The argument for reclaiming a £22 billion annual “windfall” from UK banks shook the foundations of the stock market on Friday, causing a £6.4 billion tremor. This single, powerful argument, put forward by the IPPR thinktank, has fundamentally altered the risk profile of the entire UK banking sector.
The core of the argument is that the interest paid by the Bank of England on reserves created under quantitative easing (QE) constitutes an unearned profit for banks, especially now that it represents a huge net loss for the taxpayer. The IPPR’s call to “recoup some of these windfalls” through a new tax was the catalyst for the market shake-up.
Investors were clearly shaken by the power of this narrative. The immediate sell-off in shares of NatWest, Lloyds, and Barclays was a direct response to the fear that this argument would prove persuasive to a government in need of cash. The £6.4 billion loss in value is the market’s price tag on that fear.
While the banks would argue that this income is simply a feature of the monetary system, the “windfall” narrative is politically compelling. The market’s violent reaction shows that it is taking this argument very seriously, setting the stage for a major battle over what constitutes fair profit versus an unjust windfall.