The financial market fired a £6.4 billion warning shot at the government on Friday in response to the idea of a new windfall tax on banks. A report from the IPPR thinktank proposing the levy acted as the trigger, but the market’s fierce and immediate reaction was a clear message of its own: proceed with this policy at your peril.
The IPPR’s report laid out the case for the tax, citing the £22 billion annual public cost of the quantitative easing (QE) program as an unfair “windfall” for banks. It suggested a new levy could reclaim this money for the benefit of the wider economy.
The market’s response was not a debate, but a decisive action. The mass sell-off of banking stocks, causing a £6.4 billion drop in value, was an unambiguous signal of opposition. This was not just a minor fluctuation; it was a significant financial event designed to show the potential consequences of such a policy.
This warning shot leaves the government in no doubt about the City’s position. While the political appeal of a bank tax may be strong, the economic pushback is stronger. The chancellor must now consider whether the potential revenue from such a tax is worth the risk of further market instability and a damaged relationship with a vital sector of the economy.