New Tax Proposal on Banks Raises Industry Concerns

British bank shares tumbled on Friday following a think-tank's recommendation for a new levy on lenders and growing industry concerns over potential government tax hikes. The Institute for Public Policy Research advised Finance Minister Rachel Reeves to include a bank tax in her upcoming autumn budget, targeting billions received in interest from reserves at the Bank of England.

This proposed taxation, estimated at around 22 billion pounds annually, aims to curtail what the IPPR terms a subsidy from the Bank of England's bond-buying activities, suggesting it would help Reeves meet fiscal goals amidst an economic slowdown and rising borrowing costs. IPPR's Carsten Jung labeled the current setup as a financial burden on taxpayers despite its initial intent to boost the economy.

Market reactions were swift, with major banks like NatWest, Lloyds, and Barclays witnessing significant share declines, underscoring anxiety in the sector about Reeves potentially increasing taxes. Some analysts noted that despite past protections for banks from tax hikes, fiscal pressures are increasing calls for such measures within the Labour party. The finance ministry emphasized economic growth as the optimal path to improving public finances, even as tax-related discussions continue.

(With inputs from agencies.)