With public services under financial strain and the cost-of-living crisis worsening, a possible £55bn in savings is being largely ignored.
Chancellor Rachel Reeves could curb rising costs in the upcoming Spring Statement by reassessing how the Bank of England handles interest payments to commercial banks, new analysis shows.
Since 2009, the Bank of England has been paying interest on all commercial bank reserves, a policy originally introduced to stabilise the financial system after the economic crash in 2008. However, with high interest rates, this policy has now become an expensive burden on taxpayers.
According to analysis from the New Economics Foundation (NEF), the Treasury is set to pay over £150bn by 2028 to fund these interest payments, on top of the £30bn already paid out in 2023. Barclays, Lloyds, NatWest, and Santander alone received £13bn in 2022 and 2023 simply for holding reserves at the central bank.
Vince Gomez, a former bond trader and member of The 99% Organisation, spoke exclusively with GB News, arguing that these funds could be put to better use.
He said: “While Rachel Reeves is desperate to save money to stay within her fiscal rules, there’s unnecessary cash flowing out of the door to commercial banks, creating super-profits for them.
the Bank of England has been paying interest on all commercial bank reserves
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“This is because the Bank of England is paying interest on the reserves of commercial banks, which will amount to well over £50bn over the life of this parliament.”
While Reeves is reportedly considering £6bn in spending cuts and potential tax increases, there is an alternative that could be put forward that experts argue could reform how the Bank of England pays interest on reserves.
The NEF suggests a tiered reserves system. Tiered reserves reduce central bank interest payments to private banks by requiring them to hold a portion of reserves that earn no interest, while still allowing interest rate policy to function.
The European Central Bank started using this system in 2023, saving €5bn a year. NEF estimated the UK could save £1.3bn annually, and with higher reserve requirements, this could rise to £11.3bn per year—adding up to around £55bn over five years.
Dominic Caddick, economist at NEF explained some people fear banks may pass costs to borrowers, tightening monetary conditions, but this could be managed through lower interest rates and a gradual approach.
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Reeves has been urged to reassess how the Bank of England handles interest payments to commercial banks
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Japan also stopped paying interest on excess reserves in 2023, preventing billions from flowing into bank profits. The US Federal Reserve has slowed its quantitative tightening to avoid significant taxpayer-funded losses, something even 44 Conservative MPs have urged the UK to consider.
Former Bank of England Deputy Governor Sir Paul Tucker has also advocated for reserve reform, arguing that it wouldn’t interfere with monetary policy control.
Gomez highlights how this policy disproportionately benefits banks at the expense of the wider economy. He said: “What’s particularly frustrating is that these payments get larger when the economy is struggling and interest rates rise, making the banks richer while the poor get poorer.
“This isn’t just internal accounting—this is real money flowing out of government funds, which could otherwise be spent on regenerating our NHS or education system.”
Reform UK supported the idea, giving proposals to scrap all interest paid on reserves from quantitative easing, estimating savings of £30–40bn annually. However, they did not outline alternative monetary policy measures, raising concerns about inflation control.
Reeves ultimately dismissed the idea last year, claiming that paying interest on reserves is part of the “monetary policy transmission mechanism.”
However, tiered reserves are designed specifically to preserve monetary policy tools while preventing excessive payouts to banks.
With the Spring Statement approaching, Gomez explains Reeves faces a choice: she can introduce tax hikes and spending cuts that will impact struggling households, or she can unlock billions in savings by ending a policy that funnels public money into bank profits.
Caddick argues that the policy is outdated and no longer justified. He said: “At a time when millions are struggling with rising mortgage and debt costs, the Treasury is set to pay out billions in public money to fund transfers to commercial banks.
“This policy was introduced in response to the financial crisis, but 15 years on, the government needs to change its approach. Public money should be spent supporting people, not giving banks a huge bonus.”
As Reeves prepares her Spring Statement, the question remains: will she act on this hidden funding opportunity, or will billions continue to flow into the banking sector while taxpayers foot the bill.
