A £22 billion question is now at the heart of a fierce debate that cost the UK banking sector £6.4 billion on Friday: are the profits banks make from quantitative easing fair game for the taxman, or would a levy constitute economic foul play?
The “fair game” argument, put forward by the IPPR, is that the £22 billion annual public cost of the policy is creating an unearned, risk-free windfall for banks. From this perspective, it is perfectly legitimate and fair for the government to reclaim a portion of it for the taxpayer.
The “foul play” argument, implicitly made by the market’s sell-off, is that this is an arbitrary and retrospective targeting of a single industry. Critics argue that changing the rules after the fact would damage the UK’s reputation for economic stability and could be considered a form of sovereign risk, where the government itself becomes the biggest threat to investors.
The government is now in the position of refereeing this dispute. Its decision will be seen as a definitive ruling on what constitutes legitimate profit versus a targetable windfall, a judgment with profound implications for the entire relationship between the state and private enterprise in the UK.