Rishi Sunak can show he means business with a new windfall tax on bank profits

Despite all his and Liz Truss’s railing against “windfall taxes”, Kwasi Kwarteng kept in place the 25 per cent energy profits levy imposed by Rishi Sunak earlier in the year.

Crucially, Kwarteng decided to keep the banking surcharge, which is levied on banks on top of corporation tax, at eight per cent. His predecessor Sunak had announced in 2021 that he would slash the charge to three per cent from April 2023, mainly to sweeten the pill of his massive increase in corporation tax.

Almost under-the-radar amid the upheaval of this week, at one point the Prime Minister’s official spokesman was asked if extra taxes on banks were on the table for the coming Autumn Statement. “Yes,” he replied. “Broadly speaking, hypothetical tax measures are for a fiscal event.” That was very much not a “no”.

Indeed, given just how massive bank profits are, there is arguably a stronger case to not just keep the UK’s surcharge at eight per cent but to put it up higher. The first hint of this came this week when Liberal Democrat Treasury spokeswoman Sarah Olney said: “The public will find it hard to stomach banks raking in large profits whilst their mortgage bills spiral out of control.”

Last year, Sunak was smart enough to spot the political elephant trap of trying to lift the banker bonus cap and resisted pressure from US financiers to scrap it for London. As, Boris Johnson’s team tried to ditch it in the dying days of his premiership, but only Truss and Kwarteng were politically foolish enough to actually go through with it.

That’s why calls for windfall taxes on banks are growing. The Spanish government is planning such a move, hoping to pull in €1.5 billion from 2022 and 2023 by imposing a 4.8 per cent charge on banks’ net interest income and net commissions. Hungary has a similar measure, and Czechia wants one.

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