The Bank of England has handed over an “eye watering” £100billion in interest to already mega wealthy lenders over the past three years alone, it is claimed. Banks and others have been raking in vast sums from reserves held at Threadneedle Street. The deposits are used to settle payments between banks and follow the process known as quantitative easing - a way of printing new money - which began in 2009 in response to the global financial crisis.
Call to halt payments
Labour donor and green industrialist Dale Vince has joined campaigners in arguing that the government must “call time” on what he called the “eye watering” payments, which have turbo-charged big banks’ profits in recent years. Mr Vince, founder of energy firm Ecotricity, says the money should instead be used to help hard-up households in the upcoming Budget. He says the EU had a similar system, but has now virtually eliminated interest payments on reserves, a move estimated to save around £5.2billion a year.
His intervention comes amid fresh calls from unions and campaigners for Chancellor John Healey to slap a windfall tax on banks in his Budget at the end of October.
Taxpayer subsidy
“Britain’s banks are super successful at making money,” said eco-tycoon Mr Vince. “That makes them a target every now and then for a windfall tax. But their success is built on subsidies, massive taxpayer subsidies running to the tune of £30billion a year, paid by the Bank of England - as interest on their cash piles.
“This interest payment serves no purpose - it simply enriches the already rather rich. So rather than agonise over a windfall tax, the last one raised a handful of billions by the way - the better way is to stop fuelling their already huge profits with our taxpayer subsidy.
“This is probably the easiest reform we can make. Switzerland and the EU have already done it - if we end banking subsides, we save £30billion a year. We can use that cash for things that can help people and grow the economy - like restoring the personal allowance for income tax.”
Forecast and options
Think tank New Economics Foundation forecast in 2022 that the Bank of England would hand £57billion to the banking sector over the following three years. However, figures from the Treasury provided to Lord Sikka, Emeritus Professor of Accounting at the University of Essex and University of Sheffield, suggests just over £100billion has been paid in that time.
Jaya Sood, senior economist at the New Economics Foundation, said: “While families struggle with the cost of living, billions of pounds of public money flow to commercial banks every year. That is not an unavoidable cost of monetary policy. It is the direct result of decisions about how fast the Bank of England sells its gilt holdings and how it pays interest on reserves, decisions that could be taken differently.
“Options exist, from slowing the pace of quantitative tightening, to tiering the interest paid on reserves, to a windfall tax on the banks receiving these payments. They would save billions a year, it is just a matter of the Bank and Treasury's willingness to change course.”
