TELL HUNT TO TAX THE BANKS

Chancellor Jeremy Hunt

We're calling on Chancellor Jeremy Hunt to bring in a windfall tax on banks' excessive profits, similar to the windfall tax on energy companies.

While most of us are suffering with the rising cost of living and public services are at breaking point, banks are making huge profits from the Bank of England’s decision to raise interest rates. This choice has forced households, small businesses and the Bank of England itself, to hand billions to banks for doing absolutely nothing.

Given bank profits for 2023, increasing the bank surcharge from 3% to 35% would raise more than £14 billion. If the government really wants to ‘level up’, Chancellor Jeremy Hunt should bring in a windfall tax on banks’ unearned profits, to support households and help fund our vital public services properly.

Background information:

  • The four biggest banks in the UK - Barclays, HSBC, Lloyds and NatWest - collectively made pre-tax profits of more than £44 billion in 2023. Around four times more than they did in 2020, as a direct result of the Bank of England's relentless rate hikes. [1]
  • Banks are also set to receive tens of billions of pounds of public money in the next few years because since 2006, the Bank of England has paid interest on the risk-free reserves private banks hold with it, at its base rate, which is currently rising. OBR forecasts suggest around £150 billion of interest on these reserves will be paid to banks in the next six years. [2]
  • The windfall from reserve remuneration comes in addition to the gains banks are receiving from higher interest rates more generally from the public, which boosts banks’ profitability.
  • The scale of this transfer from the public to banks is especially difficult to justify at a time when workers are set to pay significantly more tax, and public services are facing even more cuts. The Chancellor opted to cut the surcharge banks pay by 60% (from 8% to 3%) in last year’s Autumn Statement.
  • Ex-Bank of England deputy governor Sir Charlie Bean suggested a windfall tax could raise tens of billions of pounds. [3]
  • In line with the government’s approach towards taxing oil and gas companies a 35% Energy Profits Levy for windfall profits arising from the energy crisis, it would also be appropriate to tax banks on the windfalls received from holding reserves.

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NOTES
[1] Positive Money: Taxing banks' record profits could raise £14 bn for public services
[2] Office of Budget Responsibility: economic and fiscal outlook - November 2022
[3] Bloomberg: UK should impose a windfall tax on banks, EX-BOE deputy says

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Positive Money

To: Chancellor Jeremy Hunt
From: [Your Name]

Similar to the windfall tax on energy companies, we are calling on Chancellor Jeremy Hunt to bring in a windfall tax on banks’ unearned excess profits.

While most of us are suffering with the rising cost of living and underfunded public services, banks are making huge profits from the Bank of England’s decision to raise the base interest rate. This choice has forced households, small businesses and the Bank of England itself to hand billions to banks for doing absolutely nothing.

Given bank profits for 2023 so far, increasing the bank surcharge from 3% to 35% would raise more than £20 billion - around £720 for every household. If the government really wants to ‘level up’, Chancellor Jeremy Hunt should bring in a windfall tax on these banks’ unearned profits, to help fund our vital public services properly.

Background information:
- The four biggest banks in the UK – Barclays, HSBC, Lloyds and NatWest – collectively made pre-tax profits of £28,930,000,000 in the first half of 2023. An 80% increase from the same period for 2022, and almost 725% more than in 2020, as a direct result of the Bank of England’s relentless rate hikes. [1]
- Banks are set to receive tens of billions of pounds of public money in the next few years because since 2006, the Bank of England remunerates private bank reserves held at the central bank at its base rate, which is currently rising. OBR forecasts suggest around £150 billion of interest on these reserves will be paid to banks in the next six years. [2]
- The windfall from reserve remuneration comes in addition to the gains banks are set to receive from higher interest rates more generally, which boosts banks’ profitability.
- The scale of this transfer from the public to banks is especially difficult to justify at a time when workers are set to pay significantly more tax, and public services are facing even more cuts. The Chancellor opted to cut the surcharge banks pay by 60% (from 8% to 3%) in last year’s Autumn Statement.
- Ex-Bank of England deputy governor Sir Charlie Bean suggested a windfall tax could raise tens of billions of pounds. [3]
- In line with the government’s approach towards taxing oil and gas companies a 35% Energy Profits Levy for windfall profits arising from the energy crisis, it would also be appropriate to tax banks on the windfalls received simply for holding reserves.

While millions of us suffer from the cost of living crisis, big banks are raking in billions in unearned profits. We need action now to rebalance the pain of this crisis.

NOTES
[1] Campaigners protest rate rises & ballooning bank profits:
https://positivemoney.org/2023/08/campaigners-protest-rate-rises-ballooning-bank-profits/
[2] Office of Budget Responsibility: economic and fiscal outlook - November 2022: https://obr.uk/efo/economic-and-fiscal-outlook-november-2022/
[3] Bloomberg: UK should impose a windfall tax on banks, EX-BOE deputy says: https://www.bloomberg.com/news/articles/2022-11-01/uk-should-impose-windfall-tax-on-banks-former-boe-chief-says?leadSource=uverify%20wall