Fears over what the autumn budget may hold grew significantly in the City on Friday after a proposal for a new bank tax rattled investors and wiped £6.4 billion from the sector’s value. A report from the IPPR thinktank has put the idea of a windfall levy firmly on the table, increasing uncertainty for the financial industry.
The IPPR’s case rests on the £22 billion annual cost to the public of paying 4% interest on reserves held by banks due to the quantitative easing (QE) program. The thinktank argues that a new tax is needed to ensure this money is put to “far better use” than simply bolstering bank balance sheets.
The City’s reaction was one of alarm. The suggestion that the chancellor, Rachel Reeves, might use the autumn budget to introduce such a tax was enough to trigger a major sell-off in banking stocks. The decline, led by NatWest, Lloyds, and Barclays, reflects deep concern about the government’s fiscal intentions.
With the government facing a £40 billion budget shortfall, no option is truly off the table. However, as Richard Hunter of Interactive Investor pointed out, the government’s obvious need for cash means any rumour of a tax hike is likely to have an “exaggerated impact.” This has created a tense and volatile atmosphere as the City awaits the chancellor’s budget decisions.