{"id":84725,"date":"2025-08-06T17:18:30","date_gmt":"2025-08-06T16:18:30","guid":{"rendered":"https:\/\/www.taxresearch.org.uk\/Blog\/?p=84725"},"modified":"2025-08-06T17:18:30","modified_gmt":"2025-08-06T16:18:30","slug":"shrinking-rachel-reeves-black-hole-1-saving-15-billion-of-interest","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2025\/08\/06\/shrinking-rachel-reeves-black-hole-1-saving-15-billion-of-interest\/","title":{"rendered":"Shrinking Rachel Reeves&#8217; black hole 1: Saving \u00a315 billion of interest"},"content":{"rendered":"<p class=\"p4\">People say Rachel Reeves has a \u00a340 billion black hole in her October budget. But that number is wrong \u2014 or at least, it\u2019s wildly inflated. In this video, I show how \u00a315 billion could be saved instantly \u2014 without cuts or tax rises \u2014 simply by stopping unnecessary interest payments to commercial banks on money they never earned. The Bank of England pays \u00a325bn a year in interest on reserves to these banks \u2014 and \u00a315bn of that is completely avoidable. The ECB and Bank of Japan don\u2019t do this. So why is Reeves letting it happen?<\/p>\n<p class=\"p4\">This is the first in a short series on real options to fund public services and challenge austerity.<\/p>\n<p><iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/pwvWw7IQmS0?si=H_868vvTYuxP77kz\" title=\"YouTube video player\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe><\/p>\n<p>This is the transcript:<\/p>\n<hr \/>\n<p>People are saying that Rachel Reeves has a \u00a340 billion black hole that she's got to fill in October, or the economy is going to be in trouble.<\/p>\n<p>The media are saying this. Even Gary Stevenson is saying this. But this isn't true.<\/p>\n<p>This is the first in a short series of short videos on what could be done to fill this supposed black hole, the existence of which I even doubt .<\/p>\n<p>But let's start with the most obvious thing that nobody else seems to be talking about, and that is that \u200athe Bank of England is paying interest it does not need to.<\/p>\n<p>The Bank of England currently owns \u00a3600 billion worth of UK government bonds, and that sum is matched with \u00a3600 billion worth of money that it placed into the accounts of UK banks during the course of the 2008 and 2020 economic crises, the new money created by quantitative easing.<\/p>\n<p>That was not money deposited by the banks themselves. They did nothing to create it. But despite that, they are being \u200apaid interest at 4.25% on that money at present, at a cost of over \u00a325 billion a year to the government at this point in time.<\/p>\n<p>This is a state gift to commercial banks from public funds, as if they needed it.<\/p>\n<p>Actually, they don't need it, and nor does the Bank of England need to pay it.<\/p>\n<p>The Bank of England, I agree, need to pay interest on around \u00a3200 billion of that money. That is sufficient for it to influence the interest rates in the rest of the economy.<\/p>\n<p>Remember that in 2008, it only paid interest on \u00a320 billion of reserves to achieve that goal, so \u00a3200 billion now is more than enough to achieve that objective.<\/p>\n<p>But that means that there is no need to pay interest on \u00a3400 billion of the money that is held by the commercial banks with the Bank of England.<\/p>\n<p>If they weren't paid interest on that money, which they've never earned, then Rachel Reeves could save \u00a315 billion a year, instantly, and as a result, Rachel Reeves would no longer have a black hole of \u00a340 billion, even if that estimate was true. She would only have a black hole of \u00a325 billion.<\/p>\n<p>I'll explain how to fill that in other videos, but the point is, I've already shrunk the black hole, and I'm proud of doing that, and I think it should be done by the government as well because this is money that's being wasted, and I don't like governments wasting money.<\/p>\n<p>Nobody can say that this can't be done, because the \u200aEuropean Central Bank does this, and the Bank of Japan does this. They do not pay interest on all their reserves. So there's no technical reason why this couldn't be done. It's just that Rachel Reeves is deciding to pay out \u00a315 billion to the bankers to fund their wonderful and excessive bonuses when she could be using that money for social benefit.<\/p>\n<p>Which would you do?<\/p>\n<p>Keep the money, and make sure she didn't have to do austerity? Or give it to the bankers? What's your decision?<\/p>\n<hr \/>\n<p><strong>Poll<\/strong><\/p>\n<div id=\"polls-173\" class=\"wp-polls\">\n\t\t<p style=\"text-align: center;\"><strong>What do you think Rachel Reeves should pay as interest to commercial banks?<\/strong><\/p><div id=\"polls-173-ans\" class=\"wp-polls-ans\"><ul class=\"wp-polls-ul\">\n\t\t<li>4.25% on \u00a3200 billlion, saving \u00a315 billion <small>(50%, 231 Votes)<\/small><div class=\"pollbar\" style=\"width: 50%;\" title=\"4.25% on \u00a3200 billlion, saving \u00a315 billion (50% | 231 Votes)\"><\/div><\/li>\n\t\t<li>Nothing <small>(44%, 201 Votes)<\/small><div class=\"pollbar\" style=\"width: 44%;\" title=\"Nothing (44% | 201 Votes)\"><\/div><\/li>\n\t\t<li>4.25% on everything - costing \u00a325 billion <small>(3%, 13 Votes)<\/small><div class=\"pollbar\" style=\"width: 3%;\" title=\"4.25% on everything - costing \u00a325 billion (3% | 13 Votes)\"><\/div><\/li>\n\t\t<li>I don't know <small>(3%, 13 Votes)<\/small><div class=\"pollbar\" style=\"width: 3%;\" title=\"I don&#039;t know (3% | 13 Votes)\"><\/div><\/li>\n\t\t<\/ul><p style=\"text-align: center;\">Total Voters: <strong>458<\/strong><\/p><\/div>\n\t\t<input type=\"hidden\" id=\"poll_173_nonce\" name=\"wp-polls-nonce\" value=\"93b6396b77\" \/>\n<\/div>\n<div id=\"polls-173-loading\" class=\"wp-polls-loading\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/www.taxresearch.org.uk\/Blog\/wp-content\/plugins\/wp-polls\/images\/loading.gif\" width=\"16\" height=\"16\" alt=\"Loading ...\" title=\"Loading ...\" class=\"wp-polls-image\" \/>&nbsp;Loading ...<\/div>\n\n<hr \/>\n<p><b>Taking further action<\/b><\/p>\n<p>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,\u00a0<a href=\"https:\/\/www.taxresearch.org.uk\/Blog\/2025\/06\/20\/chatgpt-prompt-for-a-letter-to-your-mp\/\">here.<\/a><\/p>\n<p>One word of warning, though: please ensure you have the correct MP. ChatGPT can get it wrong.<\/p>\n<div id=\"te-floating-button-container\"><\/div>\n<div id=\"te-floating-button-container\"><\/div>\n<div id=\"te-floating-button-container\"><\/div>\n<div id=\"te-floating-button-container\"><\/div>\n<div id=\"te-floating-button-container\"><\/div>\n","protected":false},"excerpt":{"rendered":"<p>People say Rachel Reeves has a \u00a340 billion black hole in her October budget. But that number is wrong \u2014 or at least, it\u2019s wildly<br \/><a class=\"moretag\" href=\"https:\/\/www.taxresearch.org.uk\/Blog\/2025\/08\/06\/shrinking-rachel-reeves-black-hole-1-saving-15-billion-of-interest\/\"><em> Read the full article&#8230;<\/em><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[70,136,204,35,118,106],"tags":[],"class_list":["post-84725","post","type-post","status-publish","format-standard","hentry","category-banking","category-city-of-london","category-economic-justice","category-economics","category-labour","category-politics"],"_links":{"self":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/84725","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/comments?post=84725"}],"version-history":[{"count":5,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/84725\/revisions"}],"predecessor-version":[{"id":84741,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/84725\/revisions\/84741"}],"wp:attachment":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/media?parent=84725"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/categories?post=84725"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/tags?post=84725"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}