available to the group — not reading across from a label.

That distinction is doing real work in the current debate. City AM reported that executives at Revolut UK, Monzo and OakNorth had asked for the surcharge allowance to be raised from £100m to £500m. That is a reported lobbying request, not an enacted threshold; the signed letter itself was not obtained for this article. A higher allowance would matter to licensed banks whose surcharge profits sit near the current limit. It would do nothing directly for a payments or software company that is not a banking company at all.

How a squeeze would have to travel

In the warnings as described, the route from a bank's tax bill to a fintech's own finances runs through two channels, and they are not the same thing.

The first is commercial. Banks buy services from fintechs, and fintechs run services on banks. ClearBank states that it supplies the underlying accounts and powers payments for Tide — a concrete example of a bank sitting beneath a fintech's customer-facing product. If a bank cut spending on partnerships or slowed new integrations, the fintech on the other side would lose revenue or capability. That is a commercial effect on sales, not a withdrawal of investment, and neither ClearBank nor Tide is shown here to have announced any reduction.

The second is financing. HSBC Innovation Banking's UK guide describes venture debt as a repayable term loan for growing, equity-backed businesses, used to complement equity and extend runway — the period before a company exhausts its cash. If bank lenders tightened supply or repriced, borrowers would feel it in availability and terms.

Venture debt carries costs and risks that equity does not. HSBC Innovation Banking's guide sets out interest, fees and warrants, which give a lender an option to acquire shares. Because the loan must be repaid, a cash-flow shortfall or a missed milestone can affect a borrower's ability to meet repayments and its future access to credit. It is not a dilution-free substitute for equity, and it is not suitable for every company that can be offered it.

What the evidence establishes, and what it does not

The partnership and lending channels exist and are documented. The claim that a tax rise will measurably shrink either of them is unverified on the material reviewed. There is no quantified causal estimate, no confirmed change to a bank's allocation of partnership or lending capacity, and no identified fintech facility withdrawn because of an additional tax. Nor was any reliable estimate found for banks' share of UK fintech venture debt, partnership revenue or venture investment; that would need lender-level data.

Separating a tax effect from interest rates, credit risk and equity-market conditions would require financing data that the reviewed sources do not provide. Some of the commentary in the City AM report came from investors who were not named, which limits how far a reader can test it. Investors warning about a tax that would fall on their portfolio companies' partners and lenders are interested parties, and their forecasts should be read as such.

The funding backdrop

KPMG's release of 24 August 2026 reported £1.8bn of UK fintech investment across 205 deals in January to June 2026, against £5.0bn and 281 deals for the same period in 2025. That measure spans mergers and acquisitions, private equity and venture capital; it is not a count of cash raised by start-ups, and it does not track venture debt.

The comparator needs care. KPMG's original release of 12 August 2025 reported $7.2bn, in US dollars, across 216 deals for the first half of 2025 — a different currency and a different deal count from the 281 deals used in the 2026 release. No revision or methodology explanation was established, so the two vintages should not be merged. The 2026 release also describes the half-year as the lowest since 2016 while elsewhere putting it on a par with 2020, which is reason to avoid a precise historical ranking.

What the decline does not do is establish the investors' case. The reviewed evidence does not attribute the first-half fall to prospective bank-tax changes, and no bank-tax change was identified in the official sources reviewed up to the 20 October 2026 cut-off; what expectations of future policy did to investment behaviour is not something the sources settle either way.

What to watch next

The Budget documents published on 28 October 2026 will show whether any surcharge rate, allowance or Bank Levy change is proposed, and the accompanying legislation will carry the commencement provisions that determine when a change takes effect. Readers should take rates and thresholds from HMRC's own pages rather than from pre-Budget briefing: Corporation Tax rates and allowances (opens in a new tab) for the main rate, and HMRC's banking manual on the surcharge allowance (opens in a new tab) for how the £100m allowance works.

After that, the test of the transmission mechanism is specific and observable: named banks reducing partnership budgets or integration pipelines, and changes in the pricing, covenants or availability of bank-provided venture debt. None of that had been evidenced at the time of writing.