I have this letter in The Guardian today:
As your editorial (13 July) notes, the government needs just a little extra funding to meet the pay and conditions demands of public sector workers that are crucial to the retention and recruitment of staff. You suggest additional tax charges, but there is another way to do this.
The government created about £900bn of new money to pay for the banking crises. To move this new money from the government sector, where it was created, to the private sector, where it was used, the Bank of England transferred that money to the UK's commercial banks.
The banks did nothing to earn this money, and yet they are still paid the Bank of England base interest rate on the total sums they hold. When interest rates were under 1%, as they were from 2009 to 2021, these interest costs were insignificant. Now that the base rate is 5%, the sum paid has soared to more than £40bn a year.
There is no need for the Bank to pay base rate on all these deposits. To ensure the effectiveness of its interest rate policy it needs to pay base rate on some of them. Interest on £200bn should be enough to do this. The rest could enjoy interest at a very much lower rate: 0.1% should do. Japan and the eurozone already use such a two-tier interest rate system. If done here this would save around £30bn per year which is enough to meet all pay demands now being made of the government.
Richard Murphy
Professor of accounting practice, Sheffield University Management School
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Richard, I am going to give you( a commercial bank) a big box of money – which you will hold. I hope that you will use it to stimulate economic activity (by loaning it to others). I will also pay you to hold my money.
This is the definition of insanity. Giving money to a COMMERCIAL bank & then paying them to hold this money is mad. Which begs the question: why is the UK meeja not asking the gov: why is the BoE giving money to banks & then paying them to hold it?
& let’s not forget – there is money to pay interest to banksters – but there is NO money to pull kids out of poverty. None. This is vile.
Agreed
The ultimate madness though is that banks do not need that money to lend. All they need to lend is creditworthy customers. That was made plain in a BOE paper a few years ago which also showed that it was virtually impossible to control the extent of bank lending (e.g. by reserve requirements … which again have nothing to do with how banks lend.
This letter should be made into one of the Guardian’s ‘Big Read’s’ they used to produce in my view.
Until they do, they won’t be getting my cash.
This course of action tells me all we need to know about whose interests the Treasury are serving.
It’s got me thinking though. Where is the rot in government really? Is it our political parties or is the reality really that it is in the Treasury itself where the economic worm-tongues are to be found? Where the sleeper agents of capital are?
Again, looking at the almost continuous austerity and state retrenchment over the last 40 odd years, I cannot help but be drawn to the faceless, anonymous enablers of indifference who may lurk there.
A public enquiry anyone? Some investigative journalism? A tantalising thought………………………
Yesterday, I sent a message (via the message system they now offer, not a comment) to Andrew Sparrow of the Guardian Politics blog, with a link to this blog, asking the Guardian when one of their journos would write somethings sensible and supportive in this sense. But no reaction.
Thanks
Andrew follows me on Twitter
I seem to have hit the wrong reply button for my last comment re the Guardian Letters section. It was meant to be addressed to Richard.
Well done for getting this printed. It is generally a very misunderstood issue yet one simple to correct.
Only thing I might add (and I accept it is very hard to be brief on such a huge subject) is that the govt transferred this new QE created money to the banks because it really had no other way of doing it. The money did actually get paid to citizens and businesses, but because we all use bank accounts now,all this new money ends up just sitting in the banks accounts of one bank or another. This was a secondary effect. It was not the intention of the govt to just transfer new money to the banks to spend(at least in the Covid rounds of QE), as some may read your letter. This is really a glitch of our current/archaic banking system. But it is still scandalous that the banks should profit from it in the way they are when that was not the original intent.
It would be lovely if that letter was printed by the FT too.
Thanks
The problem is having 250 words….
Richard,
I am Scottish and a passionate supporter of Scottish independence. It appals me that the UK Government apportions debts to Scotland that it creates on Scotland’s behalf or for our notional benefit. I am assuming that, of the £40b if interest on QE deposits, ~£3.3b will be added to the GERS total for yet another cost that an independent Scottish Government would never have been unwise enough to incur.
Meanwhile the devolved Scottish Government is spending millions from a fixed budget mitigating the cruel effects of Tory and (quite possibly) Labour austerity.
This madness cannot be allowed to continue.
Agreed
And yes, this sum will be apportioned to Scotland
I’ve just seen that if you go to the Editorials and Letters section in Guardian Online today, the group of 3 Letters which includes yours is not shown. An error or unpleasant selection by the Guardian ? Maybe you should ask them which. If it’s not listed there, how can anyone know it exists (except via this blog), let alone read it?
How annoying….
Nothing I can do about that
As a long-standing supporter of The Guardian, I have just emailed the reader’s editor about the omission of the set of 3 letters (without mentioning your name).
Will see I get a reply.
Thanks
Richard,
‘There is no need for the Bank to pay base rate on all these deposits. To ensure the effectiveness of its interest rate policy it needs to pay base rate on some of them. Interest on £200bn should be enough to do this.’
Can you share your analysis for this figure of £200bn? Why not £100bn or £500bn? Or is this just a made-up number?
It’s an estimate
And a very generous one
£20bn worked pre 2008
Great to see you raising this this Richard. The approach was set out in some detail by Van Lerven and Caddick in their June 2022 paper for the New Economics Foundation. I seem to recall that it got some brief mention in the FT – mostly dismissive – at the time. It’s at: https://neweconomics.org/2022/06/between-a-rock-and-a-hard-place .
I have acknowledged their work on this on this blog