UK bank shares fell sharply on Friday, wiping more than £6bn off the sector's market value, after a thinktank called for a windfall tax on large lenders in the upcoming autumn budget. The sell-off was triggered by a report from the Institute for Public Policy Research (IPPR) urging the Treasury to tax banks on profits from quantitative easing.
NatWest was the biggest faller on the FTSE 100, dropping nearly 5%. Lloyds Banking Group fell more than 3%, Barclays declined 2%, and HSBC shed almost 1%. The combined losses reduced the banks' market capitalisation by approximately £6.4bn.
The IPPR's proposal aims to recover what it describes as windfall gains made by banks from the Bank of England's quantitative easing programme, introduced after the 2008 financial crisis. Under QE, the central bank bought £895bn of bonds from lenders, crediting them with reserves that now earn interest at a base rate of 4%. As the Bank unwinds QE, it is paying out £22bn a year more in interest on reserves than it receives on its bond holdings, creating a loss to public finances.
The thinktank recommends a new levy similar to a tax on deposits introduced by Margaret Thatcher in 1981, arguing it would recoup some of these windfalls for better use. However, analysts warned that a tax on banks could conflict with the government's pro-growth agenda. Neil Wilson of Saxo Markets said banks were 'easy pickings politically' but questioned whether constraining their lending ability aligned with growth. Richard Hunter of Interactive Investor cautioned that any suggestion of a windfall tax could have an exaggerated impact given the government's need to raise income to address financial difficulties.
