"British banks profit billions from interest" - Fiscal intervention is required to support the central bank, taxpayers
The British government should tax banks on the billions of pounds they receive in interest from the Bank of England on reserves they hold at the central bank, a think tank has recommended. The roughly £22 billion a year that goes to banks as a result of the Bank of England's bond-buying program constitutes a subsidy to lenders at the expense of public services, the Institute for Public Policy Research (IPPR) said.
A new tax on bank interest would give Finance Minister Rachel Reeves more room to meet fiscal rules. Reeves is expected to raise taxes again in the autumn budget, as she is widely seen as falling short of fiscal targets. This follows an increase in taxes on employers in the first budget last year.
According to analysts, what started as a program to boost the economy has now turned into a huge expense for taxpayers. Public money is ending up directly in the pockets of commercial banks due to a flawed policy design.
British banks hold hundreds of billions of pounds in reserves at the Bank of England, largely as a result of quantitative easing, a program launched during the 2008-2009 global financial crisis. Banks are paid on these reserves based on the Bank of England's current interest rate, which is now higher than during most of the quantitative easing program. The central bank's losses are covered by the Treasury and ultimately by taxpayers.
The Bank of England has said the current system is essential for transmitting changes in the official interest rate to the wider economy. In June, the institution again defended its government bond-buying and selling program after it was criticized by some politicians over the costs.
In May, Reeves mentioned the possibility of the Bank of England making money from a new system that provides reserves to banks, after the institution had suffered huge losses from its bond-buying program. Calls for an overhaul of the system have been going on for years.
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