UK Chancellor John Healey looks set to hike bank taxes in Wednesday’s budget, but industry bosses seem unusually sanguine. Behind the scenes, British lenders are likely assuming the favor will be repaid with lighter regulation as the government scrambles to stimulate growth.

In many ways, the move looks like harmless sop to the left flank of the governing Labour Party: The extra charges won’t hurt the industry much, with the cost spread across savers, borrowers and shareholders.

However, the hike will leave banks paying a much higher rate than other UK companies, while making only a marginal difference in Healey’s total tax take. Longer term, ministers can’t keep drawing from this same well without risking distortions to the cost or availability of loans. Most importantly, Healey needs to be careful not to be gulled into deregulating too far — that way lies disaster.

After years of toughening standards, rule makers are under pressure to ease up on the financial sector, both to boost the economy and to protect the City of London from American banks given a helping hand by President Donald Trump. But Healey needs money to support public-spending demands on defense and healthcare. Bankers get little sympathy from the electorate so the industry always looks an easy target — especially after higher interest rates have lifted their returns in recent years.

Lenders already pay a special UK balance-sheet levy, plus a surcharge on domestic profits that was introduced in 2016 to balance a cut to corporate taxes. The rationale for both charges was that they would help repay the costs of propping up the financial system through the 2008 global financial crisis.

The bank profit surcharge was cut to 3% from 8% in 2023, when UK corporate tax rates were lifted to 25% from 19%. Healey is now expected to return that surcharge to 8%, which will bring in an extra £2 billion to £3 billion ($2.7 billion to $4 billion) annually over the next four years, based on figures from the Office for Budget Responsibility. That would boost Healey’s total tax take by less than 0.2% — hardly a game changer.

Industry lobbying groups have complained about the increase, claiming the sector pays much more than its fair share. However, independent consultants Tax Policy Associates points out that even after the expected increase, UK bank taxes will be no higher than those in Germany and well behind Italy’s, although they will top those of the US and Ireland, which is known for its low-tax regime.

Barclays Plc Chief Executive Officer CS Venkatakrishnan offered Healey sympathy rather than criticism during the bank’s quarterly results last Thursday. Venkat, as the CEO is known, told reporters he “deeply respected” the chancellor and recognized his duty to balance the UK’s books. The financial hit for Barclays would be bearable, he added.

The hike will cut the bank’s global net income by up to a manageable 3%, because the charge only applies to domestic profits. For more UK-focused lenders like Lloyds Banking Group Plc and NatWest Group Plc, which report earnings after the budget, the cost will be up to 7%, according to analysts.

Total bank taxes, including the higher surcharge and balance sheet levy, will rise to more than 36% of UK profits, which compares with a 25% rate for other businesses. Lenders have reason to be non-plussed, but the increased surcharge is still much less damaging than populist proposals to cap the interest paid by the Bank of England on lenders’ spare cash.

The industry’s bigger concern remains the costs and restrictions of post-crisis rules — and the threat from US rivals that are winning concessions from their government.

Healey has offered warm words to the City and finance broadly since becoming chancellor, which will help him sell the tax hike to bankers. He pledged in September to make a push for deregulation, saying in an interview with the Financial Times that banks’ important role in economic growth was “strong in my mind.”Britain’s top banking watchdog, the Prudential Regulation Authority, also has a new head, who joined this year from Barclays, having previously spent a long career in government and supervision.

Finance executives hope that Katharine Braddick will end what they see as an overly risk-averse culture in rulemaking. In her first major speech, she told a gathering of City grandees on Thursday that the PRA would focus on how rules help or hinder growth and be more accountable for their effects on the economy.

Braddick unveiled a loosening of the senior managers’ regime, which approves executives for their jobs and holds them responsible for failures. That could save banks nearly £2 billion in compliance costs over a decade, according to Bloomberg News. The change looks like a quid pro quo for the higher taxes and there’s bound to be more such horse-trading ahead.

As always, the trouble will come if the government and its rule makers lose sight of why banks were bound by such strict rules in the first place. Growth and competitiveness are worthy aims, but not if the road that leads that way runs off the edge of another cliff.