The FTSE 100 was rocked on Friday as its banking giants stumbled badly, reacting to news of a potential windfall tax that sent shudders through the investment community. Over £6.4 billion was stripped from the market value of the UK’s top lenders after a thinktank proposed the sector be targeted to help shore up the nation’s finances.
The proposal from the Institute for Public Policy Research (IPPR) took aim at profits banks are making from reserves held at the Bank of England, a consequence of the post-2008 quantitative easing (QE) program. With interest payments on these reserves now costing the public £22 billion annually, the IPPR called for a new levy to claw back these “windfalls.”
NatWest was the index’s most significant casualty, its shares plummeting by nearly 5%. Lloyds Banking Group also saw a substantial drop of over 3%, while Barclays and HSBC were dragged down in the sector-wide rout. The heavy losses among these blue-chip stocks had a notable impact on the overall performance of the FTSE 100.
Analysts noted that the government’s pressing need for cash to fill a £40 billion budget hole makes such proposals particularly potent. However, there are widespread concerns that singling out the banking sector could undermine its ability to support the economy. The sharp market reaction serves as a stark warning of the potential consequences of such a policy.
