“Shocking ignorance” from MPs who don’t know where money actually comes from

The majority of Britain’s politicians don’t know where money comes from, despite being tasked with deciding how much of it ends up being spent, according to a poll of MPs published today.

Only 15 per cent of MPs surveyed answered correctly when asked a true/false question on whether banks create money when they make loans.

Almost two-thirds of the 50 MPs surveyed by Dods for campaign group Positive Money wrongly thought banks can’t create money, while a quarter admitted they didn’t know.

Read more: Politicians get lost in search of the fabled Magic Money Tree

In a far from stellar field Conservative MPs outperformed slightly “in this regard”, with 19 per cent answering correctly, compared to only one in 20 Labour MPs.

More than three-quarters of the MPs surveyed incorrectly believed that only the government has the ability to create new money. Some 23 per cent knew this to be false, with Labour performing better than the Conservatives.

The Bank of England has previously intervened to point out that most money in the UK begins as a bank loan. In a 2014 article the Bank pointed out that “whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.”

The perception of money creation has been complicated further by the unorthodox use of quantitative easing, in which the government creates money electronically, which is then used to buy financial assets.

Fran Boait, executive director of Positive Money, said: “Despite their confidence in telling the public that there is ‘no magic money tree’ to pay for vital services, politicians themselves are shockingly ignorant of where money actually comes from.

“There is in fact a ‘magic money tree’, but it’s in the hands of commercial banks, such as Barclays, HSBC and RBS, who create money whenever they make loans.”

Read more: Regulators come under fire as MPs debate money creation