Shares in a number of Britain’s biggest banking giants tumbled on Friday morning as speculation that Rachel Reeves would use the sector for an easy cash grab ramped up.
Natwest topped the FTSE 100’s fallers, losing nearly five per cent in early trading. Meanwhile, Lloyds was down nearly four per cent, Barclays just over three per cent, whilst HSBC and Standard Chartered were down one per cent.
It comes as the left-wing Institute for Public Policy Research (IPPR) proposed a fresh levy on the sector targeting profit “windfalls” from quantitative easing. The think tank suggested this could raise an annual £8bn for the public purse.
The move sparked fierce backlash from the banking industry body UK Finance, which said “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.”
Ahead of the 2024 budget, UK Finance had lobbied against tax hikes, arguing London’s outsized total rate of 45.8 per cent dwarfed European rivals Amsterdam (42 per cent), Frankfurt (38.6 per cent) and Dublin (28.8 per cent).
Analysis by City AM earlier this month revealed the FTSE 100’s Big Five banks – HSBC, Natwest, Barclays, Lloyds and Standard Chartered – have created £78.9bn of market value so far in 2025.
Bank bosses hit back
The IPPR’s proposal was not the first development in discussions of a bank tax.
A leaked memo by Deputy Prime Minister Angela Rayner revealed Starmer’s second-in-command proposing a hike to the banks’ surcharge, which sits on top of corporation tax.
Rayner suggested increasing the surcharge to five per cent, from two per cent, would generate £700m in annual revenue for the Treasury.
This was followed by calls from monetary reform group Positive Money, which suggested an £11.3bn tax on the lenders to plug Labour’s recent U-turns.
Banking bosses have hit back at calls during half-year reporting season, sounding the alarm that a sector tax hike could harm growth ambitions.
Charlie Nunn, chief of Lloyds, said a tax “wouldn’t be consistent” with the government’s growth agenda. Meanwhile, HSBC boss Georges Elhedery cautioned a bank tax would dent growth and “run the risk of eroding our continued investment capacity”.
The Financial Times reported on Friday morning that the possibility of a tax raid had spiked City fears.
“Politically, it is an easy target,” a senior banker told the FT, “no one likes banks, they are seen as a whipping boy for the government.”
The Chancellor has turned to the UK’s top lenders for crisis tariff talks and growth summits throughout the year. Reeves also bet big on the high street banks for her landmark investment campaign to drive money into the capital markets.
But economists have warned she may be staring down a blackhole as wide as £50bn come the Autumn Budget making widespread tax hikes almost an inevitability.