Bank share prices tumble after calls for tax on profits

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The proposition for a new tax on banking profits by the Institute for Public Policy Research (IPPR) has caused a significant drop in the share prices of leading UK banks. The IPPR suggested that a windfall tax could potentially generate up to £8bn annually for the government to offset losses from the Bank of England’s monetary policy. Although the Treasury has not officially responded to the proposal, NatWest, Lloyds, and Barclays experienced the largest declines on the London Stock Exchange index.

This tax proposal raised concerns among investors, leading to NatWest and Lloyds shares plummeting by over 4%, while Barclays saw a decrease of more than 3% in early trading. Lloyds bank CEO, Charlie Nunn, expressed opposition to potential tax hikes in the banking sector, citing the need to support the UK economy and financial services industry. The IPPR, known for its left-leaning stance, emphasized the necessity of levying taxes on bank profits due to the significant costs incurred by taxpayers from the Bank of England’s quantitative easing measures.

Carsten Jung, an associate director at IPPR and former Bank of England economist, criticized the implementation of quantitative easing, stating that public funds were essentially being channeled to bank shareholders. He highlighted the substantial taxpayer losses amounting to £22bn annually, equivalent to the Home Office’s entire budget. The proposal for a targeted levy on commercial banks, as suggested by IPPR, aims to recoup these losses and potentially save the government up to £8bn annually.

Despite the potential benefits outlined in the IPPR report, financial services body UK Finance cautioned that imposing additional taxes on banks could diminish Britain’s international competitiveness. The trade association argued that UK-based banks are already subject to various levies and surcharges, and introducing a new tax could be counterproductive to supporting the financial services sector. The ongoing tax debate has unsettled investors, with concerns arising about the impact on profits, dividends, and shareholder returns in the banking sector amid increasing cost pressures

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