NatWest led a sector-wide plunge in the UK banking market on Friday, as the idea of a windfall tax took hold in the minds of investors and wiped £6.4 billion from the industry’s value. The bank, which was the biggest faller on the FTSE 100, became the poster child for the market’s anxiety over a potential government cash grab.
The anxiety was sparked by an IPPR thinktank report that called for a new levy on banks. The report targeted the £22 billion annual public cost of paying interest on reserves created during the quantitative easing (QE) era, framing this as an unfair “windfall” that should be returned to the taxpayer.
NatWest’s shares fell by nearly 5%, a significant drop for a blue-chip company. Lloyds followed with a fall of over 3%, and Barclays with 2%, demonstrating that the concern was not isolated but felt across the entire sector. The combined loss of £6.4 billion underscores the gravity of the market’s reaction.
The episode highlights the political sensitivity surrounding bank profits, especially at a time of fiscal hardship for the government. While the chancellor needs to find ways to fill a £40 billion budget gap, the market’s severe reaction to this proposal serves as a powerful warning against targeting the banking industry.