It was a stress test for investors in UK banks on Friday, and many failed, selling their shares in a panic as fears of a new windfall tax mounted. The pressure, applied by a thinktank report proposing a levy on lenders, proved too much for the market, which buckled and shed over £6.4 billion in value.
The test began with the IPPR’s argument that the £22 billion annual public cost of quantitative easing (QE) interest payments is an unjust “windfall” for banks. The thinktank’s proposed solution—a new tax to claw this money back—put investors on high alert.
The results of the stress test were clear in the market’s performance. Share prices for all major UK banks crumbled, with NatWest falling nearly 5%. The failure to hold the line reflects a deep lack of confidence among investors that the government will resist the temptation to raid the sector to solve its fiscal problems.
Commentators noted that the government’s difficult financial position makes the threat of new taxes more credible, amplifying investor fear. The market’s reaction is a clear signal that any move in this direction will be met with fierce opposition and could lead to further instability in a key pillar of the UK economy.
