Read more:
What do bankers think of a proposed bank tax?
The City of London is the capital’s historic financial district. Home to The Bank of England, the London Stock Exchange and thousands of suit-clad financiers, this 1.12 square mile pocket of the city has been described as the “most influential patch of land in Britain”.
Even the high-powered servants of the country’s biggest banks need to eat. So, the Big Issue spent an afternoon interrupting their al fresco lunch breaks to ask them about a bank tax.
Most did not want to speak. Perhaps unsurprisingly, those that did were unimpressed with the new levy proposal.
Daniel, a banker with one of the big four, told me that taxing the banks is “penny wise, pound foolish” – a short-term solution which will have long-term negative consequences.
“Because of what happened in 2008, readers of the Big Issue, who aren’t in finance, might think that people in finance are the people that you’ve got to get – that these are the culprits of the financial crash,” he said.
Advertising helps fund Big Issue’s mission to end poverty
“But that’s not a case anymore. I mean, the world’s moved on from that, and these banks are much better managed now. So, if you just keep coming back to banks to keep taxing them, you’re going to limit growth, and as you limit growth, you’re going to have bigger fiscal problems than the ones you’re trying to solve right now.”
The ’growth’ argument was a common one. Across Finsbury Square, financial analyst Camilla told me that she “morally” conflicted, but ultimately thought that a tax would be self-defeating.
“It is a really hard question. in theory, I think absolutely. But then, at the moment, we’re in a real lull of Britain not being seen as a good place to do business. And I think the key to growth is to encourage that. So as it pains me to say it, I think it’s not a good idea.
“Growth is really elusive, we’re in a slump. Britain’s not seen as a good place to do business. And that’s got to change. And I just think that a windfall tax on banks would send the wrong message.”
‘Boutique firm’ banker Iain echoed this concern.
“We don’t want to tax banks so much that individuals end up paying more, as people who invest in money into their banks,” says Iain, a banker for a ‘small firm’.
Advertising helps fund Big Issue’s mission to end poverty
Sat in nearby Finsbury Square, he tells me that banks are “crucial” to the broader economy.
“And does it dry up capital that’s needed for the UK? We do need the banks to fund expansion of business so that people can work.”
Would a bank tax hurt growth?
Big Bank bosses often make similar claims to the ones I heard on the street. “Strong economies need strong banks,” warned NatWest chief executive Paul Thwaite earlier this month.
Financial services body UK Finance said that a further tax on banks would make Britain less internationally competitive.
“Banks based here already pay both a corporation tax surcharge and a bank levy,” the trade association said.
Last month, speculation over a potential tax triggered a share sell-off: Natwest and Lloyds saw their share prices tumble 4% in a day.
Advertising helps fund Big Issue’s mission to end poverty
It’s true that banks need to stay profitable to lend and invest. But experts cast doubt on the claim that a tax would shrink their capacity to do so.
“It’s important to distinguish between something that is actually reducing investment and something else that just hits shareholders,” says Carsten Jung, associate director for economic policy at IPPR. “That is not the same.”
“If you return some of these losses from the public sector, you can use them to cut taxes on things you actually want to incentivise, like house building or new productive industries. Those profits going to shareholders is not necessarily the best way to stimulate the economy.”
Last month, the IPPR suggested a form of bank tax that would offset the Bank of England’s quantitative easing (QE) drive during and after the pandemic.
QE is a monetary policy where the Bank of England buys up government bonds in order to inject money into the economy, creating funds on its own balance sheet for the purpose.
Under the current set-up, the Treasury pays the Bank of England for both interest rate losses and the drop in value of gilts bought during QE. The taxpayer is subsidising this to the tune of £22bn per year.
Advertising helps fund Big Issue’s mission to end poverty
These payments ultimately benefit commercial banks, and other financial institutions, which hold hundreds of billions of pounds of QE-related reserves at the Bank of England.
“It is extraordinary that during the cost of living crisis, when poverty is increasing, the government is making £22bn annual losses at the Bank of England – at taxpayer cost. And about half of this can be reflected going into commercial bank revenues. The shareholder benefits, but as a society, I think we need to ask – is this inevitable?
”To bring back some of this money to the public purse, IPPR have urged the government to introduce an income levy on commercial banks. After all, Margaret Thatcher did a similar thing in 1981.
“It was almost the same issue when Thatcher was in government. Thatcher put in a temporary tax to basically claw back some of these high profits, bringing them back to the exchequer,” Jung added.
It would face serious opposition from the Big Banks. But on the street, some of their employees are more circumspect.
“I shouldn’t say this in earshot of my employer… but yes, I do think banks should be taxed more,” says Beth, a graduate scheme banker who describes herself as being at “the bottom of the food chain”.
Advertising helps fund Big Issue’s mission to end poverty
“The profits are maybe, yeah, a bit obscene. In my generation, the younger generation, I think that is more of the feeling. But not in the old guard so much.”
Others do agree that the treasury needs to recoup more from the city – but claim that banks are the wrong target.
“The banking sector is one of the most heavily taxed industries in the UK,” says Zack, a big four banker waiting for a flat white at a nearby coffee truck.
“But that’s not necessarily the case if you look at the finance sector. If I were running the government is, how do you spread the tax burden more equitably to achieve higher tax returns across the finance industry as a whole?
“If we [banks] do not have the right ability to invest in doing, you know, investment in mortgages and loans then there is a risk that there will be adverse outcomes.”
He concedes that “No one has a soft spot for the banks” – but “bank bashing” won’t redistribute wealth effectively.
Advertising helps fund Big Issue’s mission to end poverty
“What we need is the true funding of our education, our health sector and our social security net, right? And that is important for us as banks, because that’s what the challenges our customers face.”
Jung agrees that our tax system is “very skewed”, and that “a lot of people who make lots of money off hedge funds or venture capital are taxed more lightly than a teacher or a bus driver or a police person”.
“There are lots of proposals that the government should look at to address this unfairness. But just because there’s an unfairness in one side of the system doesn’t mean we shouldn’t think about the banks.”
Do you have a story to tell or opinions to share about this? Get in touch and tell us more.
Reader-funded since 1991 – Big Issue brings you trustworthy journalism that drives real change.
Every day, our journalists dig deeper, speaking up for those society overlooks.
Advertising helps fund Big Issue’s mission to end poverty
Could you help us keep doing this vital work? Support our journalism from £5 a month.
