Most people might think that the ability of Britain’s major banks to come through the turbulence of the last decade intact is something to be celebrated. They have survived the pandemic, dealt with leaving the European Union, and successfully switched from a financial system that was based on cash and branches to one that is mostly digital. At least, then, one of the country’s major industries is doing well. It appears, perhaps unsurprisingly though, that the trades unions don’t want to celebrate. The TUC is calling for a windfall tax on the banks – even though it could kill them off.
After the big four high street banks reported combined profits of more than £14 billion in the last few weeks, the TUC has decided that the state is entitled to a slice of that money. It is calling for the ‘bank surcharge’ – that is, the extra over the standard rate of 25 per cent corporation tax owed on profits over £100 million – to be increased from its current 3 per cent. Paul Nowak, general secretary of the TUC, said:
If success just means you get slapped with an extra tax, then why bother?
Getting banks to pay more tax on their profits is plain common sense when they’re raking in billions and the rest of the country is struggling to get by.
Well, perhaps. An extra tax on banks might well sound like a good idea to the Chancellor, Rachel Reeves. After all, it will be popular with the party’s activists, and she needs to find extra money from somewhere to fund her wild spending. Chancellors Rayner or Miliband – if Reeves is replaced after catastrophic local election results later this year – would probably be even more enthusiastic about a fresh windfall levy.
The trouble is, it would also be deeply destructive. The British political class can’t just keep imposing extra taxes on any industry that happens to be doing well. It means there is less cash to reinvest in the business, that there is less money to pay out in dividends to shareholders (many of whom will be pension funds for the TUC’s members), and, worst of all, it destroys the incentive to do well.
If success just means you get slapped with an extra tax, then why bother? It makes more sense to be completely mediocre, or even to lose money so the government has to bail you out. Successive governments have already killed off one of Britain’s most successful industries – North Sea oil – with punitive windfall taxes. It hardly seems like a great idea to kill off another one.
