A windfall tax is defined as a one-off tax on an industry or set of companies that have unexpectedly made large profits as a result of external circumstances. Given the sizeable profits made by banks in recent years, it looks like the Government have missed a great opportunity to raise money for further public investment.
In 2023, the previous Government cut the bank surcharge rate, a tax on bank profits alongside corporation tax, from 8% to 3%. However, the subsequent unforeseen rise in interest rates by the Bank of England has meant greater interest payments flowing to banks from both households and businesses across the country. As a result, banks have experienced great windfall profits to the tune of £1bn a week for the ‘big four’ so far this year. In total, these four banks made £45.9bn of profits in 2024 alone. This has come at the same time as people across the UK have struggled with their mortgages or higher borrowing costs, helping to deepen the cost of living crisis.
Clearly, banks have profited enormously from external factors outside their control. This raises the question: why did the Government neglect to respond through the budget? The TUC note that returning the bank surcharge to the previous 8% rate for four years would raise £8bn, while a rate of 16% could raise £20bn. If reinvested smartly, such a move could help allay the financial pressures that many are feeling today, while fairly redistributing a fraction of the gains banks made as a result of the unexpected rise in interest rates — gains that have little to do with increased investment in their staff, innovation or long-term strategy.