Here’s why Barclays, NatWest, Lloyds share prices are crashing
News Summary
Major UK banks, including Barclays, NatWest, and Lloyds, saw their share prices plunge on Friday. The primary catalyst for the decline is renewed calls for Chancellor Rachael Reeves to implement a windfall tax on these companies, which have benefited significantly during the high-interest-rate era. Driving the proposal is the Institute for Public Policy Research, which argues banks profited from state subsidies via the Bank of England’s quantitative easing. The think tank suggests a levy could raise £32.5 billion over the next five years. Banks, however, oppose the tax, asserting it would undermine the UK's financial sector's international competitiveness. The call for a windfall tax comes as UK bank stocks have boomed this year, but analysts predict this era of high profits may be ending as the Bank of England is expected to slash interest rates. It remains uncertain whether Reeves will proceed with the proposal, but a rejection could lead to a rebound in these bank stocks.
Background
Against the current backdrop, UK bank stocks experienced a significant boom in 2025. Lloyds, Barclays, and NatWest shares surged to multi-year highs, primarily driven by a high-interest-rate environment that substantially boosted their Net Interest Income (NII). For instance, Lloyds' NII rose 5% in the first half of the year, with Barclays and NatWest also reporting strong NII growth. These banks have leveraged their increased profits for stock buybacks and dividend hikes. Concurrently, UK Chancellor Rachael Reeves faces budget shortfalls, making any proposal that could generate substantial government revenue attractive. The Institute for Public Policy Research asserts banks benefited from state subsidies via the Bank of England’s quantitative easing, which inflated prices. The banking sector, however, highlights that it already pays a corporation tax surcharge and a bank levy, warning that additional taxes would diminish the UK's appeal as an international financial hub.
In-Depth AI Insights
How is the Treasury weighing political expediency against economic stability? - Reeves' challenge lies in balancing immediate fiscal needs with long-term economic competitiveness. While £32.5 billion is attractive for budget shortfalls, a windfall tax on banks could send a detrimental signal to investors. - Given the current stage of the UK's economic recovery, any policy that could stifle growth in the financial services sector—a critical pillar of the UK economy—or lead to capital flight, requires careful evaluation. - Politically, taxing 'profiteering' sectors often garners public support amidst a cost-ofliving crisis, but potential damage to London's financial hub status could become a long-term liability for the incumbent government. What are the long-term implications for the UK's financial sector competitiveness? - Implementation of a windfall tax would exert dual pressure on the UK financial sector's competitiveness: directly increasing operational costs and signaling policy uncertainty, which could prompt international banks to reassess their operational scale in the UK. - In the fierce global competition among financial centers, particularly from the EU, US, and Asia, any perceived anti-business tax policy could accelerate the exodus of talent and capital, especially given a "Trump-led US" might attract global capital through tax cuts or regulatory easing. - Such a tax could also disincentivize banks from investing in the UK, including technology and infrastructure, thereby eroding their long-term innovation capacity and global influence. Could this windfall tax set a precedent for other 'benefiting' sectors? - Should the UK government successfully impose a windfall tax on the banking sector, it would establish a precedent for future levies on other industries deemed to have made "unforeseen profits" during specific economic cycles (e.g., energy price spikes, supply chain disruptions). - This trend could lead to broader regulatory uncertainty, prompting investors to re-evaluate their exposure to UK markets, particularly in sectors sensitive to macroeconomic volatility or heavily impacted by specific external events. - It might also encourage companies to adopt more conservative financial strategies, reduce risk-taking investments, and focus more on tax avoidance rather than innovation and growth.