British Banks Face Potential Profit Levy
The shares of British banks have fallen heavily due to a report that urges the Chancellor to put their profits in the spotlight in the upcoming budget. As Rachel Reeves stares down a growing deficit, estimated to be between £20 billion and £40 billion in the autumn, the Institute for Public Policy Research (IPPR) has identified an opportunity to close the gap.
Proposed Levy on Bank Profits
The IPPR recommends introducing a new levy on lenders received by the Bank of England in the form of interest, which amounts to £22 billion per year, regarding reserves as a result of historical quantitative easing or the bank’s bond-buying program. This program was first introduced at the height of the financial crisis in 2009. The left-wing think tank argues that the money received from banks is essentially a subsidy and suggests that £8 billion could be taken annually to fund public services.
Impact on Banking Sector
The bank recently estimated that the overall status is £115 billion over its lifespan. The publication of the report coincides with growing fears within the banking sector that it is firmly in the Chancellor’s sights. Their first budget at the end of October last year brought companies on the hook for the majority of its tax measures. Ms. Reeves is under pressure to find more money from somewhere, as she has excluded increasing her own tax rules to secure the money she needs through increased borrowing.
Alternative Measures
Other measures being considered include a wealth tax, a new property tax, and a fillage that could lead to a replacement for council taxes. Analysts from Exane said in a note to clients, "In recent years, the Chancellor has protected the banks and avoided increasing taxes. However, public finances may require additional cash, and pressure for bank tax within the Labor Party seems to be rising."
Market Reaction
To date, bank stocks have enjoyed a strong 2025. However, the investor flight on Friday stormed shares in Lloyds and NatWest by more than 5%. Those for Barclays were more than 4% lower at one point. A spokesman for the Ministry of Finance said the best way to strengthen public finances was to accelerate economic growth. "Changes to tax and expenditure policy are not the only ways to do this, as can be seen in our planning reforms," they added.
