An economic think tank has said that the government should impose a windfall tax on banks amid soaring profits.
It comes as high street banks have been accused of failing to pass on higher interest rates to savers at a time when mortgage costs are spiralling, and inflation remains high – the Bank of England’s base rate is currently at 5%, the highest in 15 years.
The New Economics Foundation (NEF) accused banks of “benefiting from higher interest rates they pass onto borrowers while paying savers only low interest”. The UK’s largest banks – Lloyds, HSBC, Barclays and Natwest – have all reported increasing profits this year.
It told Yahoo News: “The government must protect those on lower incomes while taxing windfall profits and high incomes more to rebalance the economy. And the Bank should pause and allow the impact of rate hikes so far to transmit to the economy, including getting banks to increase rates on savings.”
The NEF believes the threat of such a tax would encourage banks to pass on more of the base rate increase to savers, while the tax itself could be used to support those most in need after the cost of living crisis over the past 18 months.
Expert Calls to Tax Banks’ Massive Profits to Aid Struggling Population
Calls for a windfall tax on banks echo last year’s clamour, when energy bills accelerated, for a bonanza tax on oil and gas firms. Then-chancellor Rishi Sunak introduced the 25% Energy Profits Levy in May last year. The tax rose to 35% in January.
According to data from Moneyfactscompare.co.uk, the average easy-access savings rate on offer is 2.49%. However, the middle two and five-year fixed-rate mortgage deals recently broke through the 6% mark for the first time this year.
Two weeks after the Bank announced the 5% base rate, some providers have been pushing some savings rates upward in recent days, and on Thursday morning, there was a flurry of new savings announcements.
However, one investment platform called for customers to “vote with their feet” and punish banks for acting slowly by moving to competitors.
The Green Party is calling for a one-off tax on large companies making record profits of late due to high inflation fuelled by the pandemic, energy crisis and Russia’s invasion of Ukraine.
The money raised under the windfall tax proposal would support people struggling with the cost-of-living crisis.
Proposal to Tax Banks’ Massive Profits to Alleviate Struggles in the Face of Rising Living Costs
“An excess profit tax would be a simple and effectual way for large corporations to pay their fair share, unlocking the asset all of us need to live with nobility, put a roof over our heads and food on the table,” Green Party finance spokeswoman Julie Anne Genter said.
A windfall tax is a high tax rate on a specific industry when it suddenly makes large profits due to something for which they were not responsible.
One has been introduced for energy companies in the United Kingdom as they profit off rising oil and gas prices due to the disruption caused by Russia’s invasion of Ukraine.
There, energy companies will pay an additional 25 per cent tax for the next 12 months on their “windfall” profits, netting £5 billion or NZ$9.6b.
In New Zealand, corporate profits are on track to soar 60 per cent over the past two years.
Last week, New Zealand’s giant Bank, ANZ New Zealand, posted a 20 per cent increase in net profit for the year ended September of $2.3 billion.
Genter also pointed to the massive profits from supermarkets, raking in more than $1 million daily, and the banking sector.
Proposal to Tax Banks’ Massive Profits to Assist Individuals Struggling with the Increasing Cost of Living
“As people struggle to pay the mortgage and rent, Australian-owned banks are assembly record profits of over $6 billion.
“As tamariki go to sleep shivering, energy firms are generating eye-watering profits.
“And yet, having done nil to earn it, nearly every dollar of excess saleable profit is going straight into the stuff pockets of shareholders and corporate executives – rather than being shared amongst all of us.”
The party has today released a discussion document on how such an excess profit tax could be planned- and how the additional revenue should be spent.
A windfall tax could be applied to banks, fuel companies, supermarkets, building products suppliers and energy generators/retailers (retailers).
No specific rate is mentioned, but one suggestion is 11 per cent to bridge the gap between the company tax rate – 28 per cent – and the top income tax rate or setting it closer to 50 per cent, recognising the “effectively unearned nature of excess profits”.
The document suggests a range of methods the funds could be redistributed, including extending the cost-of-living payment, a range of one-off subsidies, and even setting up a sovereign wealth fund that could provide grants for “environmentally and socially beneficial programmes”.
Genter said they were also considering the alternative of elevating company tax rates so that all profits were taxed more. The discussion document suggests the current company tax could be increased to 33 per cent, generating over 3 billion dollars in annual revenue.
