A windfall tax on bank profits could raise anywhere between £5bn and £20bn from the big four UK banks alone this year, depending on how its implemented, according to new analysis from research and campaign group Positive Money.
Based on the £28.93bn pre-tax profits the big four banks (HSBC, Barclays, Lloyds and Natwest) recently reported for the first half of 2023, Positive Money estimates £20.3bn (equivalent to around £720 per household) 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 half year profits announced this year are 723% higher than those the banks reported for the same period 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. 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 Autumn Statement last year, from 8% to 3%.
Alternatively, replicating the Thatcher government’s 2.5% levy on banks’ non-interest bearing deposits, introduced in 1981, would raise £11bn – equivalent to nearly £400 per UK household – Positive Money estimates.
Positive Money calculates that imitating the Czech government’s windfall tax (a 60% levy on bank profits exceeding 120% of the average made between 2018-21, which will apply for three years from 2023) could be expected to raise £18.42bn from the UK’s big four banks’ profits in 2023.
The Italian government made headlines last week 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 £5.56 from the big four banks alone in 2023 – around £200 per UK household.
Positive Money calculates that, if a windfall tax raises £20bn a year, this would be enough to reinstate the £20 universal credit uplift, abolish the two-child benefit cap, provide free school meals to all children and give public sector workers a 10.5% pay rise. Alternatively, it could fund a 2.5% cut to VAT, which would also help reduce inflation.
Fran Boait, co-executive director at Positive Money, said: “We’ve seen windfall taxes of various forms across the EU, and even in Britain under a Conservative government in the past, precisely because higher interest rates gift banks enormous unearned profits at the public’s expense.
“To allow banks to continue hoarding billions in record profits whilst millions struggle to keep the roof over their heads and food in their families bellies would be an act of gross negligence on the government’s part, especially given that these profits come from the public’s pockets.
“A windfall tax could not only lift millions of families out of poverty and revitalise our precious public services, but it could restore faith in a disillusioned public that it is possible for politicians to work in their interests.”