Rachel Reeves 'should copy Margaret Thatcher' to fix funding black hole say experts

A new tax on banks inspired by Margaret Thatcher could raise billions of pounds for public services or help avoid more tax rises, a leading think tank says. Chancellor Rachel Reeves has been urged to follow in the footsteps of the former Conservative Prime Minister, who imposed a one-off tax on some bank deposits in 1981.

The proposed tax would hit banks such as Barclays, Lloyds, HSBC and NatWest which are raking in huge profits at taxpayers’ expense, according to the Institute for Public Policy Research. It says commercial banks have benefited from quantitative easing, a Bank of England measure to create money for the Treasury in response to the 2009 financial crisis, Brexit and the Covid pandemic, which is now costing taxpayers £22 billion each year due to interest rate rises.

Hiking a levy on bank profits could raise up to £8 billion a year, according to an IPPR report.

Carsten Jung, associate director for economic policy at IPPR and former Bank of England economist, said: “The Bank of England and Treasury bungled the implementation of quantitative easing.

“What started as a programme to boost the economy is now a massive drain on taxpayer money.

“While families struggle with rising costs, the Government is effectively writing multi-billion-pound cheques to bank shareholders.

“A targeted levy, inspired by Margaret Thatcher’s own approach in the 1980s, would recoup some of these windfalls and put the money to far better use – helping people and the economy, not just bank balance sheets.”

The think tank called for a “quantitative easing reserves income levy”.

Under the proposals, receipts from the levy would be used to support “households and growth” and would fall to zero once all quantitative easing-related gilts are off the Bank of England’s balance sheet, or when the Bank of England base interest rate reaches 2%, meaning the tax would be temporary.

Given the “targeted” nature of the tax, it should only have a “small impact, if any” on UK banks’ competitiveness and smaller banks should be exempted from the measure, the think tank said.

It also urged the Bank of England to slow down its sale of bonds – so-called quantitative tightening - to save more than £12 billion a year.

It comes amid warnings from economists that tax rises in the Chancellor's autumn Budget are likely needed to plug a hole in the public finances, prompting speculation about which areas the Chancellor might target.