Bank share prices tumble after calls for tax on profits

The recent proposal for a new tax on banking profits has sent shockwaves through the UK financial sector, causing a significant drop in share prices for leading banks. The Institute for Public Policy Research (IPPR) has suggested that the government could raise up to £8 billion annually through a windfall tax on banks, aiming to recoup taxpayers’ money spent supporting the banking sector.

Following this proposal, traders and investors reacted swiftly, with NatWest and Lloyds seeing their share prices plummet by over 4% in morning trading. While there was a slight recovery by the end of the day, the damage had been done, with NatWest still down by more than 4%, Lloyds by over 3%, and Barclays by more than 2%.

Charlie Nunn, the chief executive of Lloyds bank, has voiced opposition to potential tax hikes for banks, stating that such measures would not align with efforts to boost the UK economy and strengthen the financial services sector. The IPPR argues that a levy on bank profits is necessary due to the Bank of England’s quantitative easing drive, which is costing taxpayers £22 billion annually.

Carsten Jung, associate director for economic policy at IPPR, and a former Bank of England economist, criticized the implementation of quantitative easing, stating that public money is effectively flowing into commercial banks’ coffers due to flawed policy design. He emphasized the need for a targeted levy on commercial banks to recoup some of these losses and prevent further taxpayer funds from being channeled to bank shareholders.

However, financial services body UK Finance has warned that additional taxes on banks could make Britain less competitive internationally. The corporation tax surcharge and bank levy already in place may prove to be sufficient, and further taxes could hinder the government’s efforts to support the financial services sector.

As Chancellor Rachel Reeves prepares to announce her Budget strategy for the next five years, she faces the challenge of balancing taxation and spending. With pressure to find additional revenue sources, following changes to planned welfare savings and winter fuel allowance cuts, the proposed tax on banking profits could be a contentious issue in the upcoming budget announcement.

The government has emphasized its commitment to boosting the City’s competitiveness and making the UK the top destination for financial services firms by 2035. Despite the challenges posed by the proposed tax, the government remains focused on supporting the financial services sector and driving economic growth.