A powerful clash of narratives is defining the debate over a new bank tax, a conflict that spilled onto the stock market on Friday and cost the sector £6.4 billion. One narrative frames the legacy of quantitative easing as a £22 billion public “loss,” while the other describes it as an unearned bank “windfall,” and the resolution of this clash will have major financial consequences.
The “public loss” narrative, championed by the IPPR thinktank, focuses on the fact that the Bank of England is now paying out far more in interest on QE reserves than it receives. This, they argue, is an ongoing drain on the taxpayer that needs to be stopped, with a tax on the beneficiaries being the logical solution.
The “bank windfall” narrative is the flip side of the same coin, portraying the banks as the passive recipients of billions in risk-free profit. This narrative suggests a moral imperative to reclaim the money for the public good, a message that could resonate strongly with the electorate.
However, the financial market is telling a third story: one of potential economic damage. The £6.4 billion sell-off was a clear rejection of a policy based on these narratives, with investors and analysts warning that a punitive tax could restrict lending and harm the economy. The government must now decide which narrative will guide its policy.