Ever wonder where all that QE money went? A new report suggests UK banks might be sitting on a windfall that rightfully belongs to public services. Imagine £8 billion redirected to help struggling families. Is it time for a tax overhaul, or should banks keep their profits?

A new proposal from a leading think tank suggests a significant windfall tax on major UK banks could recover billions lost from the Bank of England’s quantitative easing program, redirecting funds towards vital public services. This innovative approach aims to address economic imbalances stemming from current financial policies and ensure greater fiscal responsibility.

The Institute for Public Policy Research (IPPR) contends that a targeted levy on the substantial profits of major firms like Barclays, Lloyds, HSBC, and NatWest could generate up to £8 billion annually. This proposed bank profits tax is designed to funnel much-needed revenue back into the public purse, specifically for supporting critical public services funding and easing the burden on taxpayers.

The core argument centers on the UK’s unique position as an international outlier, where taxpayers currently bear the cost of central bank losses on its extensive bond-buying quantitative easing initiatives. The IPPR highlights that this situation has led to a controversial flow of public money directly into bank shareholders’ pockets, exacerbating wealth disparities.

Following a period of significant profitability for banks during the QE program, the Bank of England is now confronting record losses from this initiative, estimated at £22 billion per year. These losses are a direct consequence of the sharp rise in interest rates since 2021, creating a substantial financial challenge for the exchequer.

The IPPR report meticulously details how this “flawed” policy design is inadvertently boosting bank profits at a time when millions across Britain are struggling with severe cost-of-living pressures. This perceived economic imbalance underscores the urgency of implementing a fairer economic policy to support households.

To rectify this, the influential think tank advocates for a “QE reserves income levy,” drawing a compelling historical parallel to the 2.5% deposit tax Margaret Thatcher famously imposed on banks in 1981. This measure aims to rebalance the financial system by recouping some of the unexpected windfalls enjoyed by banks.

Crucially, this proposed windfall tax would be temporary, ceasing once all QE-related gilts are off the Bank of England’s balance sheet or when the bank rate reaches 2%. This temporary nature ensures its targeted impact on specific financial windfalls, aiming for minimal long-term disruption to the banking sector’s competitiveness.

While the Treasury maintains that robust economic growth remains the primary driver for strengthening public finances, this bold proposal injects a new dimension into the ongoing debate about tax reforms and economic stability. It comes amid increasing warnings from economists that tax rises may be necessary to plug a looming hole in public finances, making the IPPR report a timely intervention in the economic policy discourse.