A ghost from Britain’s political past emerged to spook its modern lenders on Friday, as a proposal for a 1980s-style bank tax wiped £6.4 billion from the sector’s market value. The IPPR thinktank’s suggestion to revive a policy from the Thatcher era was met with immediate alarm by investors in today’s high-tech, globalised banking industry.
The thinktank explicitly compared its proposed levy to a tax on non-interest-bearing bank deposits introduced by Margaret Thatcher’s government in 1981. It argued this historical precedent demonstrates that targeting bank “windfalls”—in this case, profits from the quantitative easing program—is a legitimate tool of fiscal policy.
Investors, however, were less interested in the historical lesson and more concerned about the modern implications. The market reacted as if it had seen a ghost, with share prices of NatWest, Lloyds, and Barclays falling precipitously. The sell-off indicated a deep-seated fear that the government might be tempted by this seemingly tried-and-tested method of raising cash.
Critics of the idea argue that the financial world of the 2020s is vastly different from that of the 1980s. They caution that applying a Thatcher-era solution to a problem created by 21st-century monetary policy could have unpredictable and damaging consequences, potentially harming the UK’s competitiveness as a global financial hub.