Key facts
- Shabana Mahmood, a leading candidate for Chancellor, previously supported taxing banker bonuses.
- The proposed tax was intended to fund guaranteed jobs for young people facing unemployment.
- A similar levy under Gordon Brown in 2009 raised £3.4bn.
- Critics warned that proposed taxes could significantly increase the effective tax rate on banks.
- Youth unemployment has risen, with the Milburn review estimating a £125bn annual economic cost.
Shabana Mahmood, a leading contender for the position of Chancellor, has a history of advocating for a tax on banker bonuses to address youth unemployment. In 2015, she supported a bill that proposed a 50% levy on banker bonuses, with the aim of funding guaranteed, paid starter jobs for young people who had been unemployed for over a year. Mahmood argued at the time that bonuses should reflect exceptional performance rather than failure and that the banking sector needed to be underpinned by principles of fairness, trust, and transparency.
This proposal echoes a similar one implemented by Labour under Gordon Brown in 2009, which imposed a one-off 50% levy on discretionary bonuses over £25,000, raising £3.4bn before its expiration in 2010. Critics of Mahmood's proposed bill warned that combined with existing levies, the effective tax rate on banks could reach 115%, potentially impacting the UK's international competitiveness. Mahmood's office has stated that stringent anti-avoidance measures would be included.
The resurfacing of this proposal comes as youth unemployment has surged since Labour's return to power in 2024. The Milburn review highlighted that this crisis costs the UK economy up to £125bn annually, with projections indicating a rise in young people not in education, employment, or training (NEETs) to 1.25 million within five years. Meanwhile, banker bonuses have significantly increased following the Conservative government's decision to scrap a cap on payouts, a move upheld from Liz Truss's brief premiership. The finance and insurance industry's bonus pool swelled to £25bn in the last financial year, prompting renewed calls for a sector-specific tax from bodies like the TUC.
Industry representatives, such as UK Finance, argue that banks already face high tax rates and that further increases would harm competitiveness and investment. Despite recent income target upgrades from banks like Natwest and Lloyds, fueled by higher interest rates, bank executives are pushing back against new levies. Lloyds' CFO, William Chalmers, emphasized the importance of bank profitability for a successful economy.