Blairite think tank urges Chancellor to copy Thatcher and impose bank tax to boost public purse by £20bn

Rachel Reeves should impose a new tax on banks, copying a levy in the 1980s, to rake in £8bn/year. Chancellor could recoup £12bn by stopping the BoE from selling bonds at a loss under quantitative tightening. Total haul would be £20bn, vital for the public purse. The BoE's money printing scheme has caused a financial burden on the public sector and is forecast to make a loss of over £130bn.

Rachel Reeves, the former Shadow Chancellor, has proposed a new tax on banks to recoup funds from the Bank of England's quantitative easing (QE) program. The Institute for Public Policy Research (IPPR) estimates that implementing a 2.5 per cent levy on banks with assets exceeding £100 billion could generate up to £8 billion annually for the Treasury [1]. This proposal comes as the Bank of England faces record losses on its QE program, with the Treasury expected to pay over £22 billion per year due to rising interest rates [2].

The IPPR argues that the UK's QE program has become a significant drain on public finances, with the Bank of England's bond losses exceeding £22 billion annually. The think tank suggests that a targeted levy, similar to Margaret Thatcher's 1981 deposit tax, could help offset these losses. The proposed levy would be temporary, falling to zero once all QE-related gilts are off the Bank of England's balance sheet or when the bank rate reaches 2 per cent [1].

In addition to the bank levy, the IPPR recommends that the Bank of England slow down its bond sales under quantitative tightening (QT) to save more than £12 billion annually. These two policies together could save over £100 billion over the current parliamentary term, providing much-needed fiscal headroom for the Chancellor [1].

The proposal has sparked debate among economists and banking leaders. While some see it as a way to recoup public funds, others argue that it could make the UK less competitive internationally and hinder economic growth. The chief executives of the UK's major banks, including NatWest, Lloyds, HSBC, and Barclays, have warned of the potential growth implications of additional banking taxes [2].

The Bank of England has maintained that tax and spending decisions are the responsibility of the government, stating that its primary focus remains on returning inflation to the two per cent target. The Treasury has been contacted for comment on the proposals [1].

References:

[1] https://uk.finance.yahoo.com/news/windfall-tax-banks-could-raise-230100002.html
[2] https://www.business-live.co.uk/professional-services/banking-finance/rachel-reeves-urged-copy-margaret-32371746