No. Profit is good if it is the result of effort and innovation that provides something of value to society. Companies like Apple make huge profits because people value what they produce. But much of the profits of banks come from the banking sector’s privileged permission as the exclusive creator of the money that the real economy needs to function, and from the ‘hidden subsidy’ that they get from this effective monopoly. In fact, banks are guaranteed an income on the basis of the fact that all the money in the economy has to be created by them when someone goes into debt; consequently, if the economy needs £2,200bn to keep the cogs turning, then the banking sector is guaranteed annual interest on all of that £2,200bn.

So, we’re not against profit, but we are against one sector of the economy profiteering on the back of an essentially fraudulent business model that is so unstable that it has to be propped up with taxpayer-funded government guarantees.

Not at all – this proposal actually strengthens the free market. We’re proposing that banks be forced to compete in the same free-market conditions that apply to other businesses in the UK. We want to remove the subsidies that the banking sector receive, through being allowed to create the nation’s money supply and lend it out, and through the taxpayer-backed guarantee on bank deposits (which makes bank deposits seem more attractive compared to other investment options, and pass the risk of bank failures back onto the taxpayer).

The reform would also make it possible for bad banks to fail and ensure that no bank has to be rescued because it is ‘too big to fail’.

In short, we’re forcing the banks out of the cushy, sheltered status that they’ve had for the last few hundred years, and forcing them to operate on the same principles that any productive business already does. In the process, we shift from a debt-based to debt-free money supply, which does benefit the poor, but also benefits every non-banking business and entrepreneur in the UK.

This proposal attracts as much support from very successful (real economy) business people as it does from charities. It certainly isn’t Communist.

The banking sector appeared to be successful in early 2007, but the recent financial crisis showed that most of that ‘success’ was due to financial smoke and mirrors. When it is understood that much of the profits of the banking sector itself* come from the interest that they collect on around 97% of the money supply – which was created by themselves as debt – it starts to appear that the banks are not actually contributing wealth to the UK economy, but extracting it from the rest of the non-banking economy – from large and small businesses and individuals and families.

It is also worth remembering that all the taxes that the banking sector ‘contributes’ are actually paid by other taxpayers via their mortgages and the cost of servicing other debts.

The subsidy that the banks receive by being allowed to create the nation’s money supply is many times greater than the taxes paid back to the state.

*as opposed to the financial sector in general.

No. This proposal would apply to all lending and banking services in pound sterling, and therefore any bank threatening to go abroad would in effect be suggesting that they would voluntarily withdraw from the entire, £2.6 trillion pound sterling lending market in the UK. Not only that, but they would then need to go and compete for Euro or dollar lending in other countries with already saturated banking markets.

In short, the argument that this reform would lead to an exodus of banks is like arguing that Tesco would close all 2,500 of their UK stores if the government introduced a tax on plastic bags.

The most common reaction to this proposal is the suggestion that a state that is allowed to create money will create too much money and cause hyper-inflation. After all, most people associate the state creating money with Weimar Republic or Zimbabwe.

Creating too much money in too short a period of time does lead to inflation – that is evident from the £612 billion created by banks between 2004 and 2007, which led to huge inflation in the housing and commercial property market.

In fact the banks have been creating money and debt at an average over the last 30 years of 7.8% year on year. This rate of growth in the money supply has led to huge inflation and eventually complete economic instability in the recent financial crisis.

Consequently, we can suggest that, so long as the state creates money at a slower rate than the banks have been doing, we can avoid creating the same level of inflation that the banks have created.

In other words, giving the state the exclusive right to create new money would lead to lower inflation than allowing banks to continue creating money. The greatest risk of creating Zimbabwe-esque inflation lies with allowing private banks to create money in order to maximise their own profits.

This Bill intends to prevent money being created by banks. It brings the money creation power under public control.  This would generate more income than a tax on currency transactions. A Tobin Tax may reduce volatility and “churning” – frequent trading of stocks in order to earn extra commissions – in financial markets.

Bankers’ bonuses are only as large as they are because the profitability of the banking sector is artificially inflated. Without the privilege of creating 97% of the nation’s money supply and collecting the interest charges on that amount, the banking sector would only be as profitable as other industries. In high-street banking in particular, staff selling products such as mortgages and credit cards will be rewarded not for pushing as much debt onto the public as possible, but for finding good quality, reliable borrowers who can afford to borrow. This is not specified in the Bill, but is a natural consequence of the changes which the Act would deliver. When the total amount of funds for lending is limited, and each loan made does not create an equal amount of new deposits, as happens under the current system, then banks will shift their focus to finding good quality borrowers and productive investments, rather than simply issuing as much debt as possible to people with no ability to repay.

Moreover, a large proportion of bonuses are paid to those working in investment banking – often helping large corporations take over or merge with other corporations. These takeovers and mergers often saddle the firms involved with huge debts, and in the long term actually harm, rather than help, both the buying company and the company being bought. After the reform, investment will be limited to the amount of money that people, in total, wish to save. The total number of mergers and corporate takeovers may be reduced, and only those takeovers that really do benefit both companies will be able to go ahead. Consequently, this sector of the finance industry will no longer turn over so much revenue, and as a result, the huge bonuses seen over the last few years will no longer be justifiable.

Some may argue that reducing the profits of the banking sector will lead to a loss of tax revenue. However, the profits of the banking sector are won at the expense of the people of the UK, through inflated house prices, taxes to fund the national debt, and a tax burden which is 30% higher than it would be if the proceeds of money creation accrued to the state instead of the commercial banking sector.

It has been suggested by various commentators that banks should be prohibited from exposing the taxpayer to massive losses by using their customers’ funds to make risky trades in financial markets.  Under the current system, by depositing money into a bank account, a customer effectively gives the bank ‘carte blanche’ to do what it pleases with that money, whether it is investing it in mortgages to wealth-solvent families, or mortgages to low-income households with little ability to repay, or taking huge risks in financial markets. If the banks are successful in their investments, they keep the profits. If they fail, as they did in 2007, then taxpayers suffer the financial losses.

This Act would ensure that taxpayers and the government have absolutely no exposure to losses made by the banks because it separates Secure Customer Transaction Accounts from Customer Investment Accounts. The money in Secure Customer Transaction Accounts is not available for any kind of investment activity and therefore remains 100% protected. Only those monies in Customer Investment Accounts would be available for investment, and any associated consequent risk and possible loss. This separation alone solves the problem of banks gambling with all customer deposits without any requirement to implement a “new Glass-Steagall Act”.

The national debt is projected to hit around £1,406 billion by 2014/15. That is £57,000 per annum for every British household or £23,433 for every man, woman and child in Britain. At present, this debt must be paid from taxation, selling national assets, or borrowing even more. This is becoming unsustainable.

The proposal in this Bill would enable the UK’s national deficit – the amount we need to borrow each year – to fall. It would also allow the national debt to be paid down over time. Ultimately the decision on how to use the money which has been created by the Monetary Policy Committee will be the decision of the elected government. However, without this proposal, it is difficult to see how the burgeoning national debt can be managed in a sustainable manner.

This Act would separate the creation of money from the executive and legislative powers. Section 5 ensures that the Monetary Policy Committee will be independently responsible for deciding how much new money should be created, and will create it, with no interference from government, in accordance with the monetary policy objectives which have been democratically approved. The Committee will not be “creating as much money as the government needs to fulfil its election manifesto”. It is prohibited from considering the needs of the government of the day by section 5(2)(a). The Committee shall follow the general principle that it is the financial needs of the economy which must be addressed and calculated, not the political needs of the government. Section 6 ensures that the Committee will be subject to democratic oversight and scrutiny.