From Stability to Turmoil: Bank Sector Rocked by Tax Proposal

The UK banking sector was plunged from a state of relative stability into turmoil on Friday, rocked by a single proposal for a new windfall tax. The suggestion, contained in a thinktank report, was enough to undo investor confidence and trigger a sell-off that erased £6.4 billion from the industry’s value.
The source of the turmoil was an IPPR report that took aim at the £22 billion annual cost of paying interest on reserves created under the quantitative easing (QE) program. By labelling this a “windfall” and calling for a new tax, the report introduced a major new element of risk and uncertainty into the sector.
The market’s swift descent into turmoil was evidenced by the sharp falls in the share prices of NatWest, Lloyds, and Barclays. The scale of the financial damage—a £6.4 billion loss in a single day—highlights how quickly a stable outlook can be shattered by political and policy-related news.
Analysts warn that this turmoil could persist if the government does not move to quell the speculation. The debate over the tax has pitted the need for public funds against the need for a stable and predictable environment for business, and the market’s reaction shows which side investors are on.