Chancellor told to channel Margaret Thatcher's 80's bank job
The prospect of an additional levy on Britain’s biggest lenders unsettled markets on Friday, with bank shares sliding amid renewed debate over how to plug the country’s widening fiscal gap.
The Institute for Public Policy Research (IPPR) has urged the chancellor, Rachel Reeves, to consider imposing a windfall tax on financial institutions to recover funds linked to the Bank of England’s bond-buying programme. The proposal, if adopted, could raise as much as £8 billion annually, targeting institutions including Barclays, Lloyds, HSBC and NatWest. The raid could mirror Margaret Thatcher’s one-off 1981 2.5% raid on lenders.
The think tank contends that the Treasury is alone among major economies in directly covering losses from quantitative easing. Having once generated returns, the programme is now forecast to cost the public purse more than £22 billion a year as rising rates inflate the central bank’s liabilities. The IPPR argues that profits linked to this system are flowing into bank shareholders’ hands through what it describes as a “flawed” design. Rachel Reeves has already by comparted to Blackadder’s Baldrick by TV property celebrity Kirsty Allsop; “Another week, another cunning plan from our Baldrick Chancellor,” she tweeted yesterday.
The FTSE 100 slipped by 0.1 per cent in early trade, with banks leading the declines. NatWest fell 4.9 per cent, Lloyds Banking Group dropped 4 per cent, and Barclays was down 3.6 per cent. The losses wiped billions from the sector’s value in a matter of hours.
Analysts warned the sell-off reflected not only concerns over immediate profitability but also the potential for a shift in the long-standing relationship between government and lenders. “The chancellor has historically suggested that she understands that banks are conduits for growth in UK plc, but there is more pressure on her with this Budget to fill a funding shortfall, and banks are an easy target,” said Benjamin Toms at RBC.
The pressure on Reeves is mounting as forecasts suggest a hole of at least £20 billion in the public finances ahead of the autumn Budget. Some Labour figures argue that raising the corporation tax surcharge on banks from its current 28 per cent to 30 per cent could generate around £3 billion.
Angela Rayner, the deputy prime minister, is reported to have pressed the case for such a move earlier this year. While Reeves has so far avoided signalling her intentions, she has previously acknowledged the scale of the challenge and the need to balance growth with fiscal repair.
Senior banking executives have responded with sharp warnings. Charlie Nunn, chief executive of Lloyds, has argued that higher taxation “wouldn’t be consistent” with supporting economic expansion. Paul Thwaite, his counterpart at NatWest, said that “strong economies need strong banks.” Barclays chief CS Venkatakrishnan added that institutions were already “among the biggest taxpayers in the country,” while HSBC’s Georges Elhedery cautioned that additional burdens could erode investment capacity.
Trade body UK Finance echoed those concerns, stating that “adding another tax would make the UK less internationally competitive and run counter to the government’s aim of supporting the financial services sector to help drive growth and investment in the wider economy”.
Implications for Mortgage Professionals
For the mortgage market, any additional taxation on banks risks a squeeze on lending appetite at a sensitive juncture. Rising funding costs, higher capital requirements, and potential political interventions all shape the environment in which lenders set their risk appetite. Should a levy be introduced, banks could look to protect margins through tighter lending criteria or adjustments to mortgage pricing.
For brokers and advisers, the debate underscores the importance of monitoring how fiscal policy interacts with bank balance sheets. While a windfall tax may ease pressure on the Treasury, its knock-on effects could ripple into mortgage affordability, product availability, and the broader housing market.
As one senior City figure told the Financial Times: “No one likes banks, they are seen as a whipping boy for the government”. For now, the sector remains in the firing line, with mortgage professionals watching closely for signs of how political decisions could shape the flow of credit into the housing market.
