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Windfall Tax on banks to help mortgage borrowers?

Journalist: Andrew Montlake, Newspage

ended 16. August 2023

The Italian government has approved a 40% windfall tax on banks and will use proceeds to help mortgage holders.

The UK mortgage industry – particularly brokers have long been urging the government here to do more to help struggling mortgage holders – is there any reason why a windfall tax couldn’t work here? 

Banks in both countries have reported record profits at a time when those with mortgages are being hit with rising interest rates on top of a cost of living crisis.

What is the likelihood of the UK government following Italy’s lead?

Should they consider a windfall tax as an option? 
 

7 responses from the Newspage community

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Editor
Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Italy’s move was on the basis that the ECB’s monetary policy isn’t correct for their economy. The Uk cannot take the same view as the Bank of England set rates to take money out of UK mortgage holders wallets. Putting that same money back in their account would be counter productive and undermine the Bank’s policy, however dismal it is. Changing the central bank mandate would be the easiest options to support Uk households.
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Stephen Perkins
Managing Director at Yellow Brick Mortgages
There is no chance at all of the UK government imposing any windfall tax on their banking chums. More likely to instead offer them more tax breaks and suggest they pay themselves bigger bonuses from the increased profits.

The government barely taxed unprecedented levels of excess profits from energy companies to help households sufficiently to heat their homes or keep the lights on, and that was with high levels of public and opposition party support for such measures.

It is always disappointing to see banks plead poverty and cash flow as the reason they cannot give brokers and customers 24 hours' notice of rate increases, whilst also making record booms in profits and not doing all their can to pass rate reductions on to clients, or increases on to savers quick enough.

Would it help and be welcome? yes, will it happen? no chance.
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Editor
Justin Moy
Managing Director at EHF Mortgages
As a headline grabber, this sounds like a great idea, but in reality, its a policy that contradicts what the base rate increases are trying to do - to slowpending. Putting money back into the same arena that the government are desperately trying to squeeze doesn't make fiscal sense. There are other tools available to help borrowers, such as the ability to swap to Interest Only for a period, which will help more in the short term, or simply to spread the increase through taxation such as VAT, so that more of the population shoulder the responsibility of inflation, not just the poor mortgage holders. We also have to remember that vast amounts of UK pension holders will have significant funds invested in banking stocks, so to tax them in this fashion will probably have a knock-on effect on pension values, causing another problem down the road.
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Daniel Hobbs
Managing Director at New Leaf Distribution
Very unlikely. A windfall tax of this magnitude would decimate already volatile investment markets, and ultimately have a big impact on clients holdings.
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Graham Cox
Director at Bridging Hub
We all love to hate the banks, and heaven knows they give us good reason at times, but I think this would actually be a terrible idea. We're in danger of becoming hooked on perpetual bailouts. My main objection though is how financial support for homeowners will distort the housing market once more. It would be best all around if we let house prices drop to affordable levels, rather than artificially boosting them. But secondly, why should mortgage borrowers get a bailout, but not tenants? The latter are seeing huge rent increases, where's the help for them?
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James Miles
Director - Mortgage Adviser at The Mortgage Quarter
Banks are posting record number profits hitting billions so a windfall tax may spark them into to playing fairer in the future. They’re quick off the mark to raise borrowing costs however profit off raising deposit accounts slowly. We need to be careful not to penalised investment and growth but it cannot be only households taking the burden of widen economic issues out of their hands
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
If I were on the board of any of the major banks now, this would be a concern if it were forecast to make record-breaking profits. Any bank posting massive increases in profit, whilst mortgage rates spike and households suffer, at the same time as them being hauled over the coals for not passing interest rate increases on to savers, is in a PR nightmare. The spotlight is very much on them and, with an election looming, any of the parties may see a proposed bank windfall tax as a vote winner. There are several issues at play though; do banks just overprovision in other accounting areas, like bad debts, to "hide" profits and then reprovision later and move the money back to the bottom line (and then pay it out to shareholders) once no one is looking? If there was a windfall tax; what would happen to that money? Is it passed back to the public stoking inflation further, or does it just vanish into government coffers with no obvious benefit to the public?