The government has already launched Big Society Capital, with capital mostly provided by the big four banks through the Merlin agreement. There are however enormous amounts of surplus public money which could be put to more productive use if channelled through a Bank of Britain. For example, the government has billions of pounds of funds which will ultimately be paid out in pensions. In addition, local councils have short-term cash reserves, as do schools and hospitals, which could be deposited with Bank of Britain. We know of a small, well-run local authority which has a £200m budget and spends around £250,000 in bank charges each year. Most of its council tax is received at the beginning of the year and half of it is allocated to funding education. London local authorities have £7bn in reserves, with some of the larger authorities spending up to £1m a year in bank charges.
Such deposits could be used directly for essential funding. So many government initiatives have simply involved piling contingent liabilities onto the national debt by giving guarantees to lenders – for example, Gordon Brown’s Private Finance Initiative and now George Osborne’s National Loans Guarantee Scheme – so that the taxpayer takes the ultimate risks while receiving no financial benefit from necessary funding for public projects and support to businesses. By extension, we could also fund increases in and adjustments to the country’s housing stock in lieu of giving more guarantees under the Get Britain Building project. The Green Investment Bank could receive additional support from Bank of Britain. Other funds could be extended to the credit unions which do so much to help the country. We estimate that every £50bn deposited could lead to around £1bn in annual savings on debt servicing on a national basis.
The Post Office could be used as Bank of Britain’s branch network. as it already has money transmission facilities. We propose that all jobseekers allowances and other welfare and pension payments are made into Bank of Britain accounts. Beneficiaries would be free to transfer such payments on to their pre-existing accounts, but the potential for fraud would be greatly reduced.
The creation of Bank of Britain would be a bold and insightful move for a coalition government that seems to have lost direction. It would not necessarily need to be a gigantic entity, although it would have to comply with EU policy on state aid. As Britain looks for growth, it would be a unifying reminder that financial services offer answers for the many, not just the few.
Nick Stevens has worked in banking in the City for over 30 years.
Email him at: firstname.lastname@example.org