Reinstate windfall tax on banks after surge in profits, TUC urges | Banking
A windfall tax on the UK’s biggest banks is in order, according to union leaders, after the big four announced profits of almost £14bn in the first quarter, partly driven by market turmoil caused by the Iran war.
The Trades Union Congress (TUC) has renewed its call for an increase in the current bank surcharge, which has been cut by the Conservative government from 8% to 3% of profits over £100 million in 2023, as banks take advantage of the high interest rate environment.
While the Bank of England kept interest rates at 3.75% last week, markets are pricing in up to two increases by the end of this year. The average two-year fixed mortgage rate on Tuesday was 5.77 percent, according to Moneyfacts, compared with 4.83 percent before the outbreak of conflict in the Middle East.
Last week Britain’s big four banks, Barclays, HSBC, Lloyds and NatWest, reported a combined profit of £13.8bn in the first quarter.
“At a time when banks are raking in billions of dollars and the rest of the country is struggling to get by, it’s common sense to make them pay more tax on their profits,” TUC general secretary Paul Nowak said.
“As Donald Trump’s war abroad unleashes economic chaos at home, it is only right that banks’ high profits be taxed fairly and used to protect households and firms from the harmful effects of war.”
During a concluding call with the media last week, Lloyds Banking Group’s chief financial officer, William Chalmers, was asked whether banks were “getting a profit” from the Iran war.
The FTSE 100 group, whose brands include Lloyds Bank, Halifax and Bank of Scotland, reported a 33% increase in annual profits to £2bn in the first quarter.
“Banks have lived for many years with very low margins, low profitability in a low interest rate environment,” Chalmers said. “The industry has always expected banks’ profitability to gradually increase when interest rates rise. That’s how the financial services industry works.”
The TUC estimates that returning the bank surcharge to the 8% level it was three years ago, what it calls the “minimum”, would raise £9bn over four years. Doubling this figure to 16% would mean £24bn over four years.
The big four banks made profits of almost £46bn last year, resulting in bosses being provided with hefty annual pay packages.
“After the Conservatives cut the bank surtax, banks made plenty of profits because of higher interest rates,” Nowak said.
“If interest rates stay higher for longer, they may now stand to make even more.
“The recent economic shock caused [Vladimir] Putin’s illegal invasion of Ukraine has led to bank overdrafts at the expense of mortgage payers; “We can’t let the same thing happen again.”
Last year the IPPR think tank advocated for a new bank levy to be introduced in the November budget by chancellor Rachel Reeves; This was a proposal that the industry managed to accept after intense lobbying efforts.
