Investors hit the panic button on Friday over the potential for a new bank levy, a move that wiped more than £6.4 billion from the sector’s market capitalisation. A proposal from the influential IPPR thinktank for a windfall tax on lenders was all it took to send a wave of fear through the financial markets.
The IPPR’s paper suggests that banks are the beneficiaries of a flawed system where the public purse loses £22 billion a year on interest payments related to the quantitative easing (QE) program. To remedy this, the thinktank proposes a new tax to “recoup” these gains, an idea that found no favour with shareholders.
The panic was visible in the tumbling share prices of the UK’s most prominent banks. NatWest, Lloyds, and Barclays all experienced significant drops as investors rushed to sell, fearing that their profits would be squeezed by government action aimed at plugging a £40 billion budget deficit.
The incident serves as a stark illustration of market psychology. The mere possibility of a new tax, even without official confirmation, was enough to trigger a significant financial event. It highlights the deep-seated investor apprehension about potential government intervention in the economy at a time of fiscal strain.
