Shockingly, banks are the most heavily subsidised businesses in the world. We give them over £130 billion in subsidies and benefits every year. Without these subsidies and benefits, the banks wouldn’t be making any profits, and they certainly wouldn’t be paying bonuses right now.
Banks, on the face of it, don’t come across as the kind of businesses that need benefits. The truth is that the only reason the banks are the richest companies in the world is that we are paying for it.
Most organisations receiving support from the government are given it for things that benefit or provide services to us; libraries provide free books, nurses provide healthcare, and teachers provide education. The banks don’t give anything back at all, and the benefits we provide them actually harm us more than if we didn’t give them any at all.
How Do We Subsidise Banks?
1. By Passing the Risk on to Taxpayers
The government guarantees the money in your bank account – it says that if your bank goes bust and loses your money, the government will give you your money back. This is supposed to make banking safer, but the reality is that it just encourages banks to take big risks with your money. They can do this because the government will pick up the tab if anything goes wrong.
If we actually knew how much risk was being taken with our savings, the banks would have to pay us much higher rates of interest. But because the government makes these savings ‘risk-free’ (by passing the risk onto taxpayers), then banks can pay lower interest rates to savers. This saves the banks £100 billion a year.
Given that the banks are announcing profits of around £20bn this year, if they didn’t have this taxpayer-funded guarantee then the banks wouldn’t be making any profits, and wouldn’t be paying bonuses.
So the £7bn in bonuses are thanks to our support for the banking sector as taxpayers.
2. By Giving them a Licence to ‘Print’ Money
Through a complicated accounting process, we have given the banks the power to create new money and then profit from lending it to us. Somebody somewhere has to have responsibility for creating new money, but by giving banks the power to create all of our money we ensure that;
- The money goes to wherever it suits them best (such as pushing house prices out of reach of ordinary people or gambling on toxic derivatives)
- We must go to the bank to borrow every single pound that we need to run businesses, shops, factories and even schools and hospitals
- The banks use the power to create and lend as much new money as they possibly can, regardless of the effects this has on society and the economy.
This is very good for the banks, but we shouldn’t be giving tax money and special privileges to people who aren’t going to use it for our benefit, especially when we could be using those privileges ourselves in the interests of society and the economy.