Bank official Rachel Reeves proposes a tax hike on banks, drawing comparisons to former UK Prime Minister Margaret Thatcher's assertive policies.

In the financial landscape of London, the Big Four banks - Natwest, Lloyds, HSBC, and Barclays - have raised concerns about potential tax hikes on lenders and their implications on growth. These concerns come in light of a proposed levy by the Institute for Public Policy Research (IPPR), which could generate up to £8bn annually for the Treasury.

The total tax rate for the banking sector in London in 2024 stands at 45.8%, significantly higher than that of European rivals Amsterdam (42%), Frankfurt (38.6%), and Dublin (28.8%). The proposed levy, reminiscent of Margaret Thatcher's one-off 2.5% tax on lenders' non-interest-bearing deposits in 1981, would be a fresh levy on banks.

The levy would raid earnings from the banks' quantitative easing (QE) reserves. The IPPR argues that the bank selling the bonds at a lower price than it bought them for is averaging a loss of over £12bn a year. These losses, paid for by the Treasury, are projected to top £22bn annually.

The IPPR's proposals call for the Bank of England to slow down quantitative tightening, a process that involves selling government bonds it holds from the QE program or allowing them to mature without replacement. This could potentially save the government and taxpayers billions of pounds.

Lloyds' chief Charlie Nunn has stated that increasing taxes on lenders wouldn't be consistent with helping boost the economy. Natwest chief Paul Thwaite argued that strong economies need strong banks and that he would rather use the bank's capital for loans to boost growth "for the good of the country".

The banking industry body UK Finance has expressed concern 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.

As interest rates climbed, the central bank was forced to pay the lenders higher interest on the reserves than what it earned from the bonds. The proposed levy is intended to recoup some of these windfalls and put the money to better use, helping people and the economy, not just bank balance sheets.

The IPPR projects that between the proposed fresh tax raid and easing sales of bonds, the government could save the taxpayer over £100 billion over the course of this parliament. However, the Bank of England has stated that tax and spending decisions are for the Government, not the Bank, and that it remains focused on making sure that inflation returns to the 2% target.

Rachel Reeves is facing calls to increase taxes on lenders. As the Autumn Budget looms, the Chancellor, who is set to be staring down a £50bn blackhole, could find the proposed levy a potential boost to his financial plans. Carsten Jung from the IPPR proposed the levy, stating that it would be a step towards a more equitable tax system.

Bank official Rachel Reeves proposes a tax hike on banks, drawing comparisons to former UK Prime Minister Margaret Thatcher's assertive policies.