Once again the profits of the banking sector are in the news. Some see the announcement of £7.1 billion profit at Barclays is taking the piss, when banks are also talking about imposing monthly charges on current accounts.
Now, it is true that most people can get their banking without fees, so getting a service for nothing (although, the bank is earning interest on your money) and perhaps a charge would make things more transparent. There is also some competition, so we are free to move our money to higher interest accounts with charges, or to no interest accounts without. This is all good, and to some degree the banks also subsidise some of the poorest people (with little money in the bank) in the hope that they’ll earn more in the future.
But don’t think for one minute that the banks are for the public good. The reason why they are thinking about regular charges is because they may lose income elsewhere (after being forced to reduce overdraft charges). What the banks are doing is reacting to moves to stop them profiteering. Companies want to make as much profit as possible, by charging as much as they think they can get away with.
What is worse, however, is the justification and excuses for huge profits that try to convince us that they are really working in our interest. John Varley, Barclays’ CEO tells us that we are lucky because ‘the UK is pretty much unique in the developed world for offering free banking’. But checking Bank of America, HSBC US, and Commerzbank in Germany find you free banking at all of them.
He also says that this profit is effectively takings for the British economy so good for us all. First, he tells us about their contribution to the state finances: ‘We pay a lot of tax… our tax charge will be about £2 billion.’ (Today programme 20 Feb 2007). However, I don’t know if this is the tax on profits or on the business as a whole (including employment taxes etc.). What we do know is that the group has been in court to defend its tax avoidance in the past (http://www.ifs.org.uk/budgets/gb2006/06chap10.pdf), and uses various means to avoid tax being paid by itself and its richer offshore customers.
Finally, he asked ‘Who owns Barclays?… the pension funds’, trying to assure us that the profits make a contribution to our personal finances. But, as always we need to follow the money. If it’s distributed as pension who gets it in the end? Given that the majority of people in the UK have little or no private pension provision, this money goes to the rich. And guess what, the richer someone is, the more they’ll get from this. Varley himself was earning £900,000 per year on 1 April 2006, so his pension will bring him £600,000 per year, somewhat higher than most.
The tax breaks the government has for pensions help the rich more than the poor. The banking sector helps the rich more than the poor. And so on.