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Pressure for a Windfall Tax on Banks Grows As ‘Big Four’ Net Huge Profits

Four of the biggest banks in the UK amassed £41 billion in pre-tax profits in the first nine months of the year alone.

Labour MP Richard Burgon, who was Jeremy Corbyn’s Shadow Economic Secretary to the Treasury. Photo: Imageplotter/Alamy

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Labour MP Richard Burgon will demand a new windfall tax on bank profits, mirroring the recent tax imposed on energy companies, in a parliamentary debate today (December 8). 

The Labour MP is expected to argue that an extra levy on excess profits could generate billions of pounds for public services and provide relief to those struggling in the current economic climate.

Burgon’s speech is set to highlight the disproportionate profits banks have been accruing amid the cost of living crisis, noting: “Just like the oil and gas companies, the banks have used this crisis to line their pockets.”  

The MP underscores the disconnect between struggling families grappling with mortgages and rents, and the banks that are profiting from higher interest rates. Burgon plans to note that increased rates have not benefited savers, but have instead been “hoarded by the banks creating a windfall of many billions.”

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The proposal comes against the backdrop of soaring bank profits in the first nine months of 2023, with the ‘big four’ – Lloyds, Barclays, HSBC, and NatWest – amassing £41 billion in pre-tax profits. This figure nearly doubles the £23 billion earned in the same period last year, according to analysis by Unite the Union.

The Government has cut taxes on banks, with Conservative cuts to Bank Surcharge and Bank Levy totalling £22bn over the next six years, according to recent Liberal Democrat analysis of the OBR’s Autumn Statement data.

Jeremy Hunt cut the Bank Surcharge from 8% to 3% in April this year, even as he increased taxes on millions of families by extending the freeze in the Income Tax personal allowance and higher-rate threshold.

The Conservatives cut the Bank Levy every year from 2016 to 2021. The two bank taxes are forecast to raise a combined £2.4 billion next year, down from £4.7 billion in 2016-17 – a 60% real-terms cut, the Lib Dems argue.

Burgon hopes to issue a fierce rebuke of the government’s fiscal approach in light of the vast profits, challenging the notion that austerity and cuts are the only viable solutions. 

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Chancellor Jeremy Hunt’s recent Autumn Statement set out unspecified cuts of 16% to unprotected Government departments within the next few years – which is paying for the pre-election National Insurance tax cuts.

“Are we going to allow this government to claim that more austerity and cuts are inevitable and that public investment is unaffordable?” the Leeds North MP is likely to ask, calling for a tax system that demands more from the wealthiest. 

The proposed windfall tax, according to Burgon, could raise between £4 billion and £16 billion this year from the profits of the big four banks alone. Labour has not formally backed a windfall tax on banks but it is a key call of Socialist Campaign Group MPs, the parliamentary party’s left flank. 

Burgon plans to cite Spain’s progressive government, which introduced a 4.8% Windfall Levy on certain bank incomes and commissions, as a potential model. And the Leeds MP will reference a past precedent set by Margaret Thatcher, who introduced a 2.5% tax on banks’ non-interest-bearing deposits.

Amid controversy over Labour leader Keir Starmer’s apparent praise for the late Conservative PM, he is expected to say: “Thatcher said that the banks had ‘made their large profits as a result of our policy of high-interest rates rather than because of increased efficiency or better service to the customer.’ Such a tax in the UK, according to Positive Money calculations, could raise up to £11bn today.”

Burgon’s call for a fairer tax system is supported by public opinion, he will argue. A recent poll commissioned for the TUC found that three-quarters of the public, including 76% of Conservative 2019 voters, support a windfall tax on banks’ excess profits.

The Labour MP’s call for a windfall tax on banks is a challenge not only to the Government but to the Labour leadership to be bolder on tax.

Analysis by Positive Money has shown that higher interest rates mean that the Bank of England is expected to pay an estimated £75bn of interest on banks’ risk free reserves over 2023 and 2024, with a total of around £150bn due to be paid out between 2022 and 2028.

Calls for a windfall tax on banks have been echoed by other Labour MPs, including Angela Eagle, John McDonnell, and Clive Lewis. Polling commissioned by Positive Money found the majority of the public supports a windfall tax on banks.

The debate is expected to end by 7:30pm.

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Josiah Mortimer also writes the On the Ground column, exclusive to the print edition of Byline Times.

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