As the FT has noted:
Santander chief Ana Botín has hit out at the UK's bank taxes, saying the regime “makes no economic sense” as lenders brace for a further hit if Sir Keir Starmer is replaced by a more left-wing prime minister.
As they added:
Botín said: “The question is, why single out the banks in particular and impose additional taxes? We already pay a corporate tax rate of around 30 per cent, our profit margins are nowhere near those of monopolistic players, and we're not reaping windfall profits.
“If policymakers are looking for sectors earning outsized returns, there are other places to start.”
She added that bank lending to businesses “drives investment and job creation”.
This, I think, passes for serious economic commentary from a person like Botín, who, we should hope, has thought about the economics, social purpose of banks, and their consequences for the taxation of banks. What is apparent, however, is that she thinks banks are just like any other business. That's a suggestion that needs to be addressed.
Banks are different
The reality is that banks are not like any other business, despite what Botin claims.
Banks are highly regulated institutions that are granted unique privileges by the UK state that are unavailable to any other business sector.
In particular, banks are completely unlike other companies. They are licensed to create money through lending and, for that privilege alone, banks should be subject to special taxation treatment.
In addition, as Botín should know, Santander's business model depends on a state-backed monetary system and central bank support. This is not true of manufacturers, supermarkets or retailers.
What is more, unlike any other business, banks' business is explicitly underpinned by the government through the provision of a guarantee to those who place deposits with them. No one would trust them without that guarantee. People need to know that they will be bailed out when banks fail, but as a result of it, banks know they will be. Their profit-extraction model, which is based on these guarantees, deserves special tax treatment as a consequence.
Banks create systemic risk, and they should pay a very high price for that in the form of taxation.
Banks are rentiers
What is more, as we know, banks do not profit in the normal sense. They do not buy a commodity and sell it, although bankers would like to pretend that they still take deposits and lend, which is a myth that has been debunked, even by the Bank of England. Instead, banks extract rents from society by creating credit at no direct cost to them, and this rent-extraction process imposes considerable costs on UK households and the business sector, and it also distorts prices, not least in the housing market. This is a rent extraction. It is not a profit-generating activity in an economic sense.
Banks as drivers of inflation
This, however, is not the only way in which banks extract rents. We also know that banks are among the largest traders of raw materials and commodities in the UK. They trade oil, gas, electricity, all our major foodstuffs, and other raw materials, including most base metals.
As a result, when there is a threat of shortages in these markets, they exploit that situation to manufacture excess profits for themselves. In the process, they also manufacture inflation. In fact, it's probably quite fair to say that the biggest drivers of inflation in the whole UK economy are our banks.
As evidence, look at what happened after Putin's invasion of Ukraine. Prices of many raw materials, and especially oil, gas and fertiliser, rose dramatically due to speculation about shortages. A year later, no shortages had taken place, prices had returned to their pre-invasion levels, but the banks had, in the meantime, created an inflation spike, a cost-of-living crisis, and had extracted enormous profits from the economy.
These banks are not neutral players inside our political economy. They are entrenched within it for one purpose, which is to extract profit from it through speculation that exploits consumers.
Banks do not deliver investment or jobs
In that context, Botín's claim that banks help create investment and jobs in the UK economy should be seen in a proper light.
Bank lending to the small business sector has been falling steadily for decades, to the point where it is now very hard for most small businesses to secure any form of bank support for their operations. And it is known that approximately 85% of all UK bank lending is either for mortgages or is secured by property collateral. In other words, banks are not interested in lending for investment or job creation. To claim that they are is just totally misleading at best, or disingenuous at worst.
Banks do not need to retain profits to lend or grow the economy
Meanwhile, modern monetary theory, or MMT, shatters the idea that banks must be allowed to retain profits as a basis for lending. This is not true.
As a matter of fact, banks create deposits when they lend, and they are not therefore dependent upon retained reserves for this purpose, because, as a matter of fact, they do not lend existing funds to those persons to whom they grant credit. There is, therefore, no argument to be found for this reason for lower taxation. Any such claim is economically false.
Nor is it true that banks must be allowed to retain profit to fuel growth. If growth were an appropriate objective, banks do not assist it with their activities. Growth is created by real economic activity, but as already noted, banks are not willing to fund that. Instead, they fund the buy-to-let market, speculation, share buybacks and other such extractive activities. Banks harm growth.
Banks as reallocators of wealth
It is true that any economy needs banks. I am not disputing that. But the banks we have are not involved in constructive activities in the UK. At best, their primary function is to allocate wealth from those who lack it to those who already possess it. This is not a useful economic activity. It is a destructive one. And precisely for that reason, we do need to tax banks more.
Why we need to tax banks more
We need to tax at higher levels the rents that banks extract from our economy.
We need to tax banks' speculative activities much more heavily, including by imposing financial transaction taxes, to limit the harm banks cause to our economy.
We need to tax, at higher rates, the real upward reallocation of resources that banks facilitate within the UK.
And we need to tax them more, because the UK state underpins the activities of these antisocial organisations, and we need to be heavily compensated for bearing that risk.
Conclusion
Ana Botín's comments are deeply and profoundly misleading.
Her claim that banks should be treated like any other business is wrong.
Her economics comes from a point of privilege, with the intention of maintaining it.
Her claims are not based on facts.
They should be ignored.
And at the same time, genuine questions should be asked, such as why should a person so willing to mislead be in charge of a UK bank? I have no answer to that.
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You’ve really stuck the intellectual boot in here. As Christine Lagarde once said, banks are too interested in helping themselves instead of helping anyone these days. So true………….and thanks for the pdf.
Might the correlation between truth telling and the gaining of power be less than we would wish/expect?
Looking at world leaders, might there be an inverse correlation?
It seems that everybody racking in the dole believes themselves to be a wealth creator and therefore we should grant them special privileges. UK financial industry is valued at 156 billion while holding 14 trillion in assets! Almost 4 times the size of UK GDP. Talk about being oversized.
There must be something in your first line I do not get or cannot work out.
“Raking in the dosh”, maybe?
Maybe
I was thinking about the debt industry as a whole. Including loan sharks and payday lenders. I have not put too much thought into it. But until deregulation of finance in the 1980s they did not exist. Their profits come others being in poverty.
She is right, the current regime makes no sense…… but she should be careful what she wishes for. Your suggested regime DOES make sense….. and she won’t like it.
🙂
Thank you and well said, Richard.
I would quibble with the amount of tax Botin claims her family plaything pays. Banks include what employees, including contingent staff like reception, catering and cleaning, pay when boasting how much tax they pay. This inflates their tax claim.
I met the lady around 2010 as I was delegated the task of welcoming her to and shepherding her around my employer’s annual conference*. She was a speaker. She and all of the other speakers, including HSBC’s Douglas Flint, just read their notes and were dull.
Her family have controlled what is now the Santander group since the late 19th century. They don’t know anything about the “real” economy and people. Botin’s nonsense follows what Gillian Tett wrote over the week-end.
For a decade or so, in part due to regulatory issues, Santander has wanted to exit the UK. One wonders if this is the latest excuse.
*In recent days and weeks, I have mused about those days and wondered if I should have cynically jumped on the right wing shill gravy train, like Tett. This community would be stunned how much money oligarchs are willing to pay.
Thank you
Well noted Sir! I was wondering – before coming across your piece – just how privileged the lady was – quelle surprise, not.
Not mentioned – most of Santanders UK profits come from … the BoE paying it to hold free money from the… BoE (is that what they mean by “what goes around comes around?) . I have a sense that this is coming to an end and like most spivs it is exiting the scene.
An eye opener. I understood that banks are uninterested in lending to small businesses, that they benefit from hiking mortgage rates, had to be made to provide no-fee current accounts, and don’t give much interest on a rainy day savings account. They seem to be in the business of extraction, and in a privileged position. I don’t often envy people in the USA, but their government run mortgage system brings a stability we can only dream of. Where does a small business go, that needs a loan to expand? Business of personal, there’s a world of difference between how the banks treat the rich and those of modest means. Taxation should be progressive.
A lot to agree with but also a puzzle. If a bank could simply create money, how could it also pose a systemic risk?
A bank cannot simply create more money for its own use. It needs a counter party to create money*. Your claim is 100% wrong.
* THe BoE counterparty is the Treasury.
I wasn’t claiming they could simply create money. I think banks are incredibly constrained in how they can create money. They have to cancel money too.
They are no ordinary business, they should be taxed accordingly but there are also people out there who believe banks can actually just create money from thin air and then live off the interest. In reality, there are a number of regulatory constraints.
Banks already pay for the deposit guarantee provided by the BoE – why do you not explain that?
Investment banking and prop trading are entirely separate businesses from high street banking – why do you not explain that?
Traders in securities and commodities require someone else on the other side of the deal, voluntarily taking a contrary position – why do you not explain this?
Banks provide a huge array of services to ordinary customers – paying direct debits and standing orders, access to ATMs, internet banking etc all for FREE – why do you not explain that?
Your comments above are such a distorted version of reality that it is unclear whether you are just poorly informed or deliberately seek to present and extremely biased and inaccurate version of the truth?
The payment is far too low
Trading is not just by investment banks – much is by companies in the same groups as consumer banking operations. The ring fence is being weakened.
Much trading is inter bank gambling
And sure we need banks – but not the ones we have
The dissembling is all by you
I believe that banking services are an essential part of the infrastructure of every civilised country. Like health & social care, education, public transport, and domestic heating, lighting & water supply, they are a natural monopoly that should be provided to every resident on a not for profit basis preferably by national or local government.
We are now left with one bank branch only in S Bristol (which doesn’t open on Fridays). Nat West just announced they are running away in September.
The only one left south of the river, Lloyds, doesn’t allow deposits via the post office.
I know one elderly anxious neighbour who doesn’t have internet or smartphone, and has only just been persuaded to get a clam payg mobile, who will be seriously distressed about this, she is one of many.
Any government that cared, could provide basic banking services via the PO network. We could call it National Girobank… hang on a minute…
Anyone know where to find a government that cares?
Good question
There should be a lgeal requirement that the banks proviced shared banking hubs. Throw in a poost affice and Citizen’s Adsvice at their expense whilst they’re at it.
I have previously suggested ‘The Public Office’ not only Banks & Citizens Advice but – by appointment National and Local Government services – Benefits, Tax, etc
Agreed
https://www.thetimes.com/article/cc860d00-3daf-4922-b00f-87cbf64e04c6?shareToken=691eca0c5b57ada16e9252ce37613acd
With our government planning to cut things we rely on to live so they can pay for war we certainly shouldn’t be listening to the complaints of bankers.
I don’t know much about economics, but hope I’ve learned a little from this blog.
Is there anything, apart from political will, stopping the Government from creating and running a state-owned bank that would provide banking services to ordinary people?
Imagine paying CPI + 1% interest on all deposits, with a non-usury rate of interest on all loans?
Nothing.
But I am not sure about your rates.
Base rate is more likely as a basis.
Sometimes I wonder if the government legislation should just treat them how they claim to work. They claim they lend deposits to borrowers. If so they have no need to be able to create money, so legislation should be changed to disallow it. They claim to pay a lot of taxes, fine they can pay less but get no government guarantee on deposits and no bailouts.
Would be interesting to see how long they lasted as the innocent and helpful peer to peer lending companies they claim to be.