Taxpayer "hidden subsidies" propping up banks
Think-tank New Economics Foundation (NEF) has issued a briefing asking whether banks would be making any profit at all without billions in hidden subsidies from the British taxpayer and bank customers.
According to NEF estimates using Bank of England analysis - excluding the £512bn emergency state bail-out package from 2008 - taxpayers are subsidising the big banks by at least £32.5bn.
The hidden subsidies enjoyed by the banks are:
- “too big to fail” subsidy - the value of the implicit government guarantee to banks, effectively insurance against going bust
- “make the customer pay” subsidy - high rates of interest charged to borrowers by the banks, in particular mortgages
- Bank of England "quantitative easing" programme - fees charged on the emergency measures taken to stabilise the economy
The NEF says by handing banks "insurance against going bust", the government gives them "a huge commercial advantage".
The report concludes, “that there [are further] hidden subsidies [that] must be investigated and that if the Independent Commission on Banking is to properly do its job, it must establish a full picture of the de facto hidden subsidies being enjoyed by the banks.”
Richard Murphy, director at Tax Research, added: "Because of opacity s estimates of the hidden bank subsidies are hard to make, but my work on quantitative easing convinced me this might have benefitted the economy and government by more than £150 billion, but of the remaining £40bn or more injected into the economy a significant slug of the benefit ended up with the banks - and bankers. Conversations in the City suggest they share the view."