Charging interest on money that the government has allowed them to create out of thin air feels like a profitable business for the banks under any circumstances, but it is particularly so when interest rates rise, as they did in 2022 and 2023.

This image shows the sum of money that the big 4 UK banks handed to their shareholders in 2023, partly on the back of those interest rate rises. It includes both dividends and share buybacks. That total of about £24 billion is represented by the total area of the blue circle.

Sums of money in the billions can feel quite meaningless. But, compared to the much larger sums that governments routinely spend, a few billion can also feel quite small. The UK government’s health and social care budget, for example, is over £200 billion, compared to which those bank payouts don't feel so extraordinary.

Feelings can deceive, however. Government budgets may be huge, but they are also largely spoken for. Routine commitments such as pensions, benefits, health, education, law and order, defence, local services, etc, are built into the country’s socio-economic fabric. What matters, therefore, is not the total sum of spending but the amount of any changes, up or down. These changes may appear relatively small, but they have big impacts.

In practice, that £24 billion could be a complete game-changer. The government's budget for NHS dentistry, for example, is about £3 billion, about a billion short of where it should be if it had kept up with population growth and inflation. Given the near impossibility of accessing NHS dental treatment in many areas, that missing £1 billion would significantly improve the quality of many people’s lives. It is a relatively small sum that could have a big impact.

Image 19 provides further examples. The big blue circle is the £24 billion, and the white circles show the impact it could have. Dentistry, at £1 billion, is the smallest of them. In increasing size the others represent the £1.3 billion (per year, for eleven years) required to fix the nation’s potholes; the £2.2 billion shortfall in the school building budget (repairing crumbling buildings); the £3 billion that would pay for free school meals for all pupils; the £4 billion local authority funding gap; and the £6.4 billion annual shortfall in the NHS capital budget (more crumbling buildings and replacing old equipment).

Spending the profits made by banks in this way would have been transformative for the public services concerned, both for their users and the people who work in them, and there would still have been nearly £6 billion left over for the banks' shareholders. This is represented by the remaining blue area in the image.

In the context of government spending, a few billions make a huge difference. Allowing banks to extract sums of this order simply by transacting money through their systems is, therefore, a very specific political choice. It doesn’t have to be like this: governments are in the driving seat and the UK has a long history of social, community, regional, industrial and mutual banking. But this tradition came shuddering to a halt in the 1980s amid a tidal wave of deregulation that focused on giving the widest possible scope to the extractive capacity of private capital.

Data sources:

The sources for bank dividends and share buybacks, and the various public expenditure shortfalls, are given in a spreadsheet here. This also contains the radius calculations from which the image is derived.