Influential Labour MPs call for windfall tax on banks as Santander and Lloyds announce bumper profits

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Former Shadow Home Secretary Diane Abbott said: “Of course, there should be a tax on windfall profits, with the funds used to ease the cost of living crisis."

An increasing number of Labour MPs are calling for a windfall tax on banks, as Santander and Lloyds posted increased profits amidst the cost of living crisis.

Major banks’ profits and net interest income - the difference between what banks pay out and receive in interest - have increased as the Bank of England has raised interest rates to try and tackle inflation. 

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Announcements earlier today (26 July) from Lloyds and Santander revealed that their pre-tax profits for the first half of 2023 rose by 23% and 18% respectively. Santander’s net interest income has also increased by 10% to £2.36 billion, which is 41% higher than the half-year figure from the first half of 2019.

Now backbench Labour MPs are putting pressure on Sir Keir Starmer to call for a windfall tax on banks, who has faced criticism for saying any future government would not have the money to scrap the controversial two-child benefit cap. So far the Shadow Cabinet has refused to commit to a tax on banks, in the same way it has for oil and gas companies.

Former Shadow Home Secretary Diane Abbott told NationalWorld: “The banks are clearly profiteering. This is contributing to the squeeze on the economy. Of course, there should be a tax on windfall profits, with the funds used to ease the cost of living crisis."

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While Clive Lewis MP commented: “Banks’ bumper profits are being funded by public impoverishment. That’s the sign of an economic system that needs to change.

Clive Lewis and Diane Abbott have called for a windfall tax on banks' excess profits. Credit: Parliament/Getty/Adobe/Mark HallClive Lewis and Diane Abbott have called for a windfall tax on banks' excess profits. Credit: Parliament/Getty/Adobe/Mark Hall
Clive Lewis and Diane Abbott have called for a windfall tax on banks' excess profits. Credit: Parliament/Getty/Adobe/Mark Hall

“Our economy is only as healthy as the members of the public who keep it going. Where is the public benefit of a highly profitable banking sector, if people can’t afford to put a roof over their head, or keep their small business running to serve a local community?

“In the long term we need more progressive wealth taxes and the break up of the banking industry, ensuring we have a mix of banks, including the creation of a healthy, localised banking industry that serves communities first. In the short term, we need to redistribute unearned profits from banks to the public through a windfall tax.”

Dame Angela Eagle, a member of the influential Treasury Select Committee, previously supported a windfall tax, saying: “They’ve [banks] have been very slow to pass on interest rate rises to those who are lucky enough to have a little bit of money in the bank.” 

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Fran Boait, co-executive director of Positive Money, who is leading the campaign for a windfall tax, said: “Lloyds and Santander's latest results are a slap in the face of the public, who are footing the bill for their bumper profits.

“The context changes, but if the past 15 years have taught us anything, it’s that the same players always come out on top. Leaving banks to bask in bonuses and buybacks unchecked sends one message: the City always wins.

"Banks are profiteering from the Bank of England's interest rate hikes by failing to pass on higher rates to depositors. The government should take a leaf out of Thatcher's book and levy a tax on windfall profits from higher interest rates, which could fund support for households struggling with the cost of living crisis."

Analysis - money editor Henry Sandercock

During March, when US lender Silicon Valley Bank and Swiss investment bank Credit Suisse collapsed, NationalWorld spoke to banking expert professor Robert Webb about whether the same could happen in the UK. Not only were we pretty safe as a result of post-2008 Financial Crisis regulation, he said, but banks on this side of the pond were making a lot of money off the back of net interest income.

Put simply, soaring interest rates meant there was plenty of money flowing through our financial institutions, so it was unlikely they would run out of cash if people got jittery and started to withdraw their deposits en masse.

The latest set of net interest income figures from Lloyds and Santander show that the biggest lenders are continuing to enjoy strong profit margins as a result of interest rates climbing to a 15-year high. They are earning a lot more from rocketing mortgage rates than they are paying out in the form of savings interest.

While the practice of generating cash in this way breaks no laws - after all, it’s the principle way in which banks make money - the eight-figure uplifts they are seeing (14% year-on-year for Lloyds (£870 million); 10% for Santander (£213 million)) are not a good look at a time when people across the UK are suffering as a result of the cost of living crisis.

But it seems unlikely that this flow of money will decrease significantly over the coming 12 months. High interest rates are forecast to remain with us for some time, while Rishi Sunak’s government wants to loosen the post-2008 regulatory leash on banks rather than tighten it.

Chancellor Jeremy Hunt ruled a windfall tax earlier in the year, following a question from Richard Burgon MP in the House of Commons. The Labour backbencher said: “Banks are raking in bumper profits by refusing to pass on higher interest rates to their savers. Surely a windfall tax on these additional profits would allow the government to provide mortgage holders with the kind of support they really need at this time.”

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Burgon made the point that Margaret Thatcher and her Chancellor, Geoffrey Howe, introduced a special budget levy - another word for a windfall tax - in the early 1980s, which took around a fifth of the banks’ profits.

Hunt responded: “I hear what the honourable gentleman says, but he’ll be pleased to know that banks already pay a surcharge on their corporation tax of 3% as well as a levy on their balance sheets.”

NationalWorld has contacted UK Finance, Santander and Lloyds for comment.

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