How The Banks Lose Billions And Still Make Money

You may not have realised, but the banks are conducting a secret war against the rest of us in a bid to protect their perceived position as gatekeepers of the world’s financial system.

The banks have actually done quite well in the war so far -

• Billions of pounds of cash poured in to the banks to bail them out of debt problems are on deposit at the Bank of England earning interest
• The fat cats are still hoping for their bonus pay outs with figures like £5 million going to some top earners at the Royal Bank of Scotland - part taxpayer owned and the bank that chalked up the biggest UK trading loss ever.
• Quietly and slowly over the past year, margins have widened - the difference between the cost of borrowed money and the cost banks charge for lending the same cash out -so despite low interest rates, mortgages and loans cost more.

The coup de grace is tax losses. The Royal Bank of Scotland and other bailed out banks have racked up so much in tax losses that they will have to make billions in profits before they start contributing corporation tax in to Government coffers.

The reason is that businesses can carry forward losses indefinitely as long as they are set off against the first available profits.

So, if a business like the Royal Bank of Scotland loses £24 billion and is bailed out by the taxpayer, the cash going in is not income but investment, so is not taxable.

Nevertheless, the bank still continues trading and earns money. If at the end of the trading year, that’s a loss of a billion, the amount is added to the loss made last year and carried forward to the next trading year.

At the end of the next trading year, the bank makes a £5 billion profit but pays no tax because the profit is deducted from the loss - £25 billion less £5 billion means £20 billion is still carried forward to set off against the next profit.

So the bank has made £5 billion thanks to the government propping up their finances - but the taxpayer is down the amount paid in plus £1.5 billion in corporation tax due on the £5 billion profit.

Now, the banks are fighting to undermine government proposals to hit the banks with a windfall tax - a one-off payment to help the rest of us who are shelling out tax to pay for the money that kept the banks in business.

This just goes to show that bankers are robber barons chasing profits and are continuing to manipulate the economy in their own interests.