17 Feb 2013

UK Interest Payments - £2.4 trillion since 1987

Ever wondered how much we pay to the banks and the financial sector in interest payments? Well, I had already found the numbers on payments on UK government debt (£495 billion since 1995 according to the figures from EuroStat). But what about other debts - such as households, public corporations, businesses and so forth?

Well, I just discovered that you can find this sort of information for the UK in the Office for National Statistics Blue book, which comes out in July. The last edition, covers the period up to 2011. You can download a pdf file or access the data in the form of an excel file. There are lots of numbers in there, but for example, on page 108 of the report, you can find the following sorts of data for the period 2005-2011. This extract shows numbers for Financial Corporations and for Central Government, but there are other figures for Public Corporations, Private Non-Financial Corporations, Non-Financial Corporations, Local Government, Households and Non-profit Institutions and "Rest of the World".

You can see that there are various numbers, including the amount of interest recieved, and the amount paid. There is some sort of adjustment mechanism called FISIM (Financial Intermediation Services Indirectly Measured), but this doesn't seem to be very clear - and we learn that "a joint UN/Eurostat task force is reveiwing the methodology for measurement of FISIM."

So, lets just take the numbers for unadjusted interest received and unadjusted interest paid to work out the net interest payments for each type of organisation. For example, for Central Government in 2011, you can subtract unadjusted interest received (£5,317 million) from the unadjusted interest paid (£49,188) to get a net interest payment of £43,871 million. Similar, Financial Corporations received £236,746 million in interest in 2011, and paid out £138,713, meaning that they had a net income from interest payments of £98,023 million.

Using the Excel dataset you can find the same numbers going back to 1987, which allowed me to compile the following table which gives the net amount of interest paid for several sectors of the economy. The numbers are in millions of pounds, using current prices.

The bottom line is that, together, people in the UK have handed over nearly £2.4 trillion in interest payments to the financial sector since 1987.  Central Government did a pretty good job - handing over £476 billion. But Local Government managed £82 billion too. And Households managed to provide nearly £650 billion.

Intriguingly, if you add up the net interest payments to the Financial Corporations you get a total of just over £1.5 trillion. Even when you add a further £294 billion in interest coming in from the rest of the world, this doesn't seem to add up to the £2.4 trillion. It looks like there may be a further £500 billion which disappears somewhere - maybe in fees charged by the banks?

Anyway, the point is that a lot of this could be avoided if the money creation process was done debt free by Central Banks, rather than allowing commercial banks to create the money supply and charge us all interest. I've nearly finished reading "Modernising Money" by Andrew Jackson and Ben Dyson from Positive Money.... I'm already convinced that they have the solution.

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