As the FT reports this morning:
The leader of the Green party has called for the Bank of England to stop paying interest on reserves held by commercial lenders and instead invest in public services, refuting claims that his left-wing stance will repel conservative voters.
Zack Polanski told the Financial Times that ending these payments … could save the government up to £20bn a year.
“We don't actually need to be paying that interest, we could be putting it straight back into our economy,” Polanski said, speaking ahead of the Green party conference in Bournemouth this weekend.
Sometimes, it seems, people take note of what I have to say.
Why does it matter? That is not just because of the money involved. As readers here know, governments can create all the money they need. However, the narratives surrounding money matter a lot.
Reducing interest payments ends an excuse for austerity.
Changing this arrangement also challenges the household analogy: it suggests government is not the victim of circumstance but has the power to choose.
It also rebalances the equation of power. It says the government can create money costlessly. It is not, therefore, dependent on borrowing. It provides savings opportunities as a favour, and not because it relies on City money.
Changing these narratives matters as much as any estimate of the sums involved. They reclaim government for people, not financiers and banks, and that matters.
So, a good and very welcome move as far as I am concerned.
Taking further action
If you want to write a letter to your MP on the issues raised in this blog post, there is a ChatGPT prompt to assist you in doing so, with full instructions, here.
One word of warning, though: please ensure you have the correct MP. ChatGPT can get it wrong.
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Both the Greens and Reform want to stop paying interest on reserves.
But the Single Transferable Party (Conservative, Labour and Libdem) don’t.
I wonder why?
Good stuff.
Did the article say how big the reserve was in support of casino banking?
I personally see it as a pre-bail out bail out. The amount of money on offer seems to dwarf that offered to the public sector.
No…it didn’t
It is state provided capital to tbe banking system and we have paid to give it to them
At last, a politician who speaks sense!
However, your headline isn’t quite right. “The Greens” can’t “plan” to do this because they’re not in power, nor remotely likely to be in the foreseeable future. So it would be more accurate to say “The leader of the Greens calls for…” (as in your quotation from the FT).
Still, if we could get other parties to follow Mr Polanski’s lead maybe it will build pressure on Reeves in the run-up to her budget; and when she stubbornly refuses to listen (or hears but doesn’t understand), maybe it could at least make her tenure of office less secure.
I’ll write to my MP!
Noted and thanks
The BoE never paid interest on current accounts (which is what the 68 reserve accounts are) until May 2006. The current reserve balances are around £750 bn, 90% of which is our QE money. The banks can use their reserves to buy gilts (term deposit accounts) if they want to. That would raise the demand for gilts and reduce interest rates. Of course the BoE don’t want lower rates, which is presumably why they pay Base Rate on the current accounts, and thus discourage gilt buying by the banks.
Agreed
I think this may be part of the reason the BoE is so keen on QT.
BoE – “Don’t worry about losing interest on reserve accounts. By the time the politicians get around to it we will have liquidated nearly all of our gilt portfolio which will drain reserves back to very low levels and give you an interest bearing asset that is “near cash” from a Liquidity and Capital Regulatory perspective.”
Of course, one might add that “by elevating gilt yields through QT we will drive the economy into a recession and then have to cut rates sharply…so you will thank us for selling you the gilts at today’s yields!”
Neat…
And devious
What encourages me is how ZP has managed to get coverage of heterodox economics into the MSM.
YOU helped achieve that.
KUTGW!
Thanks
The “free money” payments to the various banks account for a large part of their profits. Which raises a number of other questions & possible impacts (number of banks shrink if profits shrink? good? bad?). Several of the banks are foreign and the payments/profits are good for their bottom line in places such as Spain (Santander). Why is the Uk gov’ helping foreign banks?
Keep guiding Zack, and influencing the, inevitably clunky, Green Partry policy committees.
What’s your view on this thread about the policy proposal by Henry Curr, economics editor of The Economist, and the follow-up comments by Chris Giles of the FT?
https://x.com/currhenry/status/1974040500924469396?s=19
A neoliberal writes a profoundly pro-banking thread bizarrely claiming that taking away a subsidy to banks is taxation, and another neoliberal supprts that veiw? That’s my summary.
I see that ZP has not put out the podcast with you on his Bold Politics site which is disappointing and have to wonder why that might be.
He recorded at least four the day he was with me.
There is hope.
Even Reform have said they would reduce or scrap these interest payments.
I know you have covered this fully a few months ago and I’ve read about it in other economics blogs. If I remember, it would save the gov less than Zak claims. He said £20 billion plus, whereas I think you said it would be around £12 billion because the payments would be reduced not cancelled.
I’m fairly sure Labour will be looking closely at this, especially as Reform have flagged it up. I can’t see any reason they wouldn’t do it except being warned off by their puppet-masters.
I am more cautuious than he is, yes.
I watched the ZP/GS podcast earlier today. My gut feeling is that you are making deep inroads into a lot of people’s thinking out there – an upstream influencer I suppose.
Thanks
I will do so this weekend.
I’d go further. I’d call god a Public Inquiry into who authorised the government to bail out the city with public money to provide it what appears to be working capital. Also who approved interest payments in it. No other industry gets effectively a free loan and gets paid the interest on it. Also why is the interest rate so high compared to other countries, and why are the interest payments continuing !! I’d be interest to know what the cumulative cost to this country had been so far