Business
Bank share prices tumble after calls for tax on profits
The share prices of leading UK banks have tumbled following calls for the government to introduce a new tax on banking profits.
Traders and investors have reacted to the Institute for Public Policy Research (IPPR) saying a windfall tax could raise up to £8bn a year for the government.
The think tank said the policy would compensate taxpayers for losses on the Bank of England’s cash printing drive.
While the Treasury has not commented on any policy, concerns led to NatWest, Lloyds and Barclays being the biggest fallers on the main index of the London Stock Exchange early on Friday.
NatWest and Lloyds share prices were down by more than 4%, and Barclays had dropped by more than 3% in early trading.
Charlie Nunn, the chief executive of Lloyds bank, has previously spoken out against any potential tax rises for banks in the Budget.
He said efforts to boost the UK economy and foster a strong financial services sector “wouldn’t be consistent with tax rises”.
The Treasury has been contacted for comment.
The IPPR, a left-leaning think tank, said a levy on the profits of banks was needed as the Bank of England’s quantitative easing (QE) drive was costing taxpayers £22bn a year.
The Bank of England buys bonds – essentially long term IOUs – from the UK government and corporations to increase bond prices and reduce longer term interest rates.
The Bank is selling off some of these bonds, and the IPPR said it is now making huge losses from both selling the government bonds below their purchase value and through interest rate losses.
The IPPR described those interest rate losses as “a government subsidy to commercial banks”, and highlighted commercial bank profits compared to before the pandemic were up by $22bn.
The tax suggestion comes as Chancellor Rachel Reeves faces the difficult task of maintaining her fiscal rules while finding room for spending promises in the upcoming autumn Budget.
Carsten Jung, associate director for economic policy at IPPR and former Bank of England economist, said the Bank and Treasury had “bungled the implementation of quantitative easing”.
“Public money is flowing straight into commercial banks’ coffers because of a flawed policy design,” he said.
“While families struggle with rising costs, the government is effectively writing multi-billion-pound cheques to bank shareholders.”
Speaking on BBC’s Today programme, Mr Jung said the £22bn taxpayer loss was roughly equivalent to “the entire budget of the Home Office every year”.
“So we’re suggesting to fix this leak of taxpayer money, and the first step would be a targeted levy on commercial banks that claws back some of these losses,” he said.
A tax targeting the windfall profits linked to QE would still leave the banks with “substantially higher profits”, the IPPR report said, while saving the government up to £8bn a year over the term of parliament.
But 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.
The association said a new tax on banking would also “run counter to the government’s aim of supporting the financial services sector”.
Russ Mould, AJ Bell investment director, said the UK stock market had soured following the suggestion, with investors wondering “if the era of bumper profits, dividends and buybacks is now under threat”.
“The timing of the tax debate, fuelled by a report from think-tank IPPR, is unfortunate given it coincides with a new poll from Lloyds suggesting a rise in business confidence, despite cost pressures,” he said.
The Chancellor has worked hard since Labour won power to woo the City. In her Mansion House speech in November last year, Reeves said that banking regulation after the 2008 financial crisis had “gone too far”.
But she faces difficult fiscal decisions in the run-up to her budget, after the government watered down its planned welfare savings and largely reversed winter fuel allowance cuts – decisions which narrowed her budget headroom.
The federal government announced a Rs26.77 per litre hike in the price of petrol and high-speed diesel each on Friday, according to a notification issued by the Petroleum Division.
The new prices will be effective from April 25, 2026 for a week, the notification stated.
Following the increase, the price of HSD has jumped from Rs353.42 to Rs380.19, while the petrol price now stands at Rs393.35.
The government has been reviewing petroleum prices every Friday night following the now-paused US-Israel war on Iran, which began on February 28.
In the previous weekly review, the prime minister announced a reduction of Rs32.12 per litre in the price of high-speed diesel, while the petrol price remained unchanged.
The government jacked up petrol and diesel prices despite oil prices falling globally on Friday after it appeared a second round of Middle East talks was back on, bolstering prospects for an end to a war that has crippled energy shipments from the Gulf.
Oil prices had been climbing earlier as investors worried about a lack of progress in ending the Middle East crisis, with Tehran keeping the Strait of Hormuz closed and the US maintaining a blockade of Iranian ports.
But they dropped on reports that Iran’s Foreign Minister Abbas Araghchi was to arrive in Islamabad on Friday night.
Brent crude, the international benchmark contract, fell back below $100 a barrel.
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The FTSE 100 ended the week on the back foot as the crisis in the Middle East remained deadlocked.
The FTSE 100 closed down 77.93 points, 0.8%, at 10,379.08. The FTSE 250 ended down 181.71 points, 0.8%, at 22,582.81, while the AIM All-Share fell 5.73 points, 0.7%, to 796.40.
For the week, the FTSE 100 fell 2.7%, the FTSE 250 also declined 2.7% and the AIM All-Share dipped 1.7%.
The oil price continued to tick higher amid few signs of a breakthrough in the Middle East crisis.
AFP reported that Iranian foreign minister Abbas Araghchi is expected to arrive in Islamabad on Friday night, citing an official source in Pakistan, without providing details about who he was likely to meet.
The Pakistan capital has been gearing up for an anticipated second round of talks between the US and Iran, but it was not clear whether Mr Araghchi and the delegation accompanying him would meet any US officials to discuss the Middle East war.
The BBC reported that the suggestion coming from Iran is that these are bilateral talks with Pakistan, not meeting the US.
Writing on X, Mr Araghchi said his trip to Islamabad is to “closely co-ordinate with our partners on bilateral matters and consult on regional developments”.
US defence secretary Pete Hegseth said Iran has a chance to “make a good, wise deal”, adding that the US naval blockade of Iranian ports “is growing and going global”.
Mr Hegseth said the US is not “anxious” to make a deal, and “the ball is in [Iran’s] court”.
Brent oil traded at 105.78 dollars a barrel on Friday afternoon, compared with 103.25 dollars at the time of the equities close in London on Thursday.
In European equities on Friday, the CAC 40 in Paris ended down 0.8%, and the DAX 40 in Frankfurt ended 0.1% lower.
The mood was brighter in the US. In New York, the Dow Jones Industrial Average was down 0.4%, but the S&P 500 was 0.5% higher and the Nasdaq Composite 1.2% to the good.
David Morrison, senior market analyst at Trade Nation, explained the war in the Gulf is hitting Europe and the UK harder than the US.
“The former are reliant on imported energy in a way the US isn’t. While the US still must deal with higher crude oil prices, it has few worries over supplies drying up,” he pointed out.
On Wall Street, Intel was the star of the show soaring 23% after better-than-expected first quarter results and guidance, reporting “unprecedented” demand for its chips.
The yield on the US 10-year Treasury stretched to 4.32% on Friday from 4.29% on Thursday. The yield on the US 30-year Treasury widened to 4.92% from 4.89%.
The pound eased to 1.3497 dollars on Friday afternoon from 1.3500 dollars on Thursday. Against the euro, sterling fell to 1.1532 euros from 1.1551 euros.
In the UK, retail sales increased faster than expected in March as fuel sales soared 6.1% amid surging oil prices.
According to the Office for National Statistics, the volume of retail sales rose by 0.7% in March, against market consensus for no growth.
Total retail sales, excluding automotive fuel, rose by 0.2% on-month, in line with FXStreet-cited expectations.
Danni Hewson, AJ Bell head of financial analysis, explained the figures show rising petrol and diesel prices are “eating into household budgets”.
“People can only spend a pound once and if they’re choosing to shell out more than normal on fuel, they’ll have less to spend on other purchases,” she explained.
A separate report showed UK firms think food inflation could jump as high as 7% this year.
According to a Bank of England survey the Middle East conflict has “eroded” confidence that the UK economy will improve later this year.
The Decision Maker Panel survey showed that firms expected to increase their prices by 3.8% over the next 12 months, according to data for the three months to April.
This is 0.3 percentage points higher than predicted over the three months to March.
Meanwhile, the Bank of England’s deputy governor, Sarah Breeden, told the BBC on Friday the the UK central bank expects stock markets around the world to fall as share prices do not reflect the many risks facing the global economy.
Ms Breeden, who is also the Bank’s head of financial stability, said: “There’s a lot of risk out there and yet asset prices are at all-time highs. We expect there will be an adjustment at some point.”
The euro traded lower against the greenback, falling to 1.1703 dollars on Friday from 1.1708 dollars on Thursday. Against the yen, the dollar was trading at 159.55 yen, from 159.50 yen.
On the FTSE 100, packaging firm Mondi slumped 11% as it missed profit forecasts in the first quarter.
The Weybridge-based packaging firm on Friday said underlying earnings before interest, taxes, depreciation and amortisation, including forestry fair value, fell 27% to 212 million euros for the first quarter that ended March 31, from 290 million euros a year earlier.
JD Sports Fashion fell 1.9% as the Financial Times said a boardroom rift sparked the departure of chairman Andrew Higginson this week.
The FT reported that Mr Higginson quit as chairman of JD Sports after pushing for chief executive Regis Schultz to be ousted and failing to win unanimous backing for the move.
But JD Sports told Alliance News that Mr Schultz has the “continued support” of its board.
A JD Group spokesperson said: “It was mutually agreed between Andy and the board that this is the right time for a change of chair; there has been no disagreement about the board’s continued support for the CEO. The board is grateful for the valuable role that Andy has played during his tenure at the business.”
Airlines headed south amid the higher oil price and fears over jet fuel supplies.
Wizz Air fell 6.0%, easyJet 2.3% and British Airways owner IAG 1.4%.
Gold traded at 4,718.34 dollars an ounce on Friday, down from 4,731.39 dollars at the same time on Thursday.
The biggest risers on the FTSE 100 were British American Tobacco, up 96.00p at 4,302.00p, Intercontinental Hotels Group, up 3.10p at 146.00p, London Stock Exchange Group, up 180.00p at 9,992.00p, Sage Group, up 14.60p at 902.80p and Marks & Spencer, up 5.35p at 347.00p.
The biggest fallers on the FTSE 100 were Mondi, down 93.60p at 748.20p, Babcock International, down 54.50p at 1,131.50p, Antofagasta, down 145.00p at 3,686.00p, AstraZeneca, down 536.00p at 13,956.00p and JD Sports Fashion, down 2.12p at 69.94p.
Monday’s global economic calendar has German consumer confidence data. Later in the week, interest rate decisions are due in the US, Europe, UK and Japan. Inflation prints will be released in Australia and for the euro area.
Next week’s local corporate calendar sees first quarter results from oil majors BP and Shell, pharmaceutical firms GSK and AstraZeneca and banks Barclays, NatWest and Lloyds.
Contributed by Alliance News
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