Why the banking industry is not a paragon of free markets, efficiency, or honesty

Despite making record profits and paying record returns to shareholders it resents paying taxes.

Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.

The scandal-ridden banking sector is the darling of successive governments who shower subsidies, gifts and favours upon the industry in the hope that it will deliver economic renaissance. It never has.

Finance is central to the workings of a capitalist economy. We all make use of banks, debit/credit cards, insurances, pensions; foreign exchange and a variety of financial services, but can do without the incessant speculation and frauds that are so common in the finance industry. The banking industry is privately owned but dependent upon the state. It is dominated by a few banks. Competition is minimal. Banks are quick to increase mortgage and lending costs, slow to increase interest to savers and with focus on the short-term returns even slower in aiding economic recovery. This assumed citadel of free markets inflicts financial crisis, recessions and relies upon the state for business and survival.

In sharp contrast to manufacturing, family-owned business or SMEs, the visible hand of the state has been used to bend almost every law to support banks. The state has boosted the number of bank customers by requiring that social security payments and state pension be paid into bank accounts. It acts as a lender of the last resort to ensure that the banking system has sufficient liquidity. It guarantees security of bank deposits of up to £85,000 per person, per bank, through the Financial Services Compensation Scheme. In times of higher rates of inflation, the state hikes the interest rates, effectively forcing people to hand over a larger proportion of wealth to banks, which boosts their profits. The state guarantees bank profits through the Private Finance Initiative (PFI). For example, since the inception of PFI in the early 1990s around £60bn has been invested in public assets and in return the government will pay £306bn. As a legacy of the £895bn quantitative easing programme, the government unnecessarily hands around £22bn a year to banks as interest on central bank reserves.

The state sweeps bank misdemeanours under its dust-laden carpets. Culprits are rarely investigated or prosecuted. For example, the Bank of Credit and Commerce International (BCCI) was the site of the biggest banking fraud of the twentieth-century. It was forcibly closed in July 1991, but there has been no independent investigation.

In 2012, HSBC, a bank supervised by the UK authorities, was fined $1.9bn by US authorities for facilitating money laundering and sanctions busting. The bank “accepted responsibility for its criminal conduct and that of its employees.” Despite the largest ever fine, at that time, the UK government and regulators contrived maintained silence. It subsequently came to light that the then Chancellor and regulators secretly urged the US authorities to go easy on HSBC as it was too big to fail and jail. Ministers have refused to answer any questions in parliament.

The Financial Conduct Authority and the Serious Fraud Office have refused to prosecute HBOS bankers for frauds going back to 2003. The independence of the City of London Police is compromised as it is funded by the Association of British Insurers, Lloyds Bank and UK Finance, a trade body funded by banks and financial institutions. Faced with institutional silence, the Thames Valley Police and Crime Commissioner prosecuted HBOS bankers. In 2017, two HBOS bankers  were found guilty of £245m loan scam and sent to prison. The Commissioner said: “I am convinced the cover-up goes right up to Cabinet level. And to the top of the City.” None of this encouraged any regulator of a parliamentary committee to launch an inquiry. To quell public concerns, Lloyds Bank (owner of HBOS since January 2009) promised to investigate the full extent of frauds and promised a report, the Dobbs Review, in 2018. To date, no report has been published, and Ministers fob-off parliamentary questions with non-answers.

With state protection, banks abuse people. They have rigged interest rates and foreign exchange rates but faced little retribution. They continue to craft and sell dud financial products, including pensions, endowment mortgages, precipice bonds, split capital investment trusts, interest-rate swaps, mini-bonds, payment protection insurance and car loans. In January 2025, Chancellor Rachel Reeves sought to influence the Supreme Court’s hearing on possible compensation for victims of the car loans scandal by claiming that compensation could “cause considerable economic harm”. The Chancellor’s intervention was rejected by the Supreme Court. Its judgment was only a partial success for consumers, and it emerged that the Chancellor was “considering overruling the supreme court’s decision with retrospective legislation, in order to help save lenders billions of pounds, in the event that it ruled in favour of consumers.”

Contrary to the claims of governments and right-wing press, banks are not paragons of efficiency. There has been a banking crisis in every decade since the 1970s. A study showed that between 1995 and 2015, the UK finance industry made a negative contribution of £4,500bn to the UK economy. After the 2007-08 crash, the state provided £1,162bn (£133bn cash + £1,029bn of guarantees) to bail out banks. Another £895bn of quantitative easing was handed to capital market speculators. Taxpayers were persuaded to accept the bailouts with the promise that new laws would curb reckless practices. This included imposition of capital adequacy rules, curbs on bankers’ bonuses, and a requirement that regulators must solely be concerned with safeguarding the interests of customers. Such post-2007-08 crash rules are now being reversed or have been reversed. even minimal regulation is not applied to shadow banks.

The risk of bankruptcy for major banks has been abolished, and with the patronage of the state they continue to make mega profits. In 2024, the UK’s biggest four banks – HSBC, Barclays and Lloyds Bank and National Westminster – made profits of £45.9bn, up 75% on their 2018/19 returns. Since 201/22, their profit margins have increased by nearly 21%. Between 2022 and 2024, the big four banks paid £124bn in dividends and another £32bn in share buybacks to shareholders. Civil society has called for end of hidden subsidies and windfall taxes on banks. In response, the CEOs of HSBC, Barclays, Lloyds and National Westminster joined forces and oppose tax rises. There is silence on subsidies. The CEOs say that banks are unfairly taxed at a rate of 46.4%. This claim is amplified by Financial Times, The Guardian, Sky News, City AM and others, without any critical scrutiny.

So, what is the basis of the 46.4% tax rate? It comes from a report published by UK Finance, a lobbying organisation funded by banks and financial institutions and dedicated to advancing their interests. The report was prepared by PricewaterhouseCoopers (PwC) which sells a concept called Total Tax Contribution. The report claims that in 2025 banks paid £43.3bn in taxes. Newspapers didn’t check and CEOs didn’t tell people that this number is misleading as it includes taxed collected but not borne by banks. For example, it includes PAYE and employee national insurance of £17.4bn which is borne by employees. It includes £2.8bn of VAT which is borne by customers and other taxes deducted at source. The nett result is that the taxes borne by banks were £23.1bn, of which corporation tax was only £8.8bn. The PwC report makes no mention of the state subsidies or higher profits due to state policies – for example, interest rate hikes boost bank profits; insolvency laws prioritise the interests of secured creditors (mostly banks) over other creditors.

The report is based upon a sample collected by PwC. It then extrapolates from that sample to produce the £43.3bn and 46.4% claims. It can’t be independently corroborated. Page 31 of the report states that “PwC has not verified, validated or audited the data and cannot give any undertakings as to the accuracy of the study results”. Too many journalists have given the data an aura of being factual, which it is not. Journalists write stories in a hurry, but that does have reality effects and manufactures consent. Some may have been silenced by the power of banks. Peter Oborne, one-time political commentator at The Telegraph resigned because the newspaper deliberately suppressed negative stories about HSBC, a major advertiser and source of revenues. In his words, “The coverage of HSBC in Britain’s Telegraph is a fraud on its readers. If major newspapers allow corporations to influence their content for fear of losing advertising revenue, democracy itself is in peril”.

The banking industry is not a paragon of free markets, efficiency, or honesty. Its predatory practices are shielded by the state and the industry does not bear the social cost of its practices. It is hard to find a pristine bank. The industry relies upon the state and public purse for survival but resents effective regulation. Despite making record profits and paying record returns to shareholders it resents paying taxes. In propaganda wars, it has built its case to oppose taxes by using numbers which can’t be independently corroborated. Yet the industry wields enormous power and is not held to public accounts or forced to bear the cost of its predatory practices.