The financial markets pushed back, and pushed back hard, against a proposed new bank levy on Friday, using their most powerful weapon: a massive sell-off. The immediate and brutal rejection of the idea wiped £6.4 billion from the value of UK lenders and sent a clear, unambiguous message of disapproval to policymakers.
The proposal that drew the market’s ire came from the IPPR thinktank, which suggested a windfall tax to reclaim bank profits stemming from the £22 billion annual public cost of the quantitative easing (QE) program.
The market’s pushback was not subtle. The sharp plunge in the share prices of NatWest, Lloyds, and Barclays was a coordinated, albeit leaderless, expression of protest. It demonstrated the collective belief of thousands of investors that such a tax would be detrimental to the health of the banking sector and the broader economy.
This powerful reaction creates a political barrier for the government. While the IPPR’s proposal may have political merits, the market has shown that it will exact a heavy price if the government attempts to implement it. This sets up a classic confrontation between political will and market power, with the stability of the UK financial system hanging in the balance.
