NationalWorld manifesto: the best way to get £14bn for schools and hospitals? A windfall tax on the banks

The Bank of England’s decisions to increase interest rates 14 times in a row, to their current 15-year high of 5.25% last year, caused bank profits to balloon. In February, the big four UK banks (Lloyds, NatWest, Barclays, and HSBC) announced their profits for 2023 came to £44.3 billion - 66% higher than in 2018. A windfall tax of 35% - in line with the one introduced on energy companies - could have brought in £14 billion from these four banks alone, to help those suffering most from the cost of living crisis. 

As well as profiting off their customers’ financial hardship, banks have made more money from the government thanks to higher interest rates. This is ecause the Treasury pays interest on the reserves private banks hold in Threadneedle Street, alongside losses from its quantitative tightening programme. This has created a bill, that is estimated to reach £150 billion by 2028. If we don’t stop paying them this much, as former Prime Minister Gordon Brown and the New Economics Foundation have suggested, then a windfall tax would at least claw some of this money back into the public purse. 

A windfall tax on banks is nothing new. Margaret Thatcher’s government introduced one in the 1980s, following a similar period of high rates which saw profits rise without bankers having to lift a finger. Former Bank of England deputy governor Sir Charlie Bean has suggested it could bring in tens of billions in the long-term, and a majority of the public support the idea too. 

Interest rates were the wrong tool for fighting the higher prices we’ve seen over the last couple of years because this period of inflation has been caused by external, rather than domestic, factors, including Russia’s invasion of Ukraine, corporate profiteering and climate-flation. However, since interest rate rises were what we got, we should be doing everything we can to make sure the extra profits they’ve generated end up in the right hands. 

Positive Money was founded after the global financial crash, when the big banks got bailed out and we got sold out. Wages have flatlined since then and today, despite what some politicians say, most of us agree the cost of living crisis is far from over.

Almost two-thirds of people want taxes to stay the same or increase rather than see budgets for vital public services slashed even further. After 15 years of austerity, our hospitals and schools are literally crumbling around us, we’re well shy of the £50 billion a year needed to reach Net Zero, and 139,000 children are growing up in temporary accommodation. 

A windfall tax on banks won’t solve all these problems, but it’s a first step that would boost our broken public services, without which our economy will never improve. Most importantly, it wwould give us a sign that our tax system is putting the well-being of people above the profit margins of shareholders and City fat cats. Whoever the next Chancellor is on 5 July, let’s call on them to #TaxTheBanks.

Hannah Dewhirst is Head of Campaigns at Positive Money, a research and campaign organisation fighting for a money and banking system that enables a fair, sustainable, and democratic economy. Sign-up here for updates on its work.