The chickens of quantitative easing came home to roost for UK banks on Friday, as the policy’s long-term costs sparked a call for a new tax that wiped £6.4 billion off the sector’s value. A thinktank report highlighted the expensive legacy of the crisis-era program, arguing that the banks who benefited should now help pay the price.
The report from the IPPR thinktank pointed to the £22 billion annual net cost of the Bank of England paying interest on the vast reserves created under QE. It labelled this a “windfall” for banks and proposed a levy to reclaim some of the funds, an idea that struck fear into the hearts of investors.
The market reaction was swift and unforgiving. Share prices of the UK’s leading banks, including NatWest and Lloyds, tumbled as investors contemplated a future with lower, tax-diminished profits. The scale of the sell-off underscores the significance of this policy debate.
This moment represents a reckoning with the complex consequences of the emergency measures taken after 2008. While QE may have helped save the economy then, its current form has created a political and fiscal problem. The market’s turmoil on Friday suggests that finding a solution will be a painful process.