Banks may not escape the rush to find new taxes. I set out the options and the dangers, as I strongly urge the Chancellor to cut the deficit by spending less, not by taxing more.
Banks currently pay two special taxes on top of Corporation Tax.
They pay a Corporation tax surcharge of 3% on profits above £100 m, so a combined rate of 28%. This surcharge was at 8% when CT was lower. This raised £1 bn last year.
They pay a levy on balance sheets, 0.1% of short term liabilities and 0.05% of long term liabilities. This raises £1.3 bn.
They deposit money with the Bank of England to finance the Bank’s bond portfolio, currently at £554 bn. They get the 4% base rate on these reserve deposits, an income of £22 bn, around the size of the black hole.
Government options
-
Remove all interest from reserves, cutting Bank of England losses by £22 bn
-
Remove interest from minimum reserves needed as the ECB does. Bank said they need minimum reserves of £325 bn (low end of range). So that saves them 4% on £229 bn or £9 bn.
-
Pay a lower rate on reserves to give Bank a spread between its lending and borrowing rates. E.g 0.5% less or £2.75 bn
-
Double Bank levy raising £1.3 bn
-
Return Corporation Tax surcharges to 8% raising around £2 bn
Removing all interest raises big money.The Bank should argue this would damage money policy as removing £22 bn of income from banks will greatly restrict their ability to lend and could tighten policy into recession. Limiting interest to surplus reserves saves substantial money and would be the compromise the Bank would probably agree and defend. It would still be a substantial tightening with recession risk lowering other tax receipts substantially
from the APF
This is the OBR March 2025 table about Bank of England losses. They forecast the Treasury paying the Bank £17.9 bn this year, £23.1 bn 2026/7, £22.3 bn 2027/8, £24.2 bn 2028/9, and £21.2 bn 2029/30 to pay for the losses.
Chart 6.6: Projection of cumulative flows to and from the APF
Combination bar and line chart showing the forecast of cumulative flows to and from the APF.
Combination bar and line chart showing the forecast of cumulative flows to and from the APF.
The losses are both losses on the capital value of bonds on sale or repayment and interest losses. The capital losses are dominant, running from £17.6 bn next year to £22.5 bn in 2028/9. The capital losses are biggest on selling longer dated bonds in the market. The Bank does not have to do this and no other Central Bank does it. It could hold them to repayment when the losses will be much lower as current prices are well below repayment value.
Since the March forecast the Bank has announced some reduction of sales especially of long dated bonds where the losses are biggest which will reduce these loss figures a bit.
I have long been recommending no market sales of bonds which lock in these losses.I do not propose new or extra bank taxes given how sluggish the economy is.
November 19, 2025
Sir John
All the while, this UK Parliament sees the tax system as earned income by the Country, its GDP. A tax system that doesn’t treat any payer equal, a tax system so convoluted it servicing costs for the most part gives the feeling that it cost more than it gains. You could even rationalise its just a way of keeping the unemployable of the streets.
Tax as we all know is the removal of money from the economy. The real Elephant in the room is there is no control over expenditure, no return on expenditure. To much expenditure is based on personal ego and not need.
The BoE in isn’t needed in its current form, its not independent, it is just a one man ego trip to absolve another man’s incompetence. What can we say about the OBR, history shows they have never been right – so what has changed? Again the OBR is an invented vehicle to hide incompetence elsewhere.
The house of State needs getting in order from its foundations up, creating pseudo props to hold it up changes nothing. All we get is distraction to hide why the ‘free-loaders’ in Parliament are not fit for purpose.
As the phrase goes ‘Its the Economy Stupid’ sort that out and we move forward. Having a thriving resilient economy causes a future for us all, ignore that and you arrive at were we are today
November 19, 2025
Agreed. And using meaningless OBR guesses about the “headroom” available five years out as the basis for taxation and running the economy is lunacy. The focus needs to be on government spending, the national debt and the gap between spending and income in the immediate year ahead. The current focus on five years ahead is a cop out for every Chancellor who has used it. The OBR cannot even guess financial flows only five months out.
November 19, 2025
No, taxation does not remove money from the economy, it takes from the private sector and allows the public sector to spend it on ‘all of us’. The problem is HOW it is spent, usefully or not.
Question for Sir J, since QT has been in force, has there been any reduction in the supply of money, liquidity, in the UK economy affecting the ability of businesses to carry on in their nomal way?
Reply Yes, money and credit growth has slowed.
November 19, 2025
It would be interesting to know who was profiting from these bond sales. The money doesn’t just vanish as it is actually collected tax. I would assume it’s the same players who are benefiting from. The jet zero scam
Interesting bulletin from Ford USA. They are about to discontinue the F150 electri utility as they only sold 1500 last year as opposed to 1444,000 petrol models. The market has spoken.
Another interesting tit bit. Lucy Conolly is being treated as a category 3 under licence preventing her from overseas trav. Thus category is usually for rapists, sex offenders and violent thugs.
2TK must be getting very worried that the public at large don’t see immigration as the remarkable success he would have us believe.
Reply Typically pension funds and insurance companies sold the bonds at high prices to Bank and can now buy them back at much lower prices. Their win is the Bank’s loss.
November 19, 2025
Lucy Connolly is clearly Starmer’s governments political prisoner. But our wonderful “independent” appeal court with three Judges said:-
Conclusion:
66. For the reasons which we have explained, there is no arguable basis on which it could
be said that the sentence imposed by the judge was manifestly excessive. The
application for leave to appeal against sentence therefore fails and is refused.
67. The principal ground of appeal, ground 1, was substantially based on a version of events
put forward by the applicant which we have rejected. We have, however, decided that
in all the circumstances of this case, it would not be appropriate to make a loss of time
order.
68. The sentence of 31 months’ imprisonment imposed by the judge therefore remains as
before.
Some people can get less for GBH or violent sexual assault! But no arguable basis these “experts” say! This when she pleaded guilty too. Had she not what would they have wanted 5 years perhaps!
November 19, 2025
Plus it was a first offence and loads of mitigating circumstances as she had lost a baby herself! But not even an arguable case the three judge “experts” say!
November 19, 2025
Gerard Lyons in the Telegraph today:- Last week, Andrew Bailey, the Governor of the Bank of England, wrote to the Chancellor regarding policy. The letter did not receive the scrutiny it deserved.
The Governor claimed that quantitative easing (QE), the policy of creating new money to buy bonds and ease financial conditions, was a resounding success. It certainly lowered borrowing costs, as he suggested. But much of the implementation of QE was a disaster, not a success.
November 20, 2025
Looks to me as if he is protecting this Chancellor, having toppled the Truss administration.
November 19, 2025
Whatever happened to free speech? Even if words offended they were removed within a few hours.
Justice in the UK died a distressing death in that case.
Until the whole system of Judiciary is ripped apart – root and branch -we live in a banana republic merged with a violent dictatorship.
November 19, 2025
@Reply – are you sure, isn’t it the taxpayers loss
November 19, 2025
The taxpayer backs the BOE, so yes, the taxpayers loss.
November 19, 2025
As ever no solutions, therefore whilst I agree with some, so what? We can all knock out lists. Everyone does it, getting involved/eiected is the missing part.
November 19, 2025
Ian B
Exactly, tax is a disincentive for everyone in one way or another.
Yes of course taxation is needed to fund BASIC State services and SECURITY, and in the end as customers of all sorts of business, we all pay for that corporate taxation as well as our own.
Why is it that politicians can never seem to understand the obvious, whilst you can squeeze an orange until the pips squeak, the juice has already stopped flowing before you ever get to that level, so further squeezing is pointless, and a waste of time and energy.
Do they never do a listing or reconciliation of their own home accounts and spending, do they not see what is happening in the real World, are they all absolutely clueless, or is it simply group think and Party politics, with the uniformed, clueless, or disinterested, leading them by the nose to our financial disaster.
November 19, 2025
Berkshire Alan. – great analogy
November 19, 2025
+++ There are none so blind
November 19, 2025
Spot on Ian… 100% correct.
November 19, 2025
Banks pay very little interest on current accounts. The Bank of England can pay them the same rate saving £22 billion.
November 19, 2025
The bank margin between deposit rates and borrowing rates has vastly increased. Overdrafts can charge 39%.
November 19, 2025
Often less than 2% on deposits so up to 20 times more to borrow? An even better margin than on perfumes! Even after bad debt losses.
November 19, 2025
I agree that the BoE should stop the sale of Gilts, especially long-dated Gilts, as they will go up in value when the forthcoming recession occurs. All the sales so far have crystallised enormous losses which could have been significantly reduced in time.
As for the Government options to save money, the only option I might consider is 3). The reason is the banks are earning interest on their extra customer loans from the QE period and that income should be offset against any interest they earn from their reserves with the BoE, eg prior to QE the banks had reserves with the BoE and Gilts on their balance sheets. During QE the BoE used the banks’ reserves to buy the Gilts from the banks’ balance sheets so that the banks would have excess cash on hand to loan to their customers to help during covid. Without QE, the banks never would have had those extra loans. So the income from these extra loans should be offset against the interest earned from their reserves with the BoE. If that offsetting is applied now it should result in a lower interest rate paid on their reserves with the BoE.
As for the income they would have had from the Gilts, they effectively received that in the price of the bonds when they were purchased by the BoE so that has already been covered.
I would only treat the banks fairly and I would not clobber them with higher taxes and levies.
November 19, 2025
For many people it simply does not pay to work. Increasing any taxes even bank taxes, will make this even worse and even fewer will choose to bother. Reeves is in doom loop territory, the state is far to large and so much of what they do is positively damaging or pointless. Net zero need to go, benefits need to be cut, the workers rights bill and tenants rights bills need to be scrapped, the borders need to be controlled and the state needs to be half the current size. We need growth, growth, growth as Reeves says but alas she does the complete opposite.
November 19, 2025
As you say the Chancellor needs to spend far less. Anyway so much is spend doing net harm or produces nothing positive anyway. So much fat that could so easily be cut. Then we have the OTT red tape. A bonfire of this would be a win, win too. Alas Labour’s agenda is the complete reverse. JR is exactly right on the dire BoE.
November 19, 2025
I agree that spending reduction is the key.
For example (as below), putting pylons over the countryside is wasteful and environmentally damaging:
https://www.londonstockexchange.com/news-article/market-news/ofgem-unlocks-early-investment-for-key-projects/17333500
November 19, 2025
And it increases energy costs, the chances of blackouts and they need back up gas etc. plus vastly more grid connections.
“Britain’s borrowing costs are the highest in the G7” – this a measure of the total lack of confidence in Reeves and this Two Tier Kier government’s direction of travel! U turns needed on energy, the size of the state, net zero, tax levels, red tape levels…
November 19, 2025
I’ve never understood the logic of not holding the bonds till maturity. Why does the Bank do it and why does the Government allow it? I suspect the reasons given by the Bank are akin to the reasons why the Treasury advocates high immigration and (likewise) would collapse under more forensic examination. Well done Sir John for being an early critic of this practice. What a pity no one appears to be listening.
Reply Bank does not make much of a case. Says if it shrinks bond portfolio faster with sales could buy lots of bonds again at next crisis. Pity it thinks it could create another crisis, and nonsense as Bank can expand its portfolio as much as it likes given Treasury full guatantee.
November 19, 2025
Yes, a strange logic. In some ways this behaviour is helping to create the next crisis by encouraging this Government to play silly beggars with the tax regime. I suspect we will see further text-book examples of the ‘Law of Unintended Consequences’ following next week’s budget.
November 19, 2025
If President Mille of Argentina (of all places) can do it, so can everyone else. Like everything on here we discuss, it takes will power.
November 19, 2025
I’m enjoying imagining Starmer waving a chainsaw around in the Commons (to the horror of the people sat behind him) before the men in white coats run in to take it off him…
November 19, 2025
Unfortunately Reeves and her political team/advisers do not have this depth of understanding so BOE/Treasury run rings around her and with the left leaning PLP, it’s a toxic mix.
Tice seems to be bringing a business brain to the table, Mel Stride still ‘damaged goods’?
The Tories need new/more talent. Given poor remuneration compared with private sector and relentless exposure why would anyone want to do it?
Personally I think Jenrick is the best option but the Cleverley type centrist blob won’t allow it.
November 19, 2025
Contradictions in the Media the same paper even…
“Pound falls as ‘time has come’ for another rate cut” ..??
“The rate of inflation in Britain remains “stubbornly high” compared to the eurozone because of last year’s Budget tax rises, a think tank has warned.” ..??
Meanwhile everyone in Parliament is either asleep at their desks of planning to spend money not earned on some personal pet project.
November 19, 2025
The Treasury has been ignoring you for several decades and I predict it will continue ignoring you.
Even IF Two-Tier and Theeves wanted to do what you recommend, the Corbynista Backbenchers wouldn’t let her. “Tax the Banks” is just what they want, along with “Tax the Wealthy” which these days seems to mean anyone who isn’t claiming welfare.
November 19, 2025
MOD to prioritise HOME LAND DEFENCE.
It doesn’t get any clearer.
Russia can’t fight its way across a few fields in Ukraine. Yet the MOD want us to believe Russia will be across Europe and across the channel. Utter flipping nonsense.
Yet the military advisors from London universities and think tanks are telling the MOD that there is a high chance of a civil war across Europe with a large ideologically conflicted demographic.
This is where woke has got us.
After the 2007 mortgage crash I thought about the next crises and I kept coming to the conclusion that it was a european immigration crisis and posted it on here.
The 2007 crash was caused by woke commercial risk analysts not assuming certain demographics would drop out of their mortgages very easily. When the banking analysts realised their mistake it was too late. You can see that moment in several films on the subject when the analysts tell their bosses. I worked in HSBCs (bond) CDS at the time, and had friends in Lehmans across the road, so I saw the problems up close.
The effects of mass migration and all its problems makes the mortgage problems look like a storm in a tea cup.
I also thought the next immigration crisis would dwarf the 2007 crisis and any terrorist incidents. It could even dwarf world war 2 if it was not contained and the risks removed. It was hard thinking about.
November 19, 2025
John Healey was on TV speaking about Russia talking and acting like an old-time London gangster. Comical.
November 20, 2025
Indeed rather pathetic to watch.
November 19, 2025
If clearing banks are taxed more then who will end up paying that tax ? Bank customers, so everyone. It is incredible the BoE are persisting in selling bonds into the market at below par when they could instead hold them to maturity. I suppose they are doing it as a hidden way of effectively raising interest rates which is criticised less than if they raised the base rate directly ? In any event they are still failing in their main task of getting inflation to 2%.
November 19, 2025
Well bank customers, bank employees in lower wages or shareholders (mainly pension investments) have to py and the productive economy further contracts.
November 19, 2025
Why tax the banks? The old joke of a copper asking and old lag why he kept robbing banks. He answered ‘Cos that’s where the money is’.
I won’t be shedding a tear for the banks which make our lives harder, pay less and less (or no) interest, charge a fortune for overdrafts and credit cards, make billions and executives pay like lottery winnings.
Recently had a bereavement and had to close accounts. Only one bank left in out town now and that is going next March. They expect us in our twilight years to hop to it and go to our nearest city 20 miles and 3 buses away. Short answer was ‘no’. They had to sort it by post and telephone, but they didn’t want to. Service, like democracy is a thing of the past in this country now.
November 19, 2025
During doing the necessary for the bereavement, I tried to pay by phone to the registrar for the certificates needed – total £62.50. My card was declined, so was my wife’s, so was our joint one. Never had a card declined in my life. Spent 3 hours on the phone trying to sort it out, 3 phone calls, being kept on hold for 30 minutes at a time. Finally put through to the Fraud Dept, who considered the Registrar payment was a fraudulent payment. A government dept. and a small amount. You couldn’t make it up. Was told I could use chip and pin and when I said that was no use for a phone transaction they seemed surprised. Service? As I said above. Just money grabbing all the time. No sympathy from me. In the ‘good old days’ I would have walked into my branch and sorted it all out in ten minutes.
November 19, 2025
This is why millions are reporting to psychiatrists that ‘they can’t deal with daily life’. Every little thing is impossibly difficult. Nothing works. Identifying yourself is horrific, often to pay into your own bank account,
This whole edifice is crumbling.
November 19, 2025
Lynn
When you go to a GP or nurse lately they ask a new question on their tick box list “Do you ever suffer from depression?”
On reflection I would say that many people who voted for or against Brexit or not would certainly be dismayed if not depressed by how little has been achieved given the state of the country since 2016 by Westminster.
By default we were taught to be grateful and count out blessings and carry on. I pity today’s youngsters, for many have yet to experience harder times ahead, unless a miracle happens such as government discovers common sense to many self inflicted problems.
November 20, 2025
+1
But don’t worry; the UN/WEF and British Establishment have some solutions to offer you:
1. Digital ID
2. CBDCs
3. Social Credit System
4. Euthanasia (called Assisted Suicide …. I expect that will be VERY efficient)
November 19, 2025
Our stupid PM and Chancellor have no idea how to cut spending. Their only solution is to find ways to tax us more. Both were promoted well beyond their abilities.
It’s the classic Labour and socialist approach, keep squeezing taxpayers and businesses until they eventually crack, which they will.
Only bankruptcy will force the PM and Chancellor to face reality. It seems that every Labour MP is unable to face reality if it means cutting spending, so they will also reap the result of their own stupidity.
This Government is a shambles from top to bottom, an absolute disgrace to the UK.
November 19, 2025
They know that we all as it on stashes of gold and refuse to share because we are nasty.
They have to extract it and punish us.
Makes them feel good.
November 19, 2025
The best financial decision at present would be to replace the governor and MPC of the BoE.
We should also abolish the OBR, which has proved itself useless and even dangerous.
Had we some of the few astute politicians of yesteryear in government, i would insist on putting the Chancellor back in control of interest rates and fiscal policy. As it is, we are sunk.
November 19, 2025
Off Topic.
A Russian spy ship has used lasers for the first time to disrupt RAF pilots tracking its activity near UK waters, the defence secretary has said. John Healey told reporters the “deeply dangerous” move from the Yantar was being taken “extremely seriously” by the government. He added that the vessel was north of Scotland and had entered UK waters for the second time this year during the last few weeks. The UK would continue monitoring the ship and had “military options ready should the Yantar change course,” he added.
“My message to Russia and to Putin is this: we see you. We know what you’re doing. And if the Yantar travels south this week, we are ready,” he added.
Healey said the laser incident took place whilst the Yantar was being followed by a Royal Navy frigate and RAF Poseidon P-8 planes deployed to “track the vessel’s every move”. It is understood the episode occurred within the last two weeks. Speaking at a news conference in Downing Street, the defence secretary added he had changed the Royal Navy’s rules of engagement so that it could follow the Yantar more closely “when it is in our wider waters”.
Starmer needs to say to Putin ‘If you aim lasers at our aircraft or ships we will treat that just the same as bullets. I give warning we may fire back.’
November 20, 2025
The proposed annual property tax on bands F,G, and H doesn’t seem to be attracting much comment. I can’t think of a more unfair tax, worse than stamp duty, as bad a IHT. It bears no relation to ability to pay and the original valuations in the 90s were done without examining the houses and flats, so the choice of bands for revaluation now is arbitrary.
A terraced house with tiny garden and no parking is to be the butt of the latest envy and spite emanating from the Treasury. Don’t worry, hard up widows, they say, you can pay when you move (as if no money is needed for the next house, or nursing home), or you can pay when you die. We will already be taking 40% and this is an easy way of taking more.
So whose house is it? And do we still live in a property owning democracy? After half a lifetime of slog to get a house – paying out of taxed income for the deposit, house price, stamp duty, mortgage, restoration plus VAT, maintenance plus VAT, energy bills plus VAT, social levies, green levies, insurance plus VAT, and all the other house bills plus VAT, it seems we are to be tipped out of our houses so the global communists can reallocate them. You shall own nothing and you will be happy.
November 20, 2025
How could I have left off the very unfair, unrelated to income, council tax?