Should banks pay more tax for the privileges, profits, power, and public support we give them?

SUMMARY

Richard Murphy, political economist and author, argues that banks are fundamentally different from other businesses due to their state-backed privileges and their ability to create money. He contends that these advantages justify higher taxation on banks, especially given their role in driving inequality, speculation, and economic instability.

MAIN POINTS

• Banks enjoy unique privileges granted by the state, including access to central banking and legal tender, setting them apart from ordinary businesses. [1:00]
• The government guarantees bank deposits and ultimately bears the risk of banking failures, allowing banks to operate with less capital and greater security. [3:00]
• Banks create money through lending, a process known as seigniorage, and their profits derive from this privilege rather than productive economic activity. [5:00]
• Banks play a major role in commodity markets and speculation, contributing to price instability and profiting from economic crises such as the aftermath of Russia's invasion of Ukraine. [7:00]
• Contrary to claims, UK banks primarily lend against property rather than supporting productive investment or job creation, leading to increased inequality. [10:02]
• Murphy concludes that banks' exceptional privileges warrant exceptional taxation, challenging the notion that banks should be taxed like ordinary businesses. [13:00]

DETAILED ANALYSIS

Banks in the UK occupy a unique position within the economy, benefiting from privileges and protections not afforded to other sectors. Their existence relies on the legal and financial infrastructure provided by the state, including access to central banking and the use of government-backed currency. Unlike retailers or manufacturers, banks possess the extraordinary ability to create money through lending, a process acknowledged by the Bank of England and termed seigniorage.

This capacity allows them to generate profits without incurring the direct costs typical of other industries. The state further underwrites banking activities by guaranteeing deposits, reducing the need for banks to hold substantial capital reserves and ensuring that, in times of crisis, public funds are used to stabilize the sector rather than allowing widespread depositor losses.

This arrangement exposes the public to significant risk while enabling banks to extract economic rents from the broader economy. The allocation of credit by banks is heavily skewed towards property and mortgages, with 85% of lending linked to real estate rather than productive business investment. This focus distorts the economy, inflates asset prices, and exacerbates inequality, as wealth is funneled towards existing asset holders instead of fostering new economic growth.

Banks also engage extensively in financial speculation, particularly in commodity markets, where their activities can drive up prices for essential goods and contribute to inflation. The period following Russia's invasion of Ukraine exemplified this dynamic, with banks profiting from volatility while households faced increased living costs.

Despite claims from banking executives that their institutions drive investment and job creation, evidence suggests that their primary function is now the upward redistribution of wealth. Modern monetary theory further dispels the argument that lower taxes on banks would increase lending or economic growth, as banks do not rely on retained profits or existing savings to make loans. Given these factors, the argument is made that banks should face higher taxation to compensate society for the exceptional privileges and systemic risks they enjoy.

Proposals include taxing economic rents more heavily and introducing financial transaction taxes to mitigate speculative harms. The debate centers not on whether banks deserve special treatment, but on ensuring that the public receives a fair return for the powers granted to the banking sector.

LINKS

• YouTube poll on whether banks should pay more tax.
• Transcript and blog by Richard Murphy.
• ChatGPT prompt and instructions for writing to your MP about banking issues.
• Donation page to support Richard Murphy's work.
• Richard Murphy's Bluesky social profile.
• Richard Murphy's Funding the Future blog.
• Introduction video for Richard Murphy's channel.
• The Wealth Series playlist.
• Ecenomics playlist.
• Britain playlist.
• Tax playlist.
• MMT playlist.
• Money playlist.
• Climate Change playlist.
• USA playlist.
• Labour playlist.
• The Trump Administration playlist.

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