Shares of major UK banks, including NatWest, Lloyds, and Barclays, experienced significant declines in response to discussions surrounding a potential new tax on banking profits. The Institute for Public Policy Research (IPPR) has suggested that a windfall tax could generate approximately £8 billion annually for the government. This recommendation comes as a means to compensate taxpayers for costs associated with the Bank of England’s quantitative easing (QE) policies.
The current situation has led to early trading losses of over 4% for NatWest and Lloyds, while Barclays dropped by more than 3%. Although the Treasury has not issued a formal comment on this matter, Charlie Nunn, CEO of Lloyds, has previously expressed opposition to any increases in bank taxes, arguing that such measures would be inconsistent with efforts to strengthen the UK economy and financial services sector.
The IPPR posits that a tax on bank profits is warranted given the £22 billion annual cost to taxpayers resulting from the Bank of England’s QE strategy. This strategy involves the Bank purchasing bonds from the government and corporations to influence interest rates. As the Bank begins selling some of these bonds, it is incurring losses that the IPPR characterizes as a subsidy to commercial banks.
Furthermore, Carsten Jung, an associate director at IPPR, indicated that the implementation of QE has not been managed effectively, resulting in significant taxpayer costs. He has suggested that a targeted levy on banks could rectify this financial imbalance while still allowing banks to retain substantial profits.
In contrast, UK Finance, a representative body for the financial services sector, cautioned that any additional tax on banks may hinder the country’s competitive edge internationally. The association emphasized that banks are already subject to existing taxes, including a corporation tax surcharge and a bank levy, and highlighted the potential negative impact on the financial services sector.
As the Chancellor prepares for the upcoming budget, which includes fiscal challenges after recent policy reversals, the implications of the tax debate raise questions about the future landscape for banking and economic stability.
Source: https://www.bbc.com/news/articles/cm2v3700pvqo?at_medium=RSS&at_campaign=rss