Banks should pay more tax

Bankers are once again claiming that they are being treated unfairly. Santander boss Ana Botín has argued that higher taxes on banks make no economic sense and that banks should be treated like any other business.

In this video, I explain why that argument is wrong.

Banks are not ordinary businesses. No other sector enjoys the same combination of privileges, protections and public support. Banks can create money when they lend. They operate with the backing of the state. They benefit from deposit guarantees. They know that governments cannot allow them to fail without risking damage to the whole economy.

These are extraordinary privileges, and they generate extraordinary profits.

Then, I explain why banking profits are fundamentally different from the profits earned by productive businesses. I look at how banks create money, why taxpayers ultimately carry the risks when banking goes wrong, and why the public deserves a return for granting banks powers that no other industry enjoys.

After that, I challenge the claim that banks are major creators of investment and jobs. Most UK bank lending is now linked to property rather than productive investment.

At the same time, banks play a major role in driving house price inflation, increasing inequality and shaping the allocation of wealth across the economy.

The video also explores the role of banks in financial speculation, commodity markets and inflation, and I discuss how banks profited from the turmoil that followed Russia’s invasion of Ukraine, while households faced soaring energy bills and a cost-of-living crisis.

At the heart of this debate is a simple question. If banks enjoy exceptional privileges, create money with public permission, receive public guarantees and generate profits from those advantages, why should they not pay more tax than everyone else?

The real issue is not whether banks deserve special treatment. The real issue is whether society is receiving a fair return for the remarkable powers that it grants them.