A Crisis of Confidence: Tax Proposal Shatters Calm in Banking Sector

A crisis of confidence shattered the calm in the UK banking sector on Friday, as a proposal for a new windfall tax sent investors scrambling and wiped £6.4 billion off the industry’s value. The sudden loss of faith was triggered by a thinktank report that has put the fundamental profitability of UK lenders into question.
The report, from the IPPR, argues that banks are benefiting unfairly from the £22 billion annual public cost of the quantitative easing (QE) program. Its call for a new levy to “recoup” these windfalls was perceived by investors as a major new threat to their holdings.
The resulting crisis of confidence was immediately visible on the London Stock Exchange. Shares in the UK’s banking stalwarts, from NatWest to HSBC, went into a steep decline. The sell-off was not based on any new financial data from the banks themselves, but purely on a loss of faith in a stable and predictable policy environment.
Restoring this lost confidence will be a major challenge for the government. The market has signalled that it is deeply wary of the government’s intentions, and only a clear and unequivocal rejection of punitive, targeted taxes is likely to calm the nerves of an investment community that has been badly shaken.