Soaking the Banks Won’t Mend Britain’s Finances
Loading extra taxes onto the finance industry won’t improve either the UK’s balance sheet or its economic prospects.
Chancellor of the Exchequer Rachel Reeves may be tempted to announce a budget levy on banks in her Mansion House speech on Tuesday evening.
Photographer: JUSTIN TALLIS Justin Tallis/AFP/Getty Images
As Britain scrambles to plug its fiscal gaps, banks are starting to worry that Chancellor of the Exchequer Rachel Reeves will once again target their industry. The political attraction is clear when the Bank of England is paying the industry billions of pounds in interest on idle cash on its books, a fact bemoaned by voices on the left and right. But a new bank tax would generate more headlines — and sour sentiment — than hard cash.
If lenders were extracting excess profits from the state, taxation would be better than messing with central bank interest payments and their role in monetary policy. The trouble for Reeves, however, is that the evidence for finance plundering the BOE is flimsy. Moreover, even a heavy-handed extra levy on bank earnings would raise pitiful amounts compared with what the UK needs. Still, the budget pressure is such that Reeves might announce some kind of levy, alongside a slate of more industry-friendly policies, as part of the government’s strategy for financial services at the annual Mansion House dinner on Tuesday night.