Calls for a massive 35% windfall tax on banks in the UK
The UK is seeing a renewed push for a windfall tax on commercial banks, which have posted record profits in recent years.
The Trades Union Congress (TUC) has published a report recommending that the government implement a windfall tax on bank profits by raising the Bank Surcharge.
This levy was previously slashed from 8% to 3% by the last Conservative government, a decision made at a time when there was no indication that the Bank of England would raise interest rates significantly.
The TUC argues that the proceeding rise in interest rates helped banks to make ‘huge’ windfall profits which were paid for by the Treasury, and therefore by UK taxpayers.
“Astonishingly, while many are dealing with hardship, banks are making even more money than they were in the bonanza years ahead of the global financial crisis,” the TUC said.
“These eye-watering bank profits come from higher net interest payments being made by households and businesses up and down the country.”
“But profits are also being topped up directly by the government which is footing the exorbitant bill for payments to banks that have arisen through the Bank of England money printing programmes.”
Proposal for a 35% windfall tax on banks
The organisation has called for the Chancellor to consider three options for the upcoming Budget to tax windfall profits on banks, ranging from a simple reversal of the Bank Surcharge cuts made by the Conservative government to a massive increase in this levy to match the windfall tax previously imposed on energy companies.
These options and the amount the TUC expects them to raise are laid out below:
- Reversing the cuts to the bank surcharge, raising it from back to 8%, would raise £8 billion over 4 years.
- Increasing the Bank Surcharge to 16% would raise an additional £20 billion over the next 4 years.
- Increasing the Bank Surcharge to 35%, the same level as the windfall tax previously imposed on energy companies, would raise an additional £50 billion over the next 4 years.
The TUC notes that these increases need not be permanent. They could be time-limited and reviewed at the end of the parliament, after which they may be reduced if banks are no longing recording windfall profits.
Further calls for windfall taxes
The TUC’s recommendations follow several calls for the Chancellor to implement a windfall tax on banks in the United Kingdom.
A recent report by the Institute for Public Policy Research (IPPR) think tank called for a new tax on major banks to recover windfall profits earned due to quantitative easing.
Echoing the analysis of the TUC, the IPPR said the increase in interest rates has resulted in the Bank of England making significant losses on its quantitative easing programme, which are paid for by UK taxpayers.
These funds lost by the Treasury directly feed into the revenue of commercial banks and their profits, the IPPR said.
As a result, the think tank proposes introducing a ‘QE reserves income levy’ to recoup interest rate losses for the taxpayer.
“This could be targeted at the windfall profits directly linked to ‘QE-related reserves’ and thus the Bank of England’s losses. It would only apply to reserves that are ‘QE-related’, and not those that are held for liquidity and other operational purposes,” the IPPR said.
“Moreover, we recommend targeting only the ‘windfall profits element’ (taxing reserve returns in excess of 2 per cent).”
The organisation estimates that this levy would prevent between £35 and £40 billion of losses incurred by the taxpayer over this parliament, providing more fiscal headroom while still leaving commercial banks with substantially higher profits than before interest rates rose.
With calls for a windfall tax on commercial banks growing in number, speculation is rife that the Chancellor is considering a tax grab on banks in her next Budget speech.
