Is the threat of a new bank tax just a ripple in the market, or the start of a much larger wave of instability? That was the question investors were grappling with on Friday as an initial £6.4 billion sell-off raised fears of further, more damaging consequences to come.
The initial ripple was caused by the IPPR thinktank’s proposal for a windfall tax on the profits banks make from the QE program. This immediately disrupted the market, causing a sharp, negative reaction.
However, the bigger concern is that this ripple could build into a wave. If the government seriously considers the proposal, it could trigger a sustained loss of confidence in the UK financial sector. This could lead to a credit crunch, a downturn in investment, and a flight of international capital, turning a sector-specific problem into a national economic crisis.
Analysts are divided, but the scale of Friday’s reaction—with NatWest dropping nearly 5%—suggests this is more than a minor disturbance. The market is signalling that it sees the potential for a destructive wave, and it is urging the government to act cautiously to prevent it from forming.