New Economics Foundation argues despite huge government subsidies, big banks are not supporting the real economy

This article is more than 6 years old

This article is more than 6 years old

Britain's biggest banks benefited from a "too big to fail" subsidy from the taxpayer of £38bn last year, according to a leading economic thinktank which argued that they are not giving enough back to the public.

The New Economics Foundation (Nef) said the big four – Barclays, HSBC and the bailed-out Royal Bank of Scotland and Lloyds Banking Group – were "failing to make themselves useful in the economy" despite the 10% rise in the value of the taxpayer's implicit support.

On Tuesday the controversy over the lack of lending to businesses is expected to be reignited when banks publish their loans broken down by the 9,000 postcodes around the UK.

The report by Nef came as the City of London Corporation, the local authority for the City, said the amount paid in corporation tax by the financial services industry had halved since 2007 to £6.5bn.

The corporation said that with employment taxes included the total paid to the exchequer was £65bn in 2012/13 – 12% of the chancellor George Osborne's total tax take.

The amount of tax being paid by the financial services sector is down from the £68bn in 2007 – the year before the banking crisis, when the industry contributed 14% of total taxes – largely as a result of the drop in the amount paid in corporation tax.

The figures compiled by the City of London include taxes from corporation tax – a tax on profits – employment taxes, the £1.6bn paid in the chancellor's levy on bank balance sheets and irrecoverable valued added tax.

Tony Greenham, head of finance and business at Nef, said the size of the implicit subsidy being provided to banks was staggering.

Nef calculates the lower borrowing costs that banks enjoy as a result of the market's expectations that the government is ready to bail out the sector. The impact is greatest on Barclays – of £11.7bn – and smallest on HSBC of £4.6bn.

But the total "too to big to fail" subsidy has fallen from a £53bn peak in 2009, but is more than the £9.5bn in 2007, before banks were bailed out by the taxpayer.

Greenham said: "UK taxpayers are still on the hook for the big banks.

"UK retail banking remains a curious kind of public-private partnership, but a highly unequal one – the public take the losses while private interests take the profits.

"Despite huge government subsidies, big banks still aren't supporting the interests of the real economy.

"Even government attempts to bribe the banks into lending seem to have had little effect."

The analysis of the banks comes amid continued costly scandals for the financial services industry which the London School of Economics has estimated at £100bn for 10 major banks in the five years to 2012.

Further scrutiny of this data by UBS bank analysts concludes that the total cost of the scandals is 20% of the stock market value of banks and the equivalent of five years of dividends wiped out by the cost of fines, redress and other writedowns.

The bank analysts at UBS lowered their dividend forecasts for two banks – Barclays and Citigroup – as a result of future litigation risks.

RBS capital boost



Royal Bank of Scotland has taken a step towards extricating itself from taxpayer support after being released from an agreement with the government to provide another £8bn of capital in an emergency.

The Bank of England's decision to allow RBS to terminate the so-called contingent capital facility will save the state-controlled bank £320m next year. The CCF, put in place during the banking crisis in 2009, was to have cost RBS £1.6bn over the five years but it will now end one year earlier than planned.

The complex arrangement meant that the Treasury would put another £8bn into RBS if its crucial capital ratios were to fall below 5%. That closely watched measure is currently double that level. RBS said it had approval from the Bank of England's regulation arm, the Prudential Regulatory Authority, for the move.

Some £45bn of taxpayer funds are tied up in RBS shares, which closed last night at 320p, up 1.5%, but less than the 500p average price at which the stake was bought.