Mahmood called for banker bonus tax to fix youth unemployment
Shabana Mahmood has previously called for a tax on banker bonuses to fix youth unemployment in a move that will renew fears the sector could be targeted for a cash grab.
The front-runner to be Andy Burnham’s Chancellor was a staunch supporter of a bill set out by Labour in opposition that sought to levy banker bonuses to fund a guaranteed, paid starter job for young people who had been out of work for over a year.
“The time has come for bonuses to be a reward for exceptional performance, not compensation for failure,” Mahmood told the Commons in 2015, when she was serving as shadow financial secretary.
The current home secretary added then that it was vital the UK’s banking system was “underpinned by the principles of fairness, trust and transparency.”
“The next Labour government will restore those principles to the banking sector.”
Under Gordon Brown in 2009, Labour introduced a one-off 50 per cent levy on discretionary bonuses over £25,000. It raised £3.4bn before expiring in April 2010 and was not renewed under the coalition government.
The Mahmood-backed bill proposed a similar 50 per cent rate, whilst banks would also pay a 50 per cent tax on the same bonuses. Critics at the time warned that coupled with the long list of levies on the sector, the effective tax rate on banks could reach 115 per cent.
Mahmood said it would include “stringent anti-avoidance” measures to assure it was not “aggressively avoided”.
“The public remain rightly angry about the many banking scandals we have seen… they will be astonished if they see failure continue to be rewarded with sums of money so far out of the reach of working people on lower and middle incomes.”
Banker bonuses have rocketed in the last year after the Conservative government ditched a cap that restricted the payout to be up to 100 per cent of a fixed salary or 200 per cent in the event of shareholder approval. The move to scrap the cap was one of the few policies upheld from the Kwasi Kwarteng Budget under Liz Truss’ brief premiership.
Mahmood to face rising youth unemployment battle
Mahmood framed the bill as a way to tackle youth unemployment, which has surged since Labour came to power in 2024.
Earlier this year, the Milburn review revealed the joblessness crisis in young people was costing the UK economy up to £125bn a year.
He warned the number of Neets – young people not in education, employment or training – was set to rise to 1.25m within five years.
One senior banker said they believed Mahmood was a “realist” and hoped she would not uphold her prior beliefs around a bank tax.
“I expect she is going to be constrained anyway,” they added.
But, as the front-runner for Number 11, Mahmood will find herself thrust into an ongoing row over whether to hit the banking sector with a fresh levy.
The bonus pot across the finance and insurance industry swelled to £25bn in the last financial year, prompting a slew of fresh calls for a tax on the sector – including from the Trade Union Congress (TUC).
A spokesperson for banking industry body UK Finance said banks already face a higher total tax rate than in other major financial centres driven by the corporation tax surcharge and the bank levy.
“Increasing these sector-specific taxes as the TUC propose would reduce the UK’s international competitivnesss and make it harder to attract investment,” they added.
The fresh calls follow Natwest and Lloyds both upgrading their income targets for the year on the back of interest rates forecasted to stay higher for longer due to the conflict in the Middle East.
Analysts have suggested the bumper profits have made the sector “ripe for a tax grab” but bank bosses have already begun to push back.
William Chalmers, Lloyds chief financial officer, said following Lloyds income upgrade that the “profitability of banks is an incredibly important component of a successful economy”.
Mahmood’s office was contacted for comment.