Licence to Rip Off Taxpayers
In 2008 the Bank of England made its biggest profits since its foundation in 1694. The billion pounds of windfall profits[1] were largely a result of the extraordinary behaviour of financial markets in the past year. The Bank makes most of its profits extending credit to commercial banks in exchange for collateral. The financial crisis has led to the bank lending far more cash than usual, with a five fold increase in profits as a consequence.
A spokesman said that it was entirely right to charge fees to set the right incentives for financial institutions to use its facilities, and protect itself and taxpayers from potential credit risk. Governor Mervyn King used the Bank of England’s Annual Report to call on the Government to give the bank more power in the future to oversee City institutions, saying: “The Bank's new statutory responsibility for financial stability is welcome. But...I regret that [it] has not been accompanied by any new powers to deal with banks before they fail.”
In 2008 Governor King's salary increased to £297,000, but his final pension scheme remuneration, which involves the pension pot increasing every year the member has worked, increased by over half a million pounds to £5.4 million,[2] despite the Bank’s failure in its oversight role during the worst year for financial markets since the Great Depression. When he retires in 2013, King will be one of the best remunerated civil servants with an annual pension of £220,000 - far in excess of the average private sector worker who retires with a pension pot of £33,000. The pension funds of top public sector employees often dwarf their already substantial salary.[3]
[1] The Bank pays half of its profits as dividends to the Treasury, while the other half bolsters the Bank's own reserves. The Bank also made an income after tax of £573m on the special liquidity scheme.
[2] Mr King's pension pot is modest compared with that of Sir Fred Goodwin, the former chief executive of Royal Bank of Scotland, who was forced out of the company with a pension pot of £16.6 million.
[3] Employees of the Bank of England do not have to contribute towards their own pension so the cost of these schemes is born by the taxpayer. There is currently no independent commission to review and oversee the fairness and affordability of public sector pensions.
