When the board of UK Finance meets for the first time in months on Thursday morning, there will no doubt be some congratulatory back slapping among the senior bankers.

After months of lobbying Chancellor Rishi Sunak for a levy on bank profits to be cut from 8pc to 3pc, their wish looks to be granted in next week’s Budget.

The group, which represents almost 300 British finance firms, argues that relieving banks of this tax headache will help keep the City competitive post-Brexit, warding off threats from rivals on the Continent that have been enjoying a financial services boost since the UK left the European Union.

“The UK is in a difficult position, so anything that can help the industry right now is welcomed,” says one City bank chief.

“To run a bank with interest rates close to zero is incredibly difficult. To maintain the cash balances to protect our liquidity, it’s very challenging. Anything that does come in our direction is helpful and a signal from the Government that they’re looking to support us.”

As Deepesh Upadhyay, a partner at Eversheds Sutherland, argues: “The more competitive the tax on UK banks, the less they will feel like racing against the competition with stones in their shoes.”

In 2015, former chancellor George Osborne – who became an investment banker at Robey Warshaw in April – introduced the tax on bank profits, angering the industry from the get go.

Having coughed up tens of billions in extra levies to the Treasury since the financial crisis, and that’s before contending with Brexit, banks now believe they deserve a break.

“We’ve been making the point [to ministers] that the Government needs to consider how banks are taxed versus other sectors of the economy, and also the total tax rate here versus other countries,” says one executive close to the discussions.

UK banks paid £39.6bn in overall taxes last year, according to UK Finance. But while the industry welcomes a cut to the tax surcharge, its total tax bill is not going to shrink.

Sunak, an ex-banker for Goldman Sachs, told bosses in March that he would review the surcharge – he planned to increase corporation tax for all sectors from 19pc to 25pc by 2023, and did not want banks to pay over the odds. With the 8pc surcharge, banks would have faced a combined tax rate of 33pc.

Ministers, aware just how vital financial services is to Britain’s economy, have been dropping hints all summer that this won't be the case. They don't want bankers to feel singled out.

The sector has felt neglected by the Brexit negotiations, with even Prime Minister Boris Johnson’s staunchest supporters in the finance industry losing patience.

“All the talk beforehand of the Brexit dividend, where is it?” billionaire entrepreneur and Tory donor Michael Spencer asked earlier this month. Despite voting Remain, the Tory donor has since put his weight behind Johnson.

Rival EU cities have also spotted an opportunity. Amsterdam outpaced London as the Continent’s top stock market trading hub, before the capital later reclaimed its position.

Meanwhile Emmanuel Macron, also a former banker, has made no secret of his plans to lure more foreign talent, inviting 120 top executives including JP Morgan chief Jamie Dimon to his “Choose France” event in the Palace of Versailles in June.

Banks have moved over £1 trillion worth of UK assets into the EU as a result of Brexit, which was finalised as 2021 was rung in, as well as thousands of staff. More moves are ahead.

UniCredit, the Italian lender run by well-known City banker Andrew Orcel, plans to move most of its London-based trading staff to Milan as part of a broader shift to get more people to the Continent post-Brexit, sources told Bloomberg.

If Sunak does cut the bank surcharge next week, it will be a show of support to the City but a move that could provoke criticism from the public.

UK households may wonder why a sector that was behind the 2008 financial crisis is getting a boost while universal credit payments are cut.

NatWest, the former Royal Bank of Scotland, is still more than half-owned by the taxpayer and only this month became the first high street bank to admit money laundering offences.

“Today, the large banks are among the Government’s most sycophantic friends – their reward appears to be lower taxes. You scratch my back, I’ll scratch yours,” says Ian Gordon, a bank analyst at Investec.

Despite concern, some argue the tax cut is nowhere near enough to offset the challenges posed by Brexit, a pandemic and low interest rates.

“This will be a welcome reduction and positive indication that the UK Government is wanting to keep UK banks and the City as competitive as possible, especially in a post-Brexit world. However, with the increase in corporation tax in 2023, it is worth noting that UK banks will still end up paying more tax overall,” says Eversheds Sutherland’s Upadhyay.

“Whilst this rate of tax leaves UK banks in roughly the same position as banks in the US and France, it puts them in a less favourable position when competing with non-bank lenders based in lower-tax jurisdictions.”

The drop will mean banks’ combined corporation tax rate will inch up to 28pc in 2023 – 25pc corporation tax plus a 3pc surcharge, according to the Financial Times. That’s still more than the 27pc the amount banks pay now: a show of support from the Government, but hardly a major overhaul.

Industry insiders say they feel ministers have been listening to them – there are multiple ongoing reviews over how the City can become more competitive.

Changes to listing rules to stop the London Stock Exchange from missing out on some high-growth technology floats are on the cards, as are tweaks to the post-crisis ‘ringfencing’ law, which protects retail deposits from being used for risky investment banking activities.

But financiers don’t get the sense a big bang dismantling of current rules is coming.

“It’s important there is a level playing field to make sure UK banks and financial services are competitive. But UK banks still have to contend with the increase in corporation tax, ringfencing and national insurance increases, so while this is welcome it’s not a game-changer,” says one bank boss.