A battle for billions has erupted between the interests of the public purse and the profits of the banking sector, a conflict that inflicted a £6.4 billion casualty on bank shareholders on Friday. The battleground is the legacy of quantitative easing, and the weapon of choice is a proposed new windfall tax.
The case for the public purse was made by the IPPR thinktank, which argued that the £22 billion a year being transferred to banks through interest on QE reserves is a public loss that should be stopped. They are fighting to reclaim these billions for taxpayers.
The banks and their investors are fighting to defend their profits, arguing that they are the legitimate result of the monetary framework set by the Bank of England. They contend that these profits are necessary for them to remain well-capitalised and able to lend.
The market’s reaction shows who is believed to be losing this battle so far. The £6.4 billion sell-off indicates that investors fear the political power of the “public purse” argument will triumph over the economic arguments of the banks. The outcome of this battle will have profound implications for the UK’s financial landscape.