Debate Ammunition

Should banks pay more tax?

Funding the Future | June 2026

Today’s topic

Should banks pay more tax? 

The video to which this Debate Ammunition relates is available here.

The core argument

Banks are not ordinary businesses and should not be taxed as if they were. They create money out of thin air through a public licence granted by the state, they operate inside a framework of government guarantees that remove the normal commercial risks every other business must bear, and their profits are therefore economic rents extracted from society rather than returns earned through productive activity. The question is not whether banks should pay more tax than other businesses; it is how much more they should pay.

The argument structure

Step 1: Banks exist only because the state allows them to — Banks can operate solely because the Bank of England banks for them, the government has declared a legal tender currency, and the state provides the regulatory framework within which they function. No other sector depends so completely on public authority simply in order to exist.

Step 2: Banks create money, and that is a privilege no other business enjoys — When a bank makes a loan it creates new money by entering figures into a computer; it does not lend out deposits or existing capital. The Bank of England confirmed this in 2014. A retailer or manufacturer cannot conjure its product from nothing; a bank can, and does so under a public licence.

Step 3: The state absorbs the risks that banks create — The government guarantees deposits up to £120,000 per person, removing the capital risk banks would otherwise have to carry themselves. Governments cannot allow large banks to fail because the social cost would exceed the cost of a bailout. Banks know this; they price risk accordingly; and we, the public, bear the ultimate liability.

Step 4: Banks extract rents from the real economy rather than creating value — Approximately 85 per cent of UK bank lending is linked to property, not to productive investment. Banks inflate house prices through mortgage overextension, distort commodity markets through speculation, and profit from the instability they help to create. After Russia's invasion of Ukraine in 2022, banks made large speculative profits from the resulting energy and food price spike, helping to generate the cost-of-living crisis that followed. Their profits are therefore economic rents, not productive returns, and rents should be taxed heavily.

Their argument → your rebuttal

The one-liner

“Banks create money out of thin air under a public licence, they operate inside state guarantees that eliminate their normal commercial risk, and their profits are rents extracted from society: of course they should pay more tax than anyone else.”

Further reading

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.

This is the audio version:

The Debate Ammunition for this video is available here.

This is the transcript:

Bankers are claiming they're overtaxed. They're alarmed that Andy Burnham might raise taxes on them. They're putting out the messages that this would be unfair.

Santander's boss, Ana Botín, says banks are being treated unfairly as a result of the threats of additional taxation that she thinks they're facing at present, and she's wrong.

She claims banks are no different from other businesses. She says, higher bank taxes make no economic sense. And she's arguing that banks create investments and jobs, but all of that is untrue.

Banks are unlike any other part of the economy, and we are entirely justified in taxing them more than everyone else because of the advantages they get and the extraordinary profits that they make as a result.

So let's stand back and let's just look at this and see what Ana Botín was saying.

She wants us to believe a few simple things. She says banks are supposedly ordinary commercial businesses. Their profits are supposedly no different from anyone else's, and their tax treatment should therefore be the same as any other business of whatever size it might be. And their role in the economy, she says, is entirely constructive. And the reality is very, very different because banks are nothing like other businesses in our economy. And I want to explain why and why we should be taxing them more as a result. So, stick around to the end, because there's quite a lot to cover.

Banks are not like other businesses. They enjoy enormous privileges granted by the state. They operate within a protected legal framework, and their activities are entirely dependent upon public authority and, indeed, public support.

They can only exist because the Bank of England is there to let their activities happen.

They can only exist because the government lets them use the currency that it has declared to be legal tender.

They can only exist because the Bank of England will bank for them.

No other sector enjoys quite the same advantages, and that matters when we're discussing taxation.

And let's be real. Banks create money through lending; that's what they do. The Bank of England agreed that is the case in 2014. There is no argument about this. Banks do not manage other people's money. They create money, and no retailer or manufacturer can do that. No retailer or manufacturer can literally create their own product out of thin air with no other input required, but a bank can. And no other business enjoys this privilege. Credit creation is central to their business model, and all it involves is the tapping of a few entries into a computer; that is it. That is what they do, and their power comes from a public licence.

Of course, we need to make sure that they make a fair return to us through taxation as a consequence, because we give them that opportunity to make quite exceptional profits as a result, at our expense.

And let's be clear, whilst they're doing this, the state guarantees their banking activities. We know as depositors, if we've got savings, that is, that when we put our money in the bank, the government guarantees its repayment to us if anything goes wrong with that bank. You can have up to £120,000 per person in a bank, and the government will always repay you whatever happens, so long, of course, as it is subject to the UK government guarantee scheme. But every bank that is trading in the UK should be.

And in that case, the banks know that they do not require as much capital as they would otherwise require, because the government is basically providing it to them, almost free of charge. And they also know that if a crisis emerges in the economy, the government will bail them out, because it will be cheaper to bail out the banks than to repay all the depositors. So, ultimately, the banks know that we, the people of this country, bear the risk of letting them operate. In that case, of course, we want the banks to pay for this privilege that we grant them, but they don't want to do so.

And whilst they're doing all this, banks create enormous systemic risk for the whole economy. Their failures threaten everyone else. Governments simply cannot let them collapse, and that's why regulation exists. It exists because the dangers from banking are very real. And when we carry the ultimate burden via the state, banks should pay heavily for that privilege.

What is more, banking profits are not like those of any other business. They are not like productive businesses because, after all, productive businesses do not make their money by creating money out of thin air and lending it to people. The fact is that the banks create their basic product at no real direct cost. And their income is derived from that privileged position. There's even a name for this process: it's called seigniorage. It is the process of making money out of creating money, and they are not paying enough tax on that, in my opinion. So, of course, they should pay more tax than other businesses do. That tax that they should be paying us for this privilege of creating money out of thin air should be their cost of sale, and we should get the advantage of it.

They are extracting rents from the economy as a consequence of this not happening, and that is abusing us.

When doing this, they are also distorting our real economy. In the way that they choose to grant credit, banks dictate the terms of trade in much of the UK. Their activities are biased towards certain types of activity. Their activities, in particular, overinflate the value of houses in this country by overextending mortgages to people who want to borrow to buy their own homes, and we have seen the enormous social and economic costs of that. Households are bearing that cost, and at the same time, businesses are also facing economic distortions because they cannot secure the funds they need from banks, whilst wealth is being channelled into existing assets.

The outcome is greater inequality right across our economy, and that, it would seem to me, is precisely what banks exist to do. Banks profit from speculation as well as lending, and they are major traders in our commodity markets as a result. Oil, gas and food markets are key examples of areas where they play a major part in the setting of the prices that we pay for the essential items that we need to live.

And their role is not neutral. They're in these markets for one purpose and one purpose alone, and that is to make a gain. In other words, they're there to push up the prices that we will eventually pay. Banks benefit when prices become unstable in an economy, and when does that happen? Whenever there's a period of financial stress, which they exploit for their gain at cost to us. This is the bank model, which results quite directly in inflation. And let me give you an example.

In 2022, Putin invaded Ukraine, and we know what happened next. There was a massive spike in the price of petrol, diesel, and other energy supplies, and fertiliser supplies as well. They all shot upwards. The claim was that the price increase was justified by the fact that there were going to be shortages, but those shortages never materialised. In fact, a year after the invasion, all prices had returned to their pre-invasion levels. But in the meantime, the banks had done something quite extraordinary. They had made enormous profits out of speculation during that period of chaos after the invasion happened, and they created a cost-of-living crisis.

They created inflation. They passed that onto us. That has now resulted in yet more austerity. The banks profited. They created inflation. They created high interest rates. They created the entire environment, which is to blame for our current economic malaise, and that was entirely their fault. And they asked to be treated fairly by not being taxed as a consequence. That offends me.

And at the same time, let's just deal with this claim that was made by Ana Botín, the boss of Santander, that banks do by their activities, create investment and jobs in the UK economy. This is nonsense.

First of all, large companies rely on debt placements, and that is done by investment banks, not by banks like Santander. So banks like Santander, Lloyd's, Barclays, HSBC and so on, are not the people who are lending to businesses. They might lend to smaller businesses, but the record shows their lending to smaller businesses has declined for years.

Productive investment is not any UK bank's priority now. Most of their lending is linked to property. In fact, 85% of their lending is linked either to mortgages or to property-backed lending, for example, for commercial property as well. Job creation is not what drives UK banking anymore, and let's not pretend it is, although Ana Botín said it was. And I am offended by that claim because I think that's deeply misleading.

And at the same time, let's just throw a little bit of theory into this. Modern monetary theory exposes some of the myths that are behind the claims that the boss of Santander has made. Banks do not need to retain their profits as a consequence of having low tax rates because they do not need to retain money inside their businesses to lend out. Banks create the money they lend at the time that they make a loan, and they increase their deposits automatically as a consequence of making those loans, because somewhere in the banking system, any money they lend will be redeposited in a bank.

So, existing savings are never the source of credit within the UK economy, and nor is bank capital. And as a consequence, lower taxes do not create additional lending capacity within the UK economy, but that is what Santander appears to be claiming. Their argument has no economic foundation.

And at the same time, banks also do not create growth. They can't. They extract value from our economy. That's what they're trying to do all the time in their currency speculation, their commodity speculation, and in the way in which they hike interest rates, they're always extracting value.

They are not investing in growth, which would require them to put money into real businesses. Instead, they're putting money into buy-to-let and financial engineering. None of that actually delivers growth that is worthwhile to the people of the UK. But what it does do is something which banks are really about.

Let's be clear about this. Banks exist to reallocate wealth within our society from those who do not have it, to those who already possessed of it. That is their purpose. They do the upward redistribution of wealth incredibly well. Now that is something we do not need.

We do need banking. Let me be clear. I'm not saying banking is wrong. I'm not saying we don't need it. I am saying the current banking model we have is not serving our society well, and it is not contributing to it properly. I am challenging head-on the claims made by the boss of Santander because I am saying what she is talking about when she comes to banking is something which is socially destructive behaviour, and if you undertake socially destructive behaviour, you should pay the price for that, which is that you should pay more tax if you are a bank.

Economic rents should be taxed more heavily, and that is what banking profits are.

Their speculative activity should face additional taxation, including financial transaction taxes, which should be looked at as a way of limiting their harmful impact upon prices inside the economy for which we all pay.

And public guarantees should require much more compensation than banks are paying at present. Banks should pay for the risks they're creating.

And the real question is not why shouldn't banks be paying extra tax? It is how much extra tax they should be paying.

Ana Botín should be saying, what is the fair price for the privileges that her bank enjoys? Her argument should be supported by facts, and at present it is not, because banks enjoy exceptional advantages. And those exceptional privileges justify exceptional taxation. That is what I'm asking for. That is what I want. She's got to provide a counterargument. I don't think she could.

That's my opinion. What's yours? There's a poll down below. Do you think banks should be paying more tax? I hope you agree with me. If you don't, let us have your comments. Please do like this video, if that's what you do. Please do share it. And if you'd like to buy us a coffee so we can make more of these videos, that would be great.

Poll

However, this stood out to me on Twitter when I was posting this morning's video:

The Telegraph is claiming that as the UK heads for a supposed £3 trillion of so-called national debt, an IMF bailout is imminent.

This, of course, is total nonsense. The UK only has debt denominated in sterling, and can always create the sterling that is required to make settlement, and therefore there is no chance at all of the UK requiring a bailout from anyone, let alone the IMF.

In addition, since the UK has substantial foreign currency reserves, it is not at risk in any other sense either.

So what is the Telegraph doing with this story? It is, of course, scaremongering, as is the usual habit of far-right media. And what is its aim? It is to suggest that the scale of UK government spending on those things that the Telegraph seems to find thoroughly undesirable, like help for those in need, should be scaled back whilst, simultaneously, defence spending should be increased. Unless, apparently, we do as it demands, we will go bust, although this is a technical impossibility.

We are living in a world of gross misinformation, prejudice, and barely disguised agendas of hate, and that is as true of economics as it is of any other part of life. The Telegraph both hates what government can do, while simultaneously demanding that it deliver what the Telegraph expects. The hypocrisy implicit in the Telegraph’s paranoia should be clear for all to see.

And what we should be pointing out is that:

• The UK cannot default, because it can always pay its debts, as it creates the only means available to let that happen.
• The debts in question do not fund government spending, because government spending is funded by the Bank of England.
• The debts in question are fundamental to the operation of British pension funds, life assurance companies, and UK banks, none of whom can survive without them, so why is the Telegraph so adamant that they must be repaid?
• If we reduce UK government debt, that will require increased levels of private debt to replace the gilts in question, and when private debt is very much more vulnerable to default, why does the Telegraph want that?
• Why doesn’t the Telegraph understand how government funding works after all the years it has been in operation?
• Why is the Telegraph intent on supplying misinformation?

It is the case that a great deal of what supposedly passes for news in much of the right-wing media is, these days, nothing but a pile of nonsense, but that is most especially true when it comes to economic commentary in the Daily Telegraph.

DEBATE AMMUNITION

UK UNIVERSITIES

Funding the Future | June 2026

TODAY’S TOPIC

UK universities are being killed by deliberate policy design.

The video to which this Debate Ammunition relates is available here.

THE CORE ARGUMENT

UK universities are being killed by policy design, not by accident. The neoliberal framework introduced by the Conservatives from 2010 onwards treated education as a market commodity, stripped critical thinking from schools and universities, and forced institutions into an unsustainable business model dependent on overseas students and postgraduate fee income.

The financial crisis now engulfing around one in five of the United Kingdom's approximately 120 universities is the entirely predictable result, and it will cause serious regional economic harm to the communities that host those institutions.

KEY STATISTICS

THE ARGUMENT STRUCTURE

Step 1 — A Crisis Created by Design: Around one in five of the United Kingdom's approximately 120 universities now face financial risk, and Nottingham is only the latest to cut staff and close courses. This is not a collection of isolated misfortunes; it is the foreseeable outcome of a neoliberal education policy introduced when the Conservatives returned to office in 2010.

Step 2 — Education Turned into a Market Transaction: Under Michael Gove and Dominic Cummings, education was redefined as a commodity whose sole purpose was to enhance a student's earning power. Students became consumers, universities became competing suppliers, and personal and social development disappeared. Critical thinking was removed from schools and is now being removed from universities; students were taught to absorb approved answers, not to question them.

Step 3 — The University Business Model Was Built to Fail: Because fee income became the lifeblood of every university, growth was not an option but a necessity, and financial viability displaced educational purpose entirely. Dependency on overseas students and postgraduate revenue replaced sustainable public funding, too few teachers were employed, face-to-face contact was rationed, and grade inflation became a marketing tool. The model had failure engineered into it from the outset.

Step 4 — What Must Replace It: The Three Cs: The obsession with facts and the examination of those facts must end; employers are already ignoring traditional qualifications and retesting candidates themselves. A new purpose is needed, built around curiosity (which drives genuine participation in learning), communication (speaking, writing, and numeracy as living tools for conveying meaning), and community (recognising that education is fundamentally about relationships and human flourishing through cooperation, not the production of isolated economic units).

THEIR ARGUMENT → YOUR REBUTTAL

THE ONE-LINER

“Neoliberalism did not just underfund our universities; it redesigned them to fail, and now it has the nerve to call the wreckage a market outcome.”

FURTHER READING

But this crisis is not an accident.

In this video, I argue that the problems facing universities are the predictable result of government policy. For well over a decade, education has been treated as a market. Students have been turned into consumers, universities have been turned into businesses, and educational purpose has been subordinated to financial targets.

The consequences reach far beyond university finances. I explain how critical thinking has been squeezed out of education, why testing now dominates learning, and why many students arrive at university without the communication and analytical skills they need.

I also explore how universities became dependent on expansion, overseas student recruitment, and increasingly fragile business models, leaving many institutions vulnerable when conditions changed, as they have with the introduction of new immigration policies.

Most importantly, I ask what education should actually be for. I suggest an alternative based on three principles: curiosity, communication and community.

If universities matter to our economy, our democracy and our communities, then the current crisis should concern us all.

This is the audio version:

The Debate Ammunition for this video is available here.

This is the transcript:

Universities in the UK are being killed, and I mean that. The universities in this whole country are being killed as a direct consequence of UK government policy, which is providing them with no future and is going to leave the towns where they’re located, in some cases, without a major employer, and staff without a place of work, and maybe some of their students without a degree. This really matters.

Now, I know that there are many people in the UK who think that university degrees have a declining value, and I’m not going to argue with that view in this video. But what we now know as well is that around 20% or one in five of the UK’s 120-odd universities are now facing financial risk. Nottingham is the latest. It’s cutting staff and closing courses, and it’s facing strikes as a result. But these events are not isolated or accidental. UK universities are being killed by policy design.

This outcome was always predictable. It’s the consequence of the neoliberal thinking that has underpinned our education in this country for well over a decade now, almost two. And that’s because the Conservatives brought a new style of thinking into education when they returned to office in 2010, and the consequences are now being seen.

They treated education as a commodity, something that the student consumed. They redefined education as a market transaction. And in this context, students became consumers purchasing economic advantage, either from their degree or their A levels or GCSEs. Universities then became suppliers in a managed marketplace. And that is why education in this country is failing.

Under Michael Gove, who was education secretary for several years whilst David Cameron was Prime Minister, he and his then assistant, Dominic Cummings, who became notorious with regard to Brexit and his role with regard to Boris Johnson, radically redefined the supposed purpose of education.

Learning, they said, was all about creating an economic return. Universities existed, in their argument, simply to enhance a student’s earning power. Economic growth became the justification for the expansion of education, and education for personal and social development disappeared. And we saw that in schools, with regard to things like music and arts and theatre and all those other softer subjects which make the person a whole human being. And we saw it at universities in the same sorts of area, but also with regard to the commodification of that whole education process.

What neoliberalism could not understand was that education should help people to understand themselves. And then it should help people to understand others. And then it should encourage curiosity and questioning; questioning, which should in turn lead to real learning: the sort of learning that a person develops for themself so that they deeply understand a subject and can embrace it, use it, and then explain it to others. As a consequence, education should be about strengthening society and community, but none of these goals fitted neoliberal assumptions.

As a result, critical thinking was systematically removed from all tiers of education. It’s gone from schools, and now it’s going from universities. Students are simply taught to absorb information. That is what Michael Gove’s education reforms were all about.

He said we’d go back to basics, but basics meant learning precisely what he thought the state should inform a student about, and there was no role to ask questions.

Worse still, there was no role to question the answers, and in that case, students were simply taught to reproduce approved answers; the type of thinking that neoliberalism had fed to them. And testing dominates educational achievement as a consequence. Do you know it or don’t you? That’s the only question that is asked. And independent appraisal by the student, by an examiner, by anyone else, has been entirely squeezed out of the educational system, and creative thinking is increasingly discouraged as a result.

The result is what I would call educational incapacity. Many students, ones that I saw when I was teaching, could not write an essay in their second year at university. Why? That’s because grade A A-Levels do not apparently require this skill anymore. Many students struggled to construct an argument. They couldn’t construct a counterargument either. There was no narrative flow through their work. They didn’t understand how they had to weave those arguments and counterarguments together to undertake an appraisal of evidence and then present their own arguments as a consequence based upon everything that they had read.

Conclusions were asserted rather than developed. And as I discovered, many of my colleagues, and many people throughout the whole education system, were frequently failing to remedy these weaknesses. I tried to do so by dedicating a session to teaching my students how to write an essay to meet my needs. The wise ones followed my advice. Those who were not so wise submitted the essays they’d written in the style they’d learned at school, or rather, not learned at school. They, of course, got the lower marks. The point is this: they did not know a basic skill, and they got to university without it, and that is indication of a major failure in our education system, or is it?

The fact is that the old elite model of education has survived university expansion. Let’s just talk for a moment about what that old elite model of education was. It was based on the thinking of Rockefeller, in fact. The Rockefeller Foundation in the USA in the early 20th century was all about the creation of philanthropy to control society on behalf of an elite who believed they had the right to set the terms on which society would operate, and they had a massive impact.

I’ve discussed this issue on my blog of late, but let’s stick to the core point here, which is that they thought over a century ago that a small elite in society should be taught how to think. Everyone else should be taught how to comply or how to do. They should become the artisan workers who would supply the products that they were told to create by that small elite. And that small elite would then extract value from those workers so that they could live in a style which they wished to enjoy.

Now, university expansion, as it was first imagined, by Labour in particular, did not actually change that objective. Extraordinarily, as the Conservatives became more and more influential on university expansion during the 80s and 90s, and then again since 2010, they made clear that technical education was what they really wanted universities to supply. Remember that Michael Gove’s quote, “We don’t need experts.” What he was saying was that he didn’t need too many highly educated people in society. He thought we had enough of them, and they were already setting the goals very nicely to suit his objectives. The rest should be doers, not thinkers.

And economics teaching reveals how this has worked. When I went to university fifty years ago, economics was taught as narrative. It was evidence-based. It was about doing your reading. It was about looking at arguments. It was about comparing schools of thought and the history of understanding in this area. Context was everything to understanding.

Now that has all been replaced. You don’t write essays anymore to pass an economics degree; you write maths. Formulas now dominate the subject. Assumptions are no longer critically examined. The history of economic thought is not on most economic syllabuses, and as a consequence, rote learners who can reproduce the formulas they’ve been given are the people who get the high marks in economics.

But they come out having not the slightest idea about how the world works, or how an economy works, or how a company works, or how even an individual might function. In fact, empathy has normally been taken away from them during the course of their study, and there’s plenty of academic research to back that statement up.

Don’t blame the students, though. Politicians designed this education system to create this outcome. Schools have become factories for testing performance right from a very young age; from 7, 11, 14, 18, whatever else. Students are assessed time and time and time again. And rote learning has displaced critical engagement, and universities have now inherited the consequence, which is young people who have been taught not to think, but to simply answer the question given the information they’ve been given.

That failure now is continuing in our university system, and the university business model imposed by neoliberals simply makes everything very much worse. Universities have been required to behave like businesses. They are all independent institutions with their own funding base, their own business model, their own sales pitch, and all their own systems, which is an enormous waste and duplication with a massive potential for cost saving if only they operated on standardised systems, and there’s no reason why they shouldn’t.

And financial viability became the overriding objective of every single university. Educational purpose became secondary. Recruitment targets for students became essential because that was the only way in which they could attract sufficient money to keep the system going. And growth became essential according to the neoliberal model, because that was the way in which security could be generated. In that case, revenue generation shaped all of a university’s decision-making.

But this business model was bound to fail.

It became dependent on overseas students. It became dependent upon selling master’s and other postgraduate programmes as revenue generators. And because expansion became a financial necessity, it was matched by austerity in the supply of the education process. There were too few teachers, there was too little marking, there was too little face-to-face engagement, and grade inflation became a marketing strategy instead of supplying a decent education. A fragile and transparent model was created by design, a neoliberal design that had failure built into it.

And that market is now turning on universities. Universities sold what neoliberalism demanded, but the product has too often failed to meet expectations now.

The students know it. They can see that they’re not advancing in the way that they were told to expect, and education quality has been undermined.

The resulting crisis is unsurprising, and as a result, we now need a new education system with a different purpose.

The obsession with facts should end.

The obsession with the examination of those facts should end.

Current testing systems have anyway lost their credibility. I know that. Employers are increasingly ignoring traditional indicators and exam results, and are instead retesting applicants for jobs. Why? Because they know that those exam results do not matter anymore.

As a result, we can all say with certainty that the existing model of education has broken down because it isn’t actually producing the outcomes that anyone, students, educators, or employers want. This system is failing.

So, what should we put in its place? I would suggest we need three Cs for a new education system. There used to be three Rs. I’m plucking three Cs out of the air, not randomly, I should stress, and suggesting that these should become the purpose of education.

The first C is for curiosity. Now, curiosity is key to education. Without a curious participant, without a curious student in other words, you simply don’t get participation in learning. Curiosity drives participation, and when it’s done right, you get somebody who wants to learn. Instead, we now have education aimed at people who are alienated by it as a result.

The second C is communication, and communication should be at the heart of education, and I’ll return to that point in a moment.

And the third C is community, because everything about education is about relationships. The whole of neoliberal thought has been about the fact that they think education is about the student as a silo, an economic unit. But the student, when they become a participant in the workplace, when they become a participant in life beyond education, is not a silo. They are one of a team, one of a community, one of a town, one of a city, one of a club, one of a company, one of whatever else, and that is all about community and the ability, therefore, to go back to the previous section to say, it’s all about communication.

These are the qualities that matter throughout life. They matter more than any test of memorisation, which is what education has been reduced to.

Communication is the key missing skill, in my opinion. Young people should be taught to speak clearly. Making presentations is important. Being able to talk about an idea coherently is vital if a young person is to be able to participate in almost any form of social activity. It doesn’t matter what you’re talking about; it doesn’t matter whether it’s academic. It could be sporting, it could be social, but if you can’t speak clearly about what you want and explain your ideas, you are not going to get on in life. But this verbalisation skill is far too underrated.

Students should also be taught to write coherently. But that does not necessarily mean that they need to write an essay about Jane Austen, much as I like Jane Austen, and I do. But they should be able to communicate what they mean clearly and coherently to the person they’re sending whatever it might be, a text, an email, a letter, an essay, whatever. All of those things matter, and they should be able to construct them in a way that the user can understand. But at present, I, as an examiner, as I used to be, could not always understand what my students were trying to tell me. They did not do well as a result, and I tried my best to make sure they understood what I wanted.

It’s also true that students should learn to communicate numerically. And in this sense, maths has failed as badly. There are far, far too many young people who feel that maths is not for them, and that’s because they aren’t told why they need to communicate numerically, and what numerical meaning is. They aren’t taught maths as if it’s a real, living, communicating tool within the context of real life, instead of in the absurd way in which most maths is taught. And I can tell you for certain that most sixth-formers have no idea what differential calculus is all about. And most people, much younger, who are being taught to do quadratic equations, have not the slightest idea why. And even earlier than that, most people never understand what a percentage is. Well, if you aren’t taught the whys, instead of just the how-to-dos with regard to maths, of course, you can’t communicate numerically.

So, this matters much more than technical rules. I’ve seen the absurd syllabus for young people when it comes to English before the age of 11, where they have to learn all these rules of grammar, none of which I know, and I have written and published millions and millions of words. You can survive without those rules of grammar, but you can’t survive if you don’t know how to communicate your message clearly and coherently.

Education has forgotten all of this, and we are all the losers as a result. Education should focus on meaning and conveying it, but that’s not what it talks about. It’s only interested in testing structure.

The politics of care would then deliver a very different vision of education as a result. Education is, as far as I’m concerned, fundamentally about relationships and learning about living within communities. Human flourishing depends upon cooperation. Education should be learning about how to, quite literally, cooperate. Add that in as a fourth C, if you want. Don’t blame students, teachers, or universities if that’s not the skills that our students end up with. Blame the neoliberal framework that is killing education.

That is what is at fault. Michael Gove, David Willetts and others who were the supposed education gurus have left us with this crisis of universities that are financially failing, of universities that are failing their students, of universities that are not delivering the people this country needs, and now, of universities that might fail the communities that host them because they could go bust, with enormous economic regional consequences.

Education is in a crisis, and we need to sort it out, and we need to sort it out fast, and to do that, we need to understand that education is not about delivering a product; it’s all about delivering communication and communication in community. When we understand that we might get the education system that we need.

That’s what I think. What do you think? There’s a poll down below. Please let us have your views. Please do share this video if you like it, and if you want to support us by buying us a coffee, we’d be very grateful.

Poll

Santander chief Ana Botín has hit out at the UK’s bank taxes, saying the regime “makes no economic sense” as lenders brace for a further hit if Sir Keir Starmer is replaced by a more left-wing prime minister.

As they added:

Botín said: “The question is, why single out the banks in particular and impose additional taxes? We already pay a corporate tax rate of around 30 per cent, our profit margins are nowhere near those of monopolistic players, and we’re not reaping windfall profits.

“If policymakers are looking for sectors earning outsized returns, there are other places to start.”

She added that bank lending to businesses “drives investment and job creation”.

This, I think, passes for serious economic commentary from a person like Botín, who, we should hope, has thought about the economics, social purpose of banks, and their consequences for the taxation of banks. What is apparent, however, is that she thinks banks are just like any other business. That’s a suggestion that needs to be addressed.

Banks are different

The reality is that banks are not like any other business, despite what Botin claims.

Banks are highly regulated institutions that are granted unique privileges by the UK state that are unavailable to any other business sector.

In particular, banks are completely unlike other companies. They are licensed to create money through lending and, for that privilege alone, banks should be subject to special taxation treatment.

In addition, as Botín should know, Santander’s business model depends on a state-backed monetary system and central bank support. This is not true of manufacturers, supermarkets or retailers.

What is more, unlike any other business, banks’ business is explicitly underpinned by the government through the provision of a guarantee to those who place deposits with them. No one would trust them without that guarantee. People need to know that they will be bailed out when banks fail, but as a result of it, banks know they will be. Their profit-extraction model, which is based on these guarantees, deserves special tax treatment as a consequence.

Banks create systemic risk, and they should pay a very high price for that in the form of taxation.

Banks are rentiers

What is more, as we know, banks do not profit in the normal sense. They do not buy a commodity and sell it, although bankers would like to pretend that they still take deposits and lend, which is a myth that has been debunked, even by the Bank of England. Instead, banks extract rents from society by creating credit at no direct cost to them, and this rent-extraction process imposes considerable costs on UK households and the business sector, and it also distorts prices, not least in the housing market. This is a rent extraction. It is not a profit-generating activity in an economic sense.

Banks as drivers of inflation

This, however,  is not the only way in which banks extract rents. We also know that banks are among the largest traders of raw materials and commodities in the UK. They trade oil, gas, electricity, all our major foodstuffs, and other raw materials, including most base metals.

As a result, when there is a threat of shortages in these markets, they exploit that situation to manufacture excess profits for themselves. In the process, they also manufacture inflation. In fact, it’s probably quite fair to say that the biggest drivers of inflation in the whole UK economy are our banks.

As evidence, look at what happened after Putin’s invasion of Ukraine. Prices of many raw materials, and especially oil, gas and fertiliser, rose dramatically due to speculation about shortages. A year later, no shortages had taken place, prices had returned to their pre-invasion levels, but the banks had, in the meantime, created an inflation spike, a cost-of-living crisis, and had extracted enormous profits from the economy.

These banks are not neutral players inside our political economy. They are entrenched within it for one purpose, which is to extract profit from it through speculation that exploits consumers.

Banks do not deliver investment or jobs

In that context, Botín's claim that banks help create investment and jobs in the UK economy should be seen in a proper light.

Bank lending to the small business sector has been falling steadily for decades, to the point where it is now very hard for most small businesses to secure any form of bank support for their operations. And it is known that approximately 85% of all UK bank lending is either for mortgages or is secured by property collateral. In other words, banks are not interested in lending for investment or job creation. To claim that they are is just totally misleading at best, or disingenuous at worst.

Banks do not need to retain profits to lend or grow the economy

Meanwhile, modern monetary theory, or MMT, shatters the idea that banks must be allowed to retain profits as a basis for lending. This is not true.

As a matter of fact, banks create deposits when they lend, and they are not therefore dependent upon retained reserves for this purpose, because, as a matter of fact, they do not lend existing funds to those persons to whom they grant credit. There is, therefore, no argument to be found for this reason for lower taxation. Any such claim is economically false.

Nor is it true that banks must be allowed to retain profit to fuel growth. If growth were an appropriate objective, banks do not assist it with their activities. Growth is created by real economic activity, but as already noted, banks are not willing to fund that. Instead, they fund the buy-to-let market, speculation, share buybacks and other such extractive activities. Banks harm growth.

Banks as reallocators of wealth

It is true that any economy needs banks. I am not disputing that. But the banks we have are not involved in constructive activities in the UK. At best, their primary function is to allocate wealth from those who lack it to those who already possess it. This is not a useful economic activity. It is a destructive one. And precisely for that reason, we do need to tax banks more.

Why we need to tax banks more

We need to tax at higher levels the rents that banks extract from our economy.

We need to tax banks' speculative activities much more heavily, including by imposing financial transaction taxes, to limit the harm banks cause to our economy.

We need to tax, at higher rates, the real upward reallocation of resources that banks facilitate within the UK.

And we need to tax them more, because the UK state underpins the activities of these antisocial organisations, and we need to be heavily compensated for bearing that risk.

Conclusion

Ana Botín’s comments are deeply and profoundly misleading.

Her claim that banks should be treated like any other business is wrong.

Her economics comes from a point of privilege, with the intention of maintaining it.

Her claims are not based on facts.

They should be ignored.

And at the same time, genuine questions should be asked, such as why should a person so willing to mislead be in charge of a UK bank? I have no answer to that.

As some readers here will have noticed, I have begun a new series of posts under the generic title “Richard Murphy's view on...”.

Having chosen that generic title, I have then drafted these in the third person because they are designed for sharing and as a means of accessing some of my thinking on particular subjects, as well as related reading lists. So far, most have linked to more than 20 other posts on this blog.

However, that choice to write in the third person, as if I am writing about myself,  appears to be upsetting some people, and they have suggested that these should be drafted in the first person, or as explicitly personal opinion, instead.

I can see the argument for both approaches, and before going much further into this series, for which I have around 90 titles listed at present, I would like some guidance from you as to which approach I should use.

Might you therefore be willing to complete this poll, which might help me decide?

The first post was no grand announcement, largely because, in practice, there had been a previous version of this blog running for several weeks before it shifted to this self-hosted version, which has run ever since.

There are no special events or anything very much to mark this day. But three things happened over the weekend that showed me that there is still life in the idea that there is a need for a platform to discuss alternative or heterodox approaches to issues in the current political economy.

The first was the surprising success of our latest e-book.

I admit that when I announced this here on Thursday and on Substack on Friday, the reaction was muted at best, and even slightly disappointing. Then I promoted it on YouTube in both a video and a community post on Saturday, and the reaction was very different.

There have now been almost 2,000 downloads, and as any author or publisher will confirm, that is a strong first weekend performance.

To put this in context, I always remember a statistic that was once reported, which suggested that 30% of all materials available for download on the World Bank website had never had a single download in their history.

So, first of all, my thanks to all those who have downloaded this book. I hope it is interesting.

And then, my thanks to all those who also donated. You are encouraging us to look at producing more materials of this in-depth sort, which is a process now in development.

The second encouraging sign was that, perhaps as a consequence of the book, this blog had what is, for it, exceptional traffic over the weekend.

It is not unusual for blog traffic to dip a bit at the weekend. When bots have been eliminated, the usual readership at the weekend is just over 20,000 per day, but this weekend, on both days, traffic exceeded 35,000 views, and that is exceptional, once again.

The third notable reason for pleasure this morning is the reaction to yesterday's video, which was entitled "You're not crazy".

Some of the videos I make take quite a lot of planning, research, and thought before I ever sit down in front of the camera. This was not one of them.

To make this one, I told Thomas that there was a video I wanted to make and that it would be called "You're not crazy", but there was no script, no plan, and almost no preparation. Apart from the opening few sentences, about which I had some idea, this was going to be a simple free flow to see what happened.

I asked Thomas to turn the camera on, and I just talked to it. Or rather, I talked through it.

The video was made in one take, as is true of most of ours. I must have made one or two mistakes on the way, because I can see that edits were made, and I correct mistakes as I go, which is why those edits appear, but the flow was uninterrupted as the video was made.

And then, as I usually do when I think a video is complete and the camera has been turned off again, I asked Thomas if he thought it was okay, and he confirmed that he thought that one would work.

He was right; it did.

It has not been as big as some of our videos, but at 58,000 views yesterday, it obviously spoke to a lot of people, and I am grateful for the comments. It felt like the right thing to say at this moment, and quite a lot of people agreed. So, thank you once again.

I know I spend a lot of time thinking about ideas, writing, video making, and more. In total, I think I spend more than 60 hours a week engaged in those processes, but if a retired person spent the same amount of time pursuing a hobby, nobody would be very surprised.

And since no one asks me to do this, you could describe it as my hobby, and it is one I enjoy sharing.

I will be candid, though. There may not be another 20 years of life in this blog now.

Who knows whether I will make 88 or do so with the energy I have now?

If I am in reasonable health, I would like to do the first, but I am realistically aware that at some point my energy must fade a bit, although as yet I have seen absolutely no sign of it, and everyone keeps telling me that it should have happened by now. So, let me just hope that things can continue for as long as possible.

That is my wish. I hope you might stick around.

As the Financial Times has reported:

European motorists have cut back at the pump in response to a surge in petrol prices caused by the Iran war, triggering the largest year-on-year decline in Eurozone fuel sales since 2023.

They added:

The trend is echoed in the UK, where motor fuel sales declined 10 per cent year-on-year in April after strong growth in the previous month.

And as The Guardian has reported:

Note that last point: the survival of some airlines is already in doubt. This is no minor blip.

These, I would stress, are just the beginning. They are the inevitable signs that everything is going to get worse.

The employment market is also seeing the consequences. The Financial Times has reported:

UK employers are taking on temps while pulling back on permanent hiring as the Iran war compounds existing cost pressures and clouds the economic outlook.

Recruiters reported a widespread decline in placements of permanent staff in May, according to a monthly poll published on Monday by KPMG and the Recruitment & Employment Confederation, which also showed the strongest upturn in temporary billings for three years.

The likelihood of a serious slowdown in growth and rising unemployment is increasing.

Meanwhile, South Korea's main stock market index plunged by 8% in trading last night.

After a year in which the index rose by more than 80%, after many years of relative stagnation, it looks as if the AI bubble that has driven this index upwards has burst, following falls in the NASDAQ index in the USA on Friday.

The simultaneous possibility of a major financial crisis, spurred by the end of AI hype, coupled with a real-world crisis driven by oil, energy, food, and other raw material price increases resulting from Trump's reckless war, is now more likely than ever.

I have been predicting this for some time.

Now the reality is appearing.

Right now, there are no signs that this will end well.

DEBATE AMMUNITION

WHY IS THE BANK OF ENGLAND KEEPING INTEREST RATES SO HIGH?

Funding the Future | June 2026

TODAY’S TOPIC

Why is the Bank of England keeping interest rates so high?

THE CORE ARGUMENT

Nearly a century of UK data shows that negative real interest rates have been the consistent policy response to every period of economic stress: the 1930s recession, the Second World War, post-war reconstruction, and the aftermath of the 2008 financial crisis.

We are now in another such period, caused by supply shocks from war, COVID, and the exchange-rate consequences of Brexit, and yet the Bank of England has deliberately pushed real interest rates back into positive territory for the first time in any comparable crisis in modern British history.

This is not neutral monetary management; it is a political choice that transfers wealth from mortgage holders, renters, businesses, and public services to banks and those who already hold financial assets, and it will make the coming recession significantly worse than it need be.

KEY STATISTICS

UK interest rates and inflation since 1929

THE ARGUMENT STRUCTURE

THEIR ARGUMENT → YOUR REBUTTAL

THE ONE-LINER

“Every period of economic stress in the last hundred years has been met with negative real interest rates; the Bank of England knows this, and has chosen to do the opposite, which means this is not a policy error, it is a policy choice, and the people paying for it are borrowers, renters, businesses, and public services.”

FURTHER READING

All sources below are published on Richard Murphy’s Funding the Future blog at taxresearch.org.uk. / Funding the Future.

Mortgage holders are paying more, renters are facing rising housing costs, businesses are struggling to invest, and public services are under increasing pressure. Jobs are at risk.

The Bank insists that high interest rates are needed to control inflation, but does the evidence actually support that claim?

In this video, I look at almost a century of UK economic history and examine what happened to real interest rates during every major period of economic stress, from the Great Depression of the 1930s, through the Second World War and post-war reconstruction, to the crises of the 1970s and the financial crash of 2008.

The pattern is remarkably consistent. When the economy is under strain, governments have usually allowed negative real interest rates because they reduce pressure on households, support investment, make government finances easier to manage and help economic recovery.

Today, however, the Bank of England is doing the opposite. Despite ongoing economic weakness, a cost-of-living crisis, stagnant growth, unaffordable housing and rising business pressures, it has deliberately pushed real interest rates back into positive territory. The result is a transfer of income from borrowers to lenders and from ordinary households to those who already own substantial financial assets.

I explain why high interest rates cannot solve supply-driven inflation caused by energy costs, disrupted supply chains and geopolitical shocks.

I also discuss the role of Rachel Reeves and the government, why this policy choice matters, who gains from it, who loses, and why Britain may be heading towards a deeper recession than necessary if current policies continue.

If you have a mortgage, pay rent, run a business, work in a public service, or simply want to understand what is happening to the UK economy, this is a discussion that matters to you.

This is the audio version:

The Debate Ammunition for this video is available here.

This is the transcript:

Interest rates in the UK are far too high at present, and the Bank of England is to blame. And this matters. We are in a period of economic stress. It's going to get worse, and in a period of economic stress, we should have negative real interest rates in this country. But instead, we have positive ones, and that is costing millions of people dearly, and that is all the fault of the Bank of England, as I will show in this video.

Mortgages are unaffordable. Rents are rising. Businesses are struggling. This is not bad luck. It's the direct consequence of deliberate Bank of England policy, and a century of data proves it does not have to be this way.

Look at this chart. It plots the UK 10-year gilt rate from 1929 to 2026. That's almost a century of data, and it reveals a clear pattern. It shows three things.

The first is the nominal interest rate that is paid on those 10-year gilts, and the 10-year gilt rate is the best approximation there is to the average cost of government borrowing in the UK. And then it shows the inflation rate, and the real interest rate is the difference between the two. If the nominal interest rate is 5% and the inflation rate is 3%, the real interest rate is 2%; that's how this works. And what you can see is that the pattern is consistent across nearly a hundred years of economic history. Real interest rates, what you earn or pay after inflation, depending on which side of the equation you are on, are the critical measure here. The relationship between those rates and economic conditions is not random.

Seven distinct periods on the chart show exactly when positive and negative real rates of interest have occurred over the last century.

In the 1930s recession, the government held interest rates low at around 2%. The result was negative real interest rates until just before the Second World War.

During that war, yields were deliberately suppressed, nominal yields that is, to around 3%. That was the rate paid on government war bonds, but inflation was very much higher. It reached nearly 17% in 1940 as the shock of war came in, and before rationing had a real impact. And that produced deeply negative real rates of interest.

Savers were effectively funding the war through silent expropriation of their funds in that case, and this was not an accident. It was a deliberate policy choice at a moment of deep crisis for the country. Priority was given to national recovery and not to returns on financial assets.

After the war, negative real rates continued through the period of rationing and recovery that lasted until about 1954. The government maintained tight control over interest rates during this period quite deliberately. It wanted to lay the foundations for recovery, and low interest rates, and low real interest rates, ensured that recovery was possible.

And then, from the mid-1950s, we see a very real change. Real positive rates of interest became a feature of the economy. This was genuinely a good period. Returns to almost everyone in the economy were good at this point in time. Wages were rising. Real interest rates were rising. Business was becoming more profitable. More houses were being built. Harold McMillan said, "You've never had it so good," and he might have been right. But whilst nominal yields rose steadily to track inflation, real rates remained stable. This was the period of the postwar settlement, and it lasted from the mid 1950s to around 1970.

And then the 1970s brought economic meltdown. The consequences of Vietnam, the collapse of the Bretton Woods agreements, and effectively the end of the gold standard. And then the oil price shock from 1973 onwards. Inflation in the UK hit 24% in 1975; I remember it well. Whilst the 10-year gilt rate reached only 13%. That produced a real interest rate of around minus 11%, not by design again, but through crisis.

The government had not yet understood that, as a fiat money issuer, they could fund themselves. And as a consequence, they did push interest rates up to try to secure the money they needed, as they thought they were dependent upon borrowing to be able to fund their activities, which was no longer true. But this created a period of social stress, financial stress, and political crisis. Confusion about economics has a consequence, and in this case, the consequence was the Thatcher era, the neoliberal era. That's what we got as a consequence of the 1970s confusion and the breakdown of certainties over money and the consequent disruption in interest rates.

The Thatcher period brought an era of change. From the early 1980s, both inflation and nominal yields on government bonds began to fall. But real rates initially surged, reaching almost 6% by 1983 and 1984. Thatcher had tipped the world on its head as far as the wealthy were concerned. She came in to serve the wealthy. She did serve the wealthy. She gave them very strong, real positive interest rates, and they were delighted, and that laid the foundation for her return to government in 1983, just as much as the Falklands crisis did.

This was a deeply painful period for borrowers, and it would've been devastating for government finances, but for the discovery of oil off Scotland. It was that which made Thatcher look economically successful. She wasn't, but the appearance of those oil flows and the fact that the UK was earning so much revenue from them, and so, so much tax was being paid as a result, made it seem as though she was successful, when in fact she was a bit of an economic disaster.

However, it was a period that was enormously profitable for those holding financial assets. The chart shows that. The 1980s were good for people who were wealthy. They were bad for everybody else, and no wonder inequality grew so sharply during this period as a result of deliberate government policy. It was structurally built into the interest rates that Margaret Thatcher enabled.

And this bias in favour of finance continued right up until the 2008 financial crisis. There were odd blips, but it was always there. There were positive real interest rates throughout most of that period, and they were only just disappearing when that crisis hit.

At that moment, everything changed again. We had a financial crisis, and we had an acceleration in a long decline in nominal yields as a consequence. Quantitative easing drove down the 10-year gilt yield to just 0.33% by 2020. In effect, we had zero real costs of government borrowing. Real rates throughout the 2010s were around zero or even mildly negative. A second era of financial repression as a consequence, and that was appropriate.

This was the price that finance paid for the excesses of the previous 30 years. And then things got worse. Brexit created inflation pressure through exchange rate consequences, which were very significant. Remember, nobody did more to crash the pound than Nigel Farage did, and that pushed real interest rates further into negative territory, and then COVID hit.

Economic activity fell, supply chains broke, and inflation surged.

After that, we got the war with Putin. By 2022, inflation reached 11.6%, whilst nominal yields on gilts were still suppressed.

And what we are seeing is a pattern here over six periods; I will come to the seventh in a moment. But over the first six periods that this chart looks at, there are negative real interest rates in every single period of economic stress. During the 1930s, during the war, in the immediate post-war period, and again post-2008. None of this is surprising. When we have a financial crisis, we should expect to have negative real interest rates. That is the pattern that a century tells us should be happening.

But we are now still in a period of economic stress, and yet, as the chart shows, the Bank of England has deliberately forced interest rates back into real positive territory. This is not what should be happening. It is the exact opposite of what we need at this moment. Policy should be to continue negative real interest rates at this moment, but that is not happening.

So the question is, who decided this and why? Negative real rates in a time of stress reduce the burden on borrowers, including households and the government. They also support business by making the cost of capital lower, and therefore, we get a higher rate of investment. They are the natural response to economic stress, shortage and reconstruction. In every equivalent period to that which we are now in over the last century, negative real interest rates have been the policy response to the situation the country has found itself in.

Positive real rates do the exact opposite. They transfer wealth to savers, and that is what is happening now. Households are suffering. The government is suffering. Investment is suffering. We are in a period of stress, and yet policy is running in the exact wrong direction by deliberate government choice, outsourced to the Bank of England.

But in this case, let's be clear, the government can veto the Bank of England; it hasn't. So this is by deliberate government choice.

And the Bank is using this opportunity of an inflationary period to try to change the whole pattern of what's been happening in past periods of shock. We've got a period of shock. Supply shocks to energy, food, and supply chains, and that is what created the crisis in 2022. That is what is going to make it all the worse now.

We know that, and we know that in this situation, raising interest rates does not fix the supply shock. It cannot increase the physical supply of goods and services in the economy in the way that is required to remove the inflationary pressure within it.

As a consequence, though, mortgage rates are too high, rents are too high, and the feedback into inflation continues. The Bank is exploiting this period of shock to act in the interest of banks and of wealth holders.

It is simultaneously pursuing a neoliberal agenda of squeezing the government to reduce the scale of public spending.

High real interest rates of the sort we've got now are not neutral. They're not economic policy. They are deliberate social policy designed to redistribute income from borrowers to lenders.

They benefit those with financial assets, and they punish those with debts or mortgages.

They impose fiscal pressure on government, whether that's justified or not and that then becomes a justification for cuts, which is what the neoliberal agenda requires.

They penalise those renting and those with mortgages, most of all, and they are what we might call average people, people who are not well financially endowed and who have to either borrow to acquire a house or have to rent one, and that is a real cost of living.

And this outcome is not accidental. It is the entirely logical consequence of the Bank of England choosing to impose positive real interest rates at this moment in history, contrary to everything that we learned over the last century. The ideology behind these choices prioritises saver returns over economic wellbeing, and that ideology serves some interests in the economy very clearly more than others.

Evidence is unambiguous. Negative real rates are the appropriate response to the current economic stress and would have ve been since 2022. We are in that stress, and yet we have positive real interest rates at this moment, and that is aberrational. There is no moment like this over the last century when anything of the current sort happened. The Bank of England has abused the powers it has got to create this situation, and it has chosen to impose a punishment on the economy, which has made our lives worse.

It should be cutting interest right now and, in my opinion, quite heavily, by more than 1%. But it isn't going to do that, and the cost of this failure is going to be borne by mortgage holders, renters, business, and of course public services because the government believes that there's a relationship between the interest it pays and the services it can supply.

The question is not whether this is happening. We know it is. The question is, why are we allowing this to happen? And why is the government letting this happen? And what will happen if we let it continue? We know we're heading for another recession right now, and if this policy of real positive interest rates is maintained, and I expect the Bank of England will try to do that, then that recession is going to be very much worse than it need be.

And Rachel Reeves is letting this happen. It's as though she thinks she's acting in the interest of savers, and she has no concern for the majority of the people in this country, the 70 to 80% who have very few savings at all.

The rich can always look after themselves.

The role of government is to look after everyone else.

But Rachel Reeves has forgotten that.

That's the crisis of this moment. That's why the Bank of England is wrong. That is why Rachel Reeves is wrong. That is why we need to cut interest rates now. That is why we might need further cuts when we head further into recession, which is going to happen soon. But will they happen?

The fact is that the Bank of England is clearly dedicated to working against our best interests. It is doing so at this very moment. It will take a brave chancellor to change that tack. I hope it happens because we need it to do so.

We are in trouble. It's going to get worse. And the Bank of England, if it carries on like this, is going to make miserable lives almost impossible lives. That's the net outcome they're going to achieve.

That's what I think. What do you think? There's a poll down below. Let us have your comments. Please like this video if that's what you do. Please do share it. And if you'd like to buy us a coffee so that we can continue to make videos like this, we'd be very grateful.

Poll

Others in this series can be found here, and they can be downloaded as PDFs from here.

The Analogy and Its Political Uses

Few ideas have done more damage to economic thinking in Britain than the household analogy. It is the claim, repeated by politicians of almost every party and echoed across the media, that the government must manage its finances just as a household manages its budget. It must live within its means. It must not spend more than it earns. And if it has been borrowing, it must pay that debt down before the burden falls on future generations.

Richard Murphy has argued, consistently and at length, that this analogy is not merely imprecise but fundamentally false, and that its persistence carries serious consequences for public investment, social provision, and democratic accountability.

He traces the idea to a specific historical moment. A 1935 book, published to justify the economic policies of the National Government that had delivered the Great Depression, made the household comparison its central argument. At the time, there was at least a partial justification: the UK's adherence to the gold standard had imposed an external constraint on government spending, tying the pound to reserves that could be depleted by deficits.

But the gold standard had been abandoned in 1931, and with it the constraint that had made the analogy even remotely applicable. The analogy has been wrong ever since, and its continued use, Richard argues, is therefore either a matter of ignorance or a deliberate political choice.

What Governments Actually Do With Money

The reason the analogy fails is structural. A household is a user of money. A currency-issuing government is a creator of it. The difference is fundamental.

In the UK, when the government wishes to spend, it instructs the Bank of England to create the funds required. Those funds are credited to whoever is being paid, whether that is a nurse, a pensioner, or a contractor building a road. No prior act of taxation is required. The money is created by the act of spending itself.

This is not a fringe position. It reflects the operational reality of how the Bank of England functions, and the Bank has confirmed as much in its own published research. Taxation does not fund government spending; it cannot, because the money used to pay taxes must first be put into circulation by government expenditure.

The sequence runs: spending first, taxation later. The government spends, money enters the economy, and taxation then recovers some of that money, withdrawing it from circulation to manage inflationary pressure and to pursue social objectives.

Richard has described taxation as an economic steering wheel rather than a revenue source, and the distinction matters enormously for how policy is understood and debated.

The notion of "taxpayers' money" is therefore doubly misleading, both as a description of how government finance works and as an implicit claim about accountability. All the money in the economy was created by government in the first instance; there is no independently generated pool of private funds that citizens hand over to the state. Richard has made this argument repeatedly, and with particular force: the phrase exists not as an accurate description of monetary reality but as a rhetorical device designed to make voters feel that government spending is using something that belongs to them and should therefore be minimised when that is not true.

Why Cutting During a Downturn Makes Things Worse

If the household analogy were merely a harmless simplification, the stakes would be lower. But Richard's concern is that it directly produces harmful policy.

A household that reduces its expenditure when times are hard will, all else being equal, improve its financial position. That logic does not transfer to a government, because the government is so large a participant in the economy that its spending decisions shape the income of everyone else. When government cuts spending, national income falls. Tax revenues, which are determined by income and activity, then fall alongside it. The deficit the government hoped to reduce by cutting may not shrink at all; it may even widen.

This is not a theoretical abstraction. Richard has pointed to the experience of austerity in Britain after 2010 as a practical demonstration of the principle. The contraction in public expenditure reduced demand, suppressed growth, deepened inequality, and degraded public services, without achieving the deficit reduction that was promised. An approach modelled on the logic of household budgeting produced precisely the opposite of its stated goal, because a government's position within the economy is categorically different from that of a family within its own finances.

The sectoral balances framework, which Richard draws on extensively, makes the accounting logic plain. The financial position of the government, households, businesses, and the overseas sector must, by definition, net to zero across the whole economy. If the government runs a surplus, someone else must run a deficit. In practice, that means households or businesses are borrowing more, or the overseas sector is running a corresponding surplus against the UK. A government surplus is not, therefore, a sign of prudent management; it is a sign that debt has been transferred to the private sector, usually to the households least able to carry it.

The Analogy as Justification for Austerity

Richard identifies the persistence of the household analogy as the intellectual foundation on which successive programmes of austerity have been built.

If voters believe that government spending works like a household budget, then cuts look reasonable and even virtuous. They look like belt-tightening, like the responsible behaviour of a family that has overspent. The political language reinforces this constantly: maxed-out credit cards, money running out, debts for our children to repay.

Each of these formulations, he has argued, depends on a false premise. The government's "credit card" is the Bank of England, which the government owns and controls and which can always meet the payments Parliament has authorised.

The national debt is not a burden to be handed to future generations; it is the stock of government-created money that the private sector currently holds as savings. Paying it down would mean withdrawing money from the economy, which would reduce private savings and contract activity. Far from protecting future generations, it would impoverish them.

The real constraint on government spending is not monetary but real. It is the availability of labour, skills, materials, and productive capacity. When those resources are fully employed, additional spending will generate inflation. When they are not, as was plainly the case across most of the austerity years, restraining spending simply leaves people and resources idle, producing nothing, while public services deteriorate and long-term productive capacity is eroded.

The Analogy's Grip on Political Debate

One of the features of the household analogy that Richard finds most troubling is its capacity to survive even when the people deploying it are confronted with evidence of its failure.

Politicians who have witnessed the failure of austerity, or who lived through the extraordinary spending of the Covid period without the economic collapse the analogy would predict, continue to invoke its logic the moment fiscal pressures re-emerge. This is not, he suggests, because they are incapable of understanding the argument but because the analogy serves a function that is political rather than analytical. It disciplines public expectations, sets a ceiling on what voters are allowed to demand, and provides cover for choices that are, in reality, choices about distribution and power rather than about the availability of money.

Fiscal rules, which Richard has examined separately in considerable detail, are the institutional expression of this logic. They translate the household analogy into binding commitments, constraining what governments may spend by reference to arbitrary ratios rather than by reference to the actual state of the economy and its real resource constraints. In doing so, they embed the analogy's errors in policy frameworks that successive governments then feel obliged to respect, even when respecting them produces demonstrably bad outcomes.

What Should Replace It

Richard does not argue for spending without purpose or limit. His argument is that the right question is never "can we afford this?" but always "do we have the real resources to deliver this without generating excessive inflation?" When resources are available and needs are unmet, the government has both the capacity and the obligation to act. The constraint is real, not monetary, and policy should be designed around that reality rather than around an analogy borrowed from the finances of a Victorian household.

Understanding this distinction is, in Richard's view, a precondition for any serious programme of public investment, whether in health, in green transition, in infrastructure, or in the care economy. So long as the household analogy shapes the terms of political debate, the space for such investment will remain artificially and unnecessarily narrow, and the political imagination of what government can achieve will remain confined by a metaphor that was wrong when it was invented and has only become more wrong with every decade that has passed since.

Reading List

"Why the household analogy in economics is wrong", https://www.taxresearch.org.uk/Blog/2025/08/11/why-the-household-analogy-in-economics-is-wrong/, 11 August 2025.

"Why the government is nothing like a household", https://www.taxresearch.org.uk/Blog/2025/11/23/why-the-government-is-nothing-like-a-household/, 23 November 2025.

"Governments aren't like households", https://www.taxresearch.org.uk/Blog/2025/08/13/governments-arent-like-households/, 13 August 2025.

"Governments aren't like households", https://www.taxresearch.org.uk/Blog/2026/02/23/governments-arent-like-households-2/, 23 February 2026.

"New glossary entry: the household analogy", https://www.taxresearch.org.uk/Blog/2026/02/14/new-glossary-entry-the-household-analogy/, 14 February 2026.

"The origins of the 'household analogy'", https://www.taxresearch.org.uk/Blog/2023/01/15/the-origins-of-the-household-analogy/, 15 January 2023.

"The household analogy", https://www.taxresearch.org.uk/Blog/2018/06/15/the-household-analogy/, 15 June 2018.

"Opinion on the household analogy", https://www.taxresearch.org.uk/Blog/2025/08/14/opinion-on-the-household-analogy/, 14 August 2025.

"There is no such thing as taxpayers' money", https://www.taxresearch.org.uk/Blog/2025/07/25/there-is-no-such-thing-as-taxpayers-money-3/, 25 July 2025.

"There is no such thing as taxpayers' money", https://www.taxresearch.org.uk/Blog/2024/08/01/there-is-no-such-thing-as-taxpayers-money-2/, 1 August 2024.

"Glossary entry: taxpayers' money", https://www.taxresearch.org.uk/Blog/2024/02/29/glossary-entry-taxpayers-money/, 29 February 2024.

"Who owns a £5 note?", https://www.taxresearch.org.uk/Blog/2025/09/05/who-owns-a-5-note/, 5 September 2025.

"Why it matters that government spending comes before tax", https://www.taxresearch.org.uk/Blog/2025/08/09/why-it-matters-that-government-spending-comes-before-tax/, 9 August 2025.

"Tax does not fund spending", https://www.taxresearch.org.uk/Blog/2026/03/02/tax-does-not-fund-spending/, 2 March 2026.

"Tax does not pay for government spending", https://www.taxresearch.org.uk/Blog/2024/04/29/tax-does-not-pay-for-government-spending/, 29 April 2024.

"Government spending is your income", https://www.taxresearch.org.uk/Blog/2025/09/20/government-spending-your-income/, 20 September 2025.

"The sectoral balances show that the government has very little control over the national debt", https://www.taxresearch.org.uk/Blog/2024/05/15/the-sectoral-balances-show-that-the-government-has-very-little-control-over-the-national-debt/, 15 May 2024.

"Glossary entry: sectoral balances", https://www.taxresearch.org.uk/Blog/2026/01/07/glossary-entry-sectoral-balances/, 7 January 2026.

"Fiscal rules are as flexible as rubber bands", https://www.taxresearch.org.uk/Blog/2025/07/14/fiscal-rules-are-as-flexible-as-rubber-bands/, 14 July 2025.

"Why fiscal rules stop change", https://www.taxresearch.org.uk/Blog/2025/09/08/why-fiscal-rules-stop-change/, 8 September 2025.

"Fiscal rules", https://www.taxresearch.org.uk/Blog/2025/09/29/fiscal-rules/, 29 September 2025.

"Does the government create wealth?", https://www.taxresearch.org.uk/Blog/2026/03/09/does-the-government-create-wealth/, 9 March 2026.

"What Osborne forgot to say: austerity does not guarantee the government balances its books", https://www.taxresearch.org.uk/Blog/2014/12/05/what-osborne-forgot-to-say-austerity-does-not-guarantee-the-government-balances-its-books/, 5 December 2014.

"When will they learn that austerity is causing our deficit?", https://www.taxresearch.org.uk/Blog/2015/11/20/when-will-they-learn-that-austerity-is-causing-our-deficit/, 20 November 2015.

The FT has earlier this week that:

Failure to resolve the energy crisis in the Middle East would plunge the world into a “dark scenario” of tumbling growth and sharply higher interest rates, the OECD has warned.

The Paris-based organisation said a “prolonged disruption” to energy flows that lasts into the second half of 2027 would cut global growth to 2.1 per cent this year and just 1.8 per cent next year.

Such rates are “extremely low outside of major global recessions such as the global financial crisis or the pandemic”, the OECD warned, adding that major central banks such as the US Federal Reserve would need to respond by lifting interest rates at least a half-point to curtail inflation.

To be blunt, nothing about this comment from the OECD makes any sense whatsoever.

If there is going to be, as the OECD implies is possible, a “prolonged disruption” to energy flows that lasts into the second half of 2027, that will be because the Strait of Hormuz will remain closed. If so, 20% of total global oil supplies might be disrupted, and a greater proportion of global gas supplies might be as well. In addition, the raw materials for around 30% of global fertiliser supplies will be disrupted, as will supplies of helium, sulphuric acid, and other key raw materials for a great many industrial processes, including the creation of the chips necessary for AI and its further development, including the construction of data centres.

If that were to happen, to suggest that the only impact on the world would be a cut in its global growth rate from 2.1% to 1.8%, which is an insignificant, almost immaterial and statistically almost irrelevant difference, is absolutely ridiculous.

Steve Keen published data to support his claim that there has historically been a direct and almost linear link between growth in oil use and growth in worldwide GDP. For every 1% increase in global oil consumption, there has been a 1% increase in GDP. Let me be clear, we do not know whether this will work in reverse, and as yet, the disruptions that have taken place have not resulted in a reduction in the consumption of oil because oil reserves have been released to cover shortfalls in supply.

However, if Steve is even partly right, the probability of a major recession in the situation for which the OECD is preparing a forecast is not a minor or inconsequential risk; it is near a full-blown certainty, and the scale of that decline in global economic activity will not be measured in minor parts of a per cent, but in terms of significant multiples of percentage points. What we will actually be looking at is a downturn on a scale unprecedented in the lives of most people now on this planet, for which we appear to be making no adequate preparation, largely because organisations like the OECD are acting in connivance with world political leaders to pretend that this eventuality will not happen.

This is, in my opinion, an act of gross irresponsibility. To pretend that we are not facing a catastrophe that will have its greatest impact on the world's most vulnerable people is scandalous. And those will suffer the most because they will have the least capacity to survive in a neoliberal world that looks as if it will manage the shortfall we are to face by price-based rationing rather than ethical needs-based rationing.

I now find the scale of this irresponsibility almost impossible to comprehend. There are already reports of major problems with food supplies in parts of Southeast Asia because, even if supplies of rice can reach Indonesia from places like Vietnam, fuel shortages within the country are impeding effective distribution. This, in itself, is indicative of the massive disruptions to supply chains that are going to become a feature of the world economy as this year progresses, none of which will go away in 2027, particularly because disruption to food supplies this year will have a significant impact upon the availability of seeds in 2027.

To be blunt, the OECD is not just wrong in that case; it is callously wrong. The consequences of the disruption we face will not be measured by fluctuations in GDP alone. The biggest impact will be in terms of the number of deaths that will unnecessarily arise because the world is going to fail to manage the distribution of adequate energy and food supplies to those in greatest need.

It is already clear that this will be the result of the deception being deliberately carried out by profoundly neoliberal organisations and governments. They are still pretending that markets will be able to overcome the absolute shortages in supply that will exist at unprecedented levels, creating physical supply shocks that will test the world's empathy and logistical capacity in ways never yet known.

When Trump and Netanyahu went to war against Iran, what we did not know was that they were beginning what might be one of the greatest human disasters in history. That the OECD cannot see this just proves how unfit for purpose they are.

Their reassurances also remind me of those we heard early in 2008, when we were told there was no risk of a global financial crisis. Some of us realised that a crisis was imminent at the time and said so.  Steve and I were amongst those who did.

But let me put that in context. A global financial crisis was just that: it was about finance. This time, we are talking about a crisis in the supply of the basic essentials necessary for people to survive. In that case, the scale of the impending catastrophe is entirely different, yet those in positions of responsibility are still pretending that we have nothing to worry about.

They were wrong in 2008. They are wrong now. One day, I hope they will be held accountable for what is about to happen because the charge sheet is going to be very lengthy indeed.

Phil Pluck, the chief executive of the Cold Chain Federation (CCF), which represents businesses involved in supplying and transporting temperature-sensitive food and pharmaceuticals, said: “The potential for a major food crisis is as great now as it ever was. We are at the mercy of so many different factors now, which are becoming increasingly dangerous to food supply in this country.”

They added:

Britain’s food system has not been significantly tested since the second world war, a time when about half of the nation’s cold stores were in public ownership, said Tom Southall, the deputy chief executive at the CCF. “This alludes to an element of complacency about how and where we store our food in the UK.”

And then they noted:

Britain relies on overseas imports for more than a third of its food, most of it entering through four ports, making supplies particularly vulnerable to potential interruption.

The CCF said international conflicts or hold-ups at the UK border could stop food flowing into the country, while fuel shortages or the failure of cold-storage sites because of flooding or extreme heat amid the climate crisis could cause gaps on supermarket shelves.

Let's be clear, all og this material obviously came from a rehashed press release from the Cold Chain Federation, but the sting was in the tail:

The continued closure of the strait of Hormuz has interrupted global flows of fertiliser, necessary for half the world’s food production, further raising fears over shortages.

Many everyday grocery items, including meat, vegetables, fish, dairy products, bread, fruit and ready meals, rely on the cold chain, as well as medicines, vaccines and blood and plasma products.

And, yes, this may be a trade association seeking publicity, but I think it is doing so advisedly.

There is a crisis jeading our way.

Britain’s food system has not been significantly tested since the Second World War.

And right now, as a crisis is unfolding in plain sight, ministers appear to be doing precisely nothing about it, and are instead obsessing about the Makerfield by-election. That may be important, but feeding the nation is very much more so, and they appear to be either unaware of that or are indifferent to it. As a result, they are actively turning what might need only be a crisis into what could be a disaster.

Seen like that, Makerfield might turn into insignificance in national history as a result.

Tett’s article was written in response to a recent OECD publication on "Empowering Public Understanding of Public Finances". This, like much of what the OECD produces on economics, as I noted in a recent Substack article, is highly neoliberal in its outlook and analysis, which is, of course, exactly why Gillian Tett has quoted it, because it feeds straight into her debt paranoia. As she broadly correctly notes when seeking to summarise it:

Governments are being asked to manage long-term fiscal risks in an environment where public trust and people’s willingness to tolerate trade-offs are low.

From there, Tett adopts the approach I explained in my article on normal people a week ago. She assumes a right to proclaim what is good for such people as a member of the educated elite. Her logic for doing so appears to be based on that promoted by the Rockefeller Foundation in the early twentieth century, when some of the richest people in the world thought that they had the right to set the economic and social policies that governments should follow, a logic we are still familiar with today because it still remains that of the world's elite from Musk, to Blair, and beyoind.

Tett then appears to assume that her readers in the Financial Times are, like her, a part of that elite, as she sets out to tell the world what they must learn so that they might understand just what it is that they should accept with regard to government spending, taxation, and debt. She does so by agreeing with the OECD, noting that in the report she refers to:

[T]he OECD argues that governments need to take four steps:

• demystify the budget for politicians;
• communicate clearly with the public;
• give citizens a proper voice in fiscal policy; and
• co-opt civic bodies to be fiscal advocates.

What is the goal? It is, based upon what I can only presume, from the construction of her article, to be her apparent attendance at an OECD seminar on this issue, that finance ministers should use social media platforms, such as Instagram, to explain debt and embrace simple metaphors, such as a household budget, to explain fiscal choices. As she notes:

Margaret Thatcher famously deployed this analogy, and it was used again this week on the BBC by Sir Howard Davies, former chief UK financial regulator.

There is, of course, one simple problem with that. It is that the household analogy is wrong (as the linked glossary entry explains). Worse than that, it is profoundly misleading and mischaracterises the nature and function of money altogether as far as a government is concerned, as well as the role of tax in the government funding cycle, and the nature and purpose of government debt, as well as government bonds.

It is as if Tett's great desire, as a member of the financial elite, is to mislead, because that is what she is suggesting be done.

And she suggests the threat should come with menaces attached. As she proclaims:

[T]he sad reality is that humans are highly skilled at selectively ignoring bad news. So the OECD’s ideas seem unlikely to work without another ingredient: bond market pressure. After all, voters and politicians in Portugal, for example, only embraced radical debt-cutting measures after a market crisis.

So perhaps investors should now pray that something like a “goldilocks” crunch emerges — a wave of bond market turmoil that is just big enough to show voters why fiscal consolidation is needed, but not so big that it craters the financial system and economy.

She added:

 Is it cynical to wish for such a jolt? Yes. But [this may be] be the only way to concentrate minds — ideally before we face a truly devastating debt explosion.

Let me, then, summarise Tett's debt-paranoid approach. First, without showing the slightest sign that she understands what so-called government debt is, or why it has risen, she is saying that governments must:

Keep people in the dark and feed them economic bullshit about a household analogy that is meant to mislead, and does.

Second, she is saying:

The beatings will continue until people agree that the eleite are right.

And third, she is saying:

Things might turn to shit if the elite do not get their way, and just to prove the point, they'll turn them to shit anyway by shrinking the state, just to prove they were right.

Either way, shit is what you'll get.

That's your lot.

Accept it.

Rarely have I seen anything I think so arrogant, brazen, or self-deluded, as well as just wrong, in the pages of the FT. But at least we know that the household analogy is being used quite deliberately as an economic narrative, and I can only presume Tett knows it is a falsehood designed to constrain government, in which case we know exactly where she, and the OECD, stand politically.

To support this post and to explain the household analogy, a new post in the 'View On' series has been published this morning. It includes an extensive reading list on this topic.