Bank share prices tumble after calls for tax on profits

Banks were among the biggest losers on the UK share market on Friday with NatWest and Lloyds share prices down by more than 4% in morning trading.

By the end of the day their values had improved slightly but Natwest was still more than 4% lower, Lloyds was down over 3% and Barclays off more than 2%.

Charlie Nunn, the chief executive of Lloyds bank, has previously spoken out against any potential tax rises for banks in the government's Budget announcement this autumn.

He said efforts to boost the UK economy and foster a strong financial services sector "wouldn't be consistent with tax rises".

The IPPR, a left-leaning think tank, said a levy on the profits of banks was needed as the Bank of England's quantitative easing (QE) drive was costing taxpayers £22bn a year.

After the financial crisis and in 2020, the Bank of England began buying bonds - essentially IOUs it receives a fixed interest rate for - to support the financial sector and reduce longer term interest rates.

To buy these bonds, the Bank of England added new electronic money to the accounts of commercial banks that hold money with it.

While the Bank started reversing its QE strategy in 2022, it is still losing money on the programme because the interest rate it pays on those deposits has shot up, while the rate the Bank of England gets from the government bonds it holds has remained the same.

In addition, the Bank of England is making a loss on unwinding its QE programme as it is selling bonds at a lower price than it paid for them.

The IPPR said the Bank of England is now making huge losses, which it described as "a government subsidy to commercial banks", and highlighted commercial bank profits compared to before the pandemic were up by $22bn.

The tax suggestion comes as Chancellor Rachel Reeves faces the difficult task of meeting her own self-imposed rules on taxation and spending when she sets out her Budget strategy for the next five years.