UK Bank Stocks Plummet Following Think Tank's Windfall Tax Proposal

UK bank stocks have fallen after a think tank called for a windfall tax on lenders. HSBC Holdings, one of the world's leading banking groups, has seen its revenues break down by activity, with retail banking and wealth management accounting for 42.3% and commercial banking for 31.8%. The group had USD 1,654.9 billion in current deposits and USD 930.6 billion in current credits at the end of 2024.

UK bank shares tumbled on Friday, August 29, 2025, following a report by the Institute for Public Policy Research (IPPR) that called for a windfall tax on large lenders in the upcoming autumn budget. The report, which recommends a new bank levy to recover "windfalls" from quantitative easing (QE), has spooked investors and led to significant market value losses.

The UK's biggest high street banks, including NatWest Group, Lloyds Banking Group, Barclays, and HSBC, saw their share prices drop sharply. NatWest Group suffered the biggest decline, with a 5% drop in its share price, while Lloyds Banking Group and Barclays fell by 4.5% and 3.6% respectively. HSBC dropped more than 1% [1]. The falls collectively reduced the notional value of the UK's biggest banks by £7.9bn within hours of the market opening.

The IPPR report suggests that the Treasury should tax big banks on the windfalls they have received from QE. The policy involved the Bank of England buying up £895bn of bonds from the UK’s banks and crediting them with reserves. These reserves subsequently accrued interest at the central bank’s base interest rate, currently at 4%. As the Bank of England winds down QE, it is now paying out higher interest rates on banks’ reserves than it is receiving on the bonds it holds, resulting in a £22bn-a-year loss to the public finances [1].

Neil Wilson, the UK investor strategist at Saxo Markets, noted that while banks are "easy pickings politically," a fresh tax would not align with Labour's message about the City’s role in spurring growth. Richard Hunter, the head of markets at Interactive Investor, cautioned that any suggestion of a windfall tax was "likely to have an exaggerated impact given the government’s obvious need to raise more income in an attempt to mitigate its financial difficulties" [1].

HSBC Holdings, one of the world's leading banking groups, has seen its revenues break down by activity, with retail banking and wealth management accounting for 42.3% and commercial banking for 31.8%. The group had USD 1,654.9 billion in current deposits and USD 930.6 billion in current credits at the end of 2024 [2]. Despite the recent market fluctuations, HSBC has been actively involved in other strategic investments, such as increasing its stake in Elbit Systems Ltd. by 40.4%, acquiring an additional 3,213 shares, bringing its total to 11,169 shares valued at approximately $4.26 million [3].

In conclusion, the proposed windfall tax on banks has had a significant impact on UK bank shares, with major financial institutions experiencing substantial drops in their share prices. The IPPR's report has sparked investor jitters, highlighting the potential challenges and opportunities that lie ahead for the UK's banking sector.

References:
[1] https://www.theguardian.com/business/2025/aug/29/uk-bank-shares-tumble-after-call-for-windfall-tax-on-lenders-in-budget
[2] https://www.tradingview.com/news/reuters.com,2025-08-29:newsml_RSc2759Xa:0-reg-hsbc-holdings-plc-director-pdmr-shareholding/
[3] https://www.marketbeat.com/instant-alerts/filing-hsbc-holdings-plc-buys-3213-shares-of-elbit-systems-ltd-eslt-2025-08-26/