Financial institutions experience apprehension as proposal for increased taxation in the budget surfaces
In the upcoming autumn budget, Chancellor Rishi Sunak is reportedly considering a tax on the profits of UK banks, a move that has been urged by the Institute for Public Policy Research (IPPR), a left-leaning think-tank.
The UK's major banks, including Barclays, HSBC, Lloyds Banking Group, and NatWest, are under pressure as they could potentially face a tax on their profits. The IPPR suggests that £8bn could be taken from banks annually to fund public services, while recommending a new levy on the interest UK lenders receive from the Bank of England. This levy, amounting to £22bn a year, is on reserves held as a result of the Bank's historic quantitative easing program.
The IPPR argues that the money received by banks from the Bank of England amounts to a subsidy. They estimate that the total estimated hit of the Bank's measures amounts to £115bn over its lifetime. The loss-making scheme, a consequence of rising interest rates since 2021, has left taxpayers footing the bill unfairly, as the Treasury has to cover any loss.
The Treasury's spokesperson, however, emphasized that strengthening public finances can be achieved through means other than changes to tax and spend policy, such as speeding up economic growth and planning reforms.
Rachel Reeves, who is facing a growing deficit estimated between £20bn-£40bn heading into the autumn, may be less protective of the banks, according to analysts at Exane. The chancellor may raise taxes due to public finance requirements.
Bank stocks have experienced a strong performance in 2025, but Friday saw a significant drop with Lloyds and NatWest plunging by more than 5%, and Barclays dropping by more than 4%.
The suggested levy was first introduced in 2009 at the height of the financial crisis. The Chancellor's decision to impose such a tax, if any, will have significant implications for the UK's banking sector and public finances.
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