UK Bank Shares Drop £7.9bn on Windfall Tax Calls

UK bank shares experienced significant declines following renewed calls for a windfall tax on large lenders in the upcoming autumn budget, with NatWest, Lloyds, and Barclays among the biggest fallers. The Institute for Public Policy Research (IPPR) proposed a new levy targeting profits banks have made from the Bank of England's quantitative easing program, which has resulted in an estimated £22 billion annual loss to public finances due to higher interest payments on banks' reserves. The IPPR argues this subsidy inflates bank profits at the expense of taxpayers during a cost-of-living crisis and recommends a tax that could raise £7 billion to £8 billion annually, alongside slowing the Bank of England's quantitative tightening to save more public money. These developments have intensified market concerns about potential tax increases to address a fiscal shortfall of up to £40 billion, contributing to a £7.9 billion drop in the market value of major UK banks. The broader UK stock market and European indices also opened lower amid these concerns and ongoing inflation data releases. Chancellor Rachel Reeves faces pressure to recover these "windfalls" to support public finances amid challenging economic conditions.