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

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. 

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.

And this comes in the midst of a mortgage and cost of living crisis, with accusations that financial institutions have been too slow to pass on profits from rising interest rates to savers.

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."

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.

“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.” 

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."

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.”

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.