Shares in UK banks have fallen sharply on the back of a report which urges the chancellor to place their profits in her sights in the coming budget.
As Rachel Reeves stares down a growing deficit – estimated at between £20bn-£40bn heading into the autumn – the Institute for Public Policy Research (IPPR) said there was an opportunity for a windfall by closing a loophole.
It recommended a new levy on the interest UK lenders receive from the Bank of England, amounting to £22bn a year, on reserves held as a result of the Bank’s historic quantitative easing, or bond-buying, programme.
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It was first introduced at the height of the financial crisis, in 2009.
The left-leaning think-tank said the money received by banks amounted to a subsidy and suggested £8bn could be taken from them annually to pay for public services.
It argued that the loss-making scheme – a consequence of rising interest rates since 2021 – had left taxpayers footing the bill unfairly, as the Treasury has to cover any loss.
The Bank recently estimated the total hit would amount to £115bn over the course of its lifetime.
The publication of the report coincided with a story in the Financial Times, which spoke of growing fears within the banking sector that it was firmly in the chancellor’s sights.
Her first budget, in late October last year, put businesses on the hook for the bulk of its tax-raising measures.
Ms Reeves is under pressure to find more money from somewhere, as she has ruled out breaking her own fiscal rules to help secure the cash she needs through heightened borrowing.
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Is Labour plotting a ‘wealth tax’?
Other measures understood to be under consideration include a wealth tax, new property tax, and a shake-up that could lead to a replacement for council tax.
Analysts at Exane told clients in a note: “In the last couple of years, the chancellor has been protective of the banks and has avoided raising taxes.
“However, public finances may require additional cash and pressures for a bank tax from within the Labour party seem to be rising,” it concluded.
Bank stocks have enjoyed a strong 2025 to date.
But Friday’s investor flight saw shares in Lloyds and NatWest plunge by more than 5%. Those for Barclays were more than 4% lower at one stage.
A spokesperson for the Treasury said the best way to strengthen public finances was to speed up economic growth.
“Changes to tax and spend policy are not the only ways of doing this, as seen with our planning reforms,” they added.
