Pressure felt from the rise of Jeremy Corbyn and Zarah Sultana’s new left party could stop the boss of Lloyds. He is trying to convince chancellor Rachel Reeves not to increase taxes on banks. The new left party, the name of which participants will decide democratically, received 500,000 sign ups in three days. That’s a lot more than the individual membership of both Reform and Labour.

Abysmal Labour approach, perpetuated by Lloyds

At the same time, Charlie Nunn, the chief executive of Lloyds Banking Group, has warned Reeves that higher taxes on banks “wouldn’t be consistent” with Labour’s focus on the financial sector to boost growth.

Labour is looking to finance for real economy growth, despite the fact that all the evidence suggests that is counterproductive. The expansion of the financial sector poaches workers from the real economy and shrinks the economy when private debt is high (which it is at a staggering average of 160% of GDP).

Nonetheless, Labour appear to be continuing with the Tory policy of transferring money from low income people to the already rich. Perhaps their dire polling and the rise of a new left party will make them offer concessions, like the winter fuel payment U-turn.

It would make sense, given bankers already enjoy many perks and harbour obscene profits.

Bonuses and profits

In 2024, UK banks made £45.9 billion in net profit. That’s around 5% of the entire UK government budget and much higher than Labour’s attempted cuts to welfare. On top of that, Lloyds reported a 17% rise in second-quarter profits this year.

Still, Labour has refused to bring in a cap on bankers’ bonuses, aligning with Liz Truss who scrapped the cap during her brief stint as prime minister. The cap itself was already minimal – at 100% of a bankers’ entire annual salary.

This led Sky‘s Kay Burley to point out:

Just to clarify, Labour’s happy to cap child benefit, but not bankers bonuses

Open Democracy had already revealed that bankers and city-linked firms handed Labour £2m in donations in the two years up until they refused to introduce a bankers’ bonus cap.

It gets worse. The public purse subsidises commercial banks through the Bank of England paying interest on reserves it holds for them. From 2023-2028, public funds will have forked out £180bn to private banks in order to pay the interest on the reserves they hold with the central bank. As a public entity the Bank of England shouldn’t be paying such interest.

Rebalancing away from the likes of Lloyds

Meanwhile, Positive Money has found that a windfall tax on banking profits could rebalance the economy by £14.8 billion per year. The previous government slashed the surcharge rate banks pay from 8% to just 3%. And there is speculation Reeves may reverse that change. But if it was increased to 35% – the same rate energy giants pay – it would raise nearly £15 billion annually.

Fran Boait, former Co-Executive Director at Positive Money, has said:

The good times just keep on rolling for banks. Not only are they still profiting off the public thanks to higher borrowing costs, but their share prices are soaring off the back of those profits. But the size of bank profits will wane as rates start to come down, and so the longer the government waits to place a windfall tax on banks, the less money it will be able to claw back for the public. If the government insists on claiming there’s a “black hole” in public finances, then bank profits are a popular, uncontroversial, and frankly sensible place to find the money it needs to support households still reeling from the higher rates which have enriched banks.

Featured image via the Canary

By James Wright

This post was originally published on Canary.