Taxing banks’ record profits could raise £14bn for public services

Windfall tax on bank profits would give Chancellor headroom for more spending in upcoming Budget

London, 23 February 2024 – A windfall tax on bank profits would raise anywhere between £3.5bn and £14bn from the big four UK banks alone this year, depending on its ambition, according to new analysis from research and campaign group Positive Money.

With the Spring Budget on the horizon, and rumours of further austerity on the cards, campaigners claim that taxing the record profit banks are making from higher interest rates would hand the government billions of pounds for public spending.

Based on the £44.3bn pre-tax profits HSBC, Barclays, Lloyds and NatWest reported for 2023, Positive Money calculates an additional £14bn could be raised this year by increasing the existing surcharge on bank profits from 3% to 35%, in line with the government’s windfall tax on energy companies.

The annual profits announced for 2023 are more than four times higher than those the banks reported in 2020, when interest rates hadn’t yet begun rising, Positive Money calculates.

These profits can be considered unearned windfalls from higher interest rates, and momentum has grown for them to be taxed to help support households through the cost of living crisis. Positive Money points to its polling from September, which found the majority of people supported a windfall tax on banks, as evidence of this.

Although the government itself introduced the surcharge on bank profits in 2015 in recognition of the need for banks to make a fair contribution in respect to the risks  their activities pose to the wider economy, Chancellor Jeremy Hunt cut the surcharge by 60% in his 2022 Autumn Statement, from 8% to 3%.

Alternatively, replicating the Thatcher government’s 2.5% levy on banks’ non-interest bearing deposits, introduced in 1981, would raise around £10.5bn, Positive Money estimates.

The Italian government made headlines last year with the announcement of a 40% windfall tax on banks. Though the plan was subsequently watered down, Positive Money estimates that emulating it in the UK could still be expected to raise nearly £8bn from the 2023 profits of the big four banks alone.

The government has thus far resisted calls for a windfall tax, answering Caroline Lucas’ call for one in September by saying that the financial sector provides millions of UK jobs. Positive Money argues that the thousands of jobs lost to the sweeping branch closures rolled out by banks over the last few years illustrates that banks are happy to cut jobs if it means cutting costs. They also claim that the cutting back of in-person services and access to cash for customers that branch closures entail means these profits are especially unearned.

Simon Youel, author of the research and head of policy and advocacy at Positive Money, said:

“There’s nothing radical about a windfall tax on bank profits – even Thatcher understood that banks can and should bear the burden of fairer taxes when they’ve profited from higher rates.

“With talk of further austerity ahead of the Budget, we point to a windfall tax on bank profits as a clear and popular source of revenue for public investment.

“Given these record profits have come from the higher interest payments piled on a public already struggling under the weight of the cost of living, a windfall tax is not just the sensible choice, but the fairest one.”

Notes:

• For more details, see Positive Money’s latest briefing: 2023 bank profits windfall tax analysis

• In November 2023, Unite the Union called Barclays ‘disgraceful’ for announcing 900 UK job cuts in the lead-up to Christmas: https://www.unitetheunion.org/news-events/news/2023/november/unite-brands-mega-rich-barclays-disgraceful-as-it-announces-pre-christmas-job-losses

• In January, Lloyds Bank announced 1,600 UK job cuts: https://news.sky.com/story/lloyds-banking-group-to-cut-1-600-jobs-as-it-shifts-towards-online-banking-13055876

• In January, Which? found that 3 million people will be left without a local bank branch because of 5,800+ closures since 2015: https://www.which.co.uk/news/article/nearly-3-million-people-to-be-left-without-a-bank-branch-in-their-local-constituency-aBQbs6y5LXGm

• The Palestine Solidarity Campaign has been calling for people to boycott Barclays because of its financing of companies enabling Israel’s attacks on Palestinians: https://palestinecampaign.org/campaigns/stop-arming-israel-3/

• When Caroline Lucas asked about a windfall tax on banks in September, Andrew Griffith (then Economic Secretary to the Treasury) simply said the sector provides millions of jobs: https://hansard.parliament.uk/Commons/2023-09-05/debates/32A0723A-3670-4D81-A008-63152C7A7257/details

• Higher interest rates mean that the Bank of England is expected to pay an estimated £75bn of interest on banks’ risk free reserves over 2023 and 2024, with a total of around £150bn due to be paid out between 2022 and 2028. For more information see: http://positivemoney.org/wp-content/uploads/Bank-windfall-tax-briefing-2.pdf

• Positive Money is petitioning for this windfall to be taxed: https://actionnetwork.org/petitions/tell-hunt-to-tax-the-banks/

• Calls for a windfall tax on banks have been echoed by MPs, including Angela Eagle, John McDonnell, Clive Lewis, Diane Abbott and Richard Burgon

• Polling commissioned by Positive Money in September 2023 found the majority of the public supports a windfall tax on banks: https://positivemoney.org/2023/09/uk-public-support-windfall-tax-on-banks-polling-shows/

• Barclays’ latest profit announcement can be found here: https://home.barclays/investor-relations/reports-and-events/financial-results/

• HSBC’s latest profit announcement can be found here: https://www.hsbc.com/news-and-views/news/media-releases/2024/hsbc-holdings-plc-annual-results-2023

• Natwest’s latest profit announcement can be found here: https://investors.natwestgroup.com/results-centre.aspx

• Lloyds Bank’s latest profit announcement can be found here: https://www.lloydsbankinggroup.com/investors/annual-report.html

About:

Positive Money is a not-for-profit research and campaigning organisation, working towards reform of the money and banking system to support a fair, democratic and sustainable economy. We are funded by trusts, foundations and small donations.

For more information or to arrange a meeting to discuss further please contact Simon Youel at simon.youel@positivemoney.org.uk