UK banks see significant earnings from Bank of England reserves, Treasury Committee reports – The Intermediary

Newly released data from the Treasury Committee reveals that major UK banks including NatWest, Barclays, Lloyds, and Santander received over £9bn in interest from Bank of England reserves in 2023, marking a 135% increase compared to the previous year. This surge in income stems from the high interest rates applied to the substantial sums of central bank reserves created under the Bank of England’s quantitative easing program.

The Bank of England has introduced £895bn of new money into the economy since the start of quantitative easing, with about £700bn still circulating as bank reserves. These reserves earn interest at the current Bank Rate of 5.25%, which has led to considerable payouts to banks, covered by the Treasury as it indemnifies the quantitative easing program.

During an inquiry into the Bank’s quantitative tightening, the Treasury Committee reviewed suggestions to alter how interest on bank reserves is calculated to reduce these payments. However, the Committee ultimately decided against such measures, favouring the establishment of bank taxes through legislative means in Parliament via a Finance Bill.

In letters to the Committee, bank executives detailed their actions to improve savings rates for customers, prompted by the Committee’s persistent advocacy. Notably, NatWest and Santander have increased the interest they pay to customers.

Dame Harriett Baldwin, chair of the Treasury Committee, commented on the findings: “These results signal a bit of progress from banks in giving customers with savings a better deal. I am pleased to see some effort is being made to pass through competitive rates for our constituents and that consumers are shopping around more.”

Baldwin also highlighted the considerable unearned income banks have gained due to rising interest rates, saying: “What this data also shows is the staggering scale of unanticipated income high street banks are bringing in, with no work required, as a result of increased interest rates.”

The Committee has concluded gathering evidence for its inquiry into whether small and medium-sized businesses have adequate access to financing, with a report expected to be published later this spring.