BANKS
Bring the Bank of England back under control of the Treasury and give it a new public purpose remit. Operational independence was granted as a way for politicians to wash their hands of unpopular decisions, even though the Bank works daily with the Treasury to make payments for the government and achieve its daily overnight interest rate target. This was a cowardly decision made by neoliberal technocrats who wanted to impoverish large sections of British society while passing the blame to unelected officials, and it should be reversed. Economic policy is the most important part of government and decisions should be taken by democratically elected politicians who can be directly scrutinised, not farmed out to appointees under the pretence of independence. The new remit will include:
Pursuing full employment as its primary aim, instead of targeting inflation which will now be addressed via fiscal policy adjustments. It is not sensible to address inflationary bubbles in specific sectors by attempting to deflate the entire economy. Spending and taxation adjustments in the sector in question are far more surgical and will leave unaffected sectors of the economy alone.
Financing productive, socially necessary sectors e.g. (green energy projects, actually-affordable housing, infrastructure, healthcare, education etc.) while restricting credit for speculative activities (luxury real estate, stock buybacks etc.)
Long-term stability of the financial sector. There should be no major short-term fluctuations when the fundamentals have not changed. Stability requires that financial institutions engender confidence that they can meet their contractual obligations without interruption or external help, and that markets support transactions at prices that reflect fundamental economic forces. This can be done via regulation and also with the threat of nationalisation. As banks are now essentially public institutions (because the State will never let banks completely fail), any bank that turns to the State for help due to financial instability should be fully nationalised with the shareholders receiving nothing. That should be enough incentive for the current management to keep their institutions stable.
Banks in general will also be subject to several reforms, based on Professor Bill Mitchell’s proposals, namely:
1. Banks should only be permitted to lend directly to borrowers. All loans would have to be shown and kept on their balance sheets. This would stop all third-party commission deals which might involve banks acting as “brokers” and on-selling loans or other financial assets for profit. It is in this area of banking that the 2007/08 financial crisis emerged and it is costly and difficult to regulate. Banks should go back to what they were – providing financial intermediation – and should not be permitted to speculate as counter-parties with other banks.
2. Banks should not be allowed to accept any financial asset as collateral to support loans. The collateral should be the estimated value of the income stream on the asset for which the loan is being advanced. This will force banks to appraise the credit risk more fully. One of the factors that led to the financial crisis was the increasing inability of the banks to appraise this risk properly. The foreclosure scandal that occurred in the US would not have done so if these stipulations were in place.
3. Banks should be prevented from having “off-balance sheet” assets, such as finance company arms which can evade regulation.
4. Banks should never be allowed to trade in credit default insurance. This is related to whom should price risk.
5. Banks should be restricted to the facilitation of loans and not engage in any other commercial activity.
6. Banks should not be allowed to contract in foreign interest rates nor issue foreign-currency denominated loans. There is no public benefit achieved in allowing them to do this.
The upshot of these suggestions would be to render a huge raft of transactions that are currently considered part of normal banking these days illegal as they do not satisfy public purpose i.e. facilitating a payments system and providing loans to aid the development of the real economy.
There is no reason for have a raft of financial products available that are so complicated that it is impossible for the informed purchaser to assess their characteristics properly (e.g. risk).
Banks should not levy onerous fees for supplying a deposit-taking, loan origination service.
It is not a credible growth strategy to rely on private spending financed by increasing private indebtedness. This requires a realignment of pay outcomes so that real wages grow in line with labour productivity and workers do not have to take on increasing levels of debt to maintain consumption growth. So the banking reforms also have to be accompanied by reforms to the distribution system.
Policy must be focused on enhancing the operations of the real economy and inasmuch as the games played in the financial casino (capital markets) undermine the functioning of the production system they should be declared illegal.
A permanent 0% interest rate policy. Using interest rates as the primary method of tackling inflation does not work and prolongs inflationary periods for far longer than necessary. The correct way of addressing inflation is via fiscal policy, i.e. adjustments to taxation and spending levels which have a far quicker impact.
Ending bond issuance which is nothing more than corporate welfare to businesses sitting on huge cash piles. We were forced to do this by the European Union as part of the Lisbon Treaty because of their ideological belief that central banks should not directly finance governments. This is neoliberal nonsense and forces the government to waste millions of pounds per week on unnecessary interest payments.
Utilising the Ways & Means account to directly finance government spending as a Brexit benefit. The government owns the Bank of England which means any interest owed on the account comes back it by virtue of being the owner, allowing the government to conduct its spending on an interest-free basis, which will save billions of pounds of interest payments to private-sector banks.
Establish a new State-owned retail bank to offer bank accounts and other traditional banking services to the public, creating meaningful competition in the sector as a consequence.
DETAILS
YEAR 1 (2029): FOUNDATIONS & MARKET PREPARATION
Policies:
1. Bank of England announces gilt issuance freeze:
No new gilts issued beyond rollovers of maturing debt.
Signal long-term plan to retire bond markets.
2. Launch "National Savings Bonds" (0% yield, BoE-backed):
Non-tradeable, liquid securities for institutional holders (banks, pensions).
Designed to replace short-term gilt demand.
3. Begin fiscal-dominant monetary policy:
BoE sets rates at 0% permanently; begins funding government deficits via Ways & Means account.
4. Tax Adjustments
Introduction of wealth tax (5% on £3m+ assets) to pre-empt inflation.
Market Reaction:
Mild gilt sell-off, but BoE would intervene with quantitative easing to stabilise yields.
Pension funds shift marginally to NS&I bonds.
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YEAR 2 (2030): ACTIVE GILT MARKET SHRINKS
Policies:
1. BoE buys back 20% of outstanding gilts:
Retires debt permanently (no rollovers).
2. Mandate pension funds to hold "Public Infrastructure Bonds"
State-backed assets (e.g., NHS/green energy projects) with 0% yield but inflation protection.
3. Capital controls-lite
Require UK insurers/banks to hold min. 30% in GBP public assets (reducing capital flight risk).
4. Job Guarantee (JG)
Absorbs labour market shocks from financial sector downsizing.
Market Reaction:
Gilt yields rise slightly (1-2%), but BoE can cap via yield curve control
Corporate bonds partially replace gilts for private investors.
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YEAR 3 (2031): AGGRESSIVE PHASE-OUT
Policies:
1. Ban new gilt issuance (except 1-3 month Treasury Bills (T-Bills))
Treasury covers deficits via Ways & Means account only.
2. Nationalise pension fund core holdings
Merge Local Government Pension Scheme into a BoE-managed "People’s Pension Fund" investing in housing and utilities.
3. Tax Policy Tightening
Land-Value Tax curbs asset bubbles.
Windfall tax on banks profiting from transition.
Market Reaction:
Sterling dips up to 10%, but rebounds as BoE guarantees Forex liquidity.
Equity markets boom (investors shift from bonds to stocks).
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YEAR 4 (2032): NEAR-ZERO GILT MARKET
Policies:
1. BoE buys 80% of remaining gilts:
Leaves only a small rump market for legacy contracts.
2. Full "Public Finance" model:
All deficit spending funded via BoE reserves, not bonds.
3. Retail digital GBP accounts at BoE:
Citizens can hold central bank digital currency (CBDC) as safe asset alternative.
Market Reaction:
London financial sector shrinks 15% (bond traders pivot to equities & derivatives).
Inflation peaks at 5%, controlled via LVT and JG.
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YEAR 5 (2033): POST-GILT ECONOMY
Policies:
1. Gilt market officially closed
Remaining bonds either matured or redeemed by BoE.
2. Pension system reformed
State-backed "Citizen’s Pension" funded by the State, not markets.
Private pensions now invest in the productive economy (renewables, housing).
3. Inflation anchored via automatic stabilisers
VAT adjusts dynamically (e.g. +2% if inflation rises over 3%).
Outcome:
No more debt crises as the UK can’t/won't default on Sterling.
Pensions safer as they are state-guaranteed and have no market dependency.
City of London shrinks, but regional finance hubs grow e.g. Leeds ESG investing.
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CONTINGENCY PLANS
Capital flight
Temporary Forex controls (e.g. 1% Tobin tax).
Exit and Lookback taxes
Inflation spike
Automatic VAT hikes + natural expansion of Job Guarantee to absorb losses elsewhere.
Political backlash
Frame as "1945-style financial reset."
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CONCLUSION
This transition:
1. Ends rentier capitalism’s grip on public finance.
2. Forces markets to invest in real productivity, not gilts.
3. Proves monetary sovereignty in practice.
4. Reshapes the economy to serve the many, not the few.
ENDING BOND ISSUANCE
0% INTEREST RATE POLICY
CORE REASONING
Interest rates are a policy choice, not an economic necessity.
Warren Mosler argues that since governments create money, they shouldn’t pay interest on their own liabilities unnecessarily.
High interest rates redistribute wealth upward (to bondholders, banks, and the wealthy in proportion to however much they already hold i.e. more money for those who already have money) without improving productivity.
Low rates free up fiscal space for public investment without crowding out private borrowing.
MOSLER'S VIEW: "THE NATURAL RATE OF INTEREST IS ZERO"
Government spending adds reserves to the banking system, which has an overnight interest rate for lending between banks. This rate also affects consumer interest rates on mortgages, loans etc.
If the central bank wishes for this rate to be positive, it must pay interest on any excess reserves which have not been drained away via taxation or bond sales, otherwise the rate would drop to 0% naturally.
Therefore, in a well-managed economy, the central bank should:
Set the policy rate at 0% (or close to it).
Use fiscal policy (i.e. spending and taxation) to control inflation, not monetary policy (interest rates).
Fiscal policy has a more immediate effect on inflation, while monetary policy can take years to filter through.
Let the government borrow at 0% since it’s the currency issuer.
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HOW THIS WOULD WORK IN THE UK
Bank of England (BoE) adjustments
Abolish the Bank Rate by setting it to 0%):
No more paying interest on reserves (IOR) to banks.
Eliminates risk-free profits for private banks.
Replace with fiscal tools for inflation control:
Higher taxes or spending cuts if demand is too high.
Job Guarantee to stabilize employment without overheating.
Impact on gilts (UK government bonds)
Issue bonds at 0% yield, or stop issuing them entirely.
Japan already does this (10-year JGBs at ~0.25%).
UK could fund deficits via its Ways & Means account at the BoE instead of gilts.
Banking sector changes
Private banks would lend at low rates since the BoE rate would be 0%.
No more speculative carry trades i.e. borrowing cheap to buy bonds.
Shift from debt-driven growth to public investment.
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ADVANTAGES OF A 0% POLICY (MMT VIEW)
Eliminates rentier capitalism by ending risk-free profits for bondholders.
Reduces inequality as there is now less wealth extraction via interest payments.
Enables full employment as it's now cheaper to finance public projects.
Simplifies monetary policy - no more ineffective rate hikes to fight inflation.
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CRITICISMS & CHALLENGES
Inflation risk:
Critics argue 0% rates could overstimulate demand.
MMT response: Inflation is controlled via taxes and spending adjustments, not interest rates.
Bank profitability concerns:
Banks rely on interest margins (BoE rate vs. lending rate).
MMT solution: Banks could charge fees instead or shift to public banking models.
Market disruptions:
Pension funds & insurers depend on bond yields.
MMT response: Transition gradually; use public alternatives such as state pensions or a National Savings Fund which wouldn’t require debt issuance.
Political feasibility:
The City of London thrives on financialisation (bond trading, derivatives).
MMT answer: Why should unproductive financial speculation be rewarded? If financial institutions want to make money, they should have to do something to earn it. Financialisation has allowed a greedy elite to hoover up more than their fair share, robbing us blind. The UK economy needs to be de-financialised and put into more than one basket e.g. reviving manufacturing, green jobs, new technologies etc.
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REAL-WORLD PRECEDENTS
Japan: Near-zero rates since 1999, no inflation crisis.
COVID-era UK: BoE cut rates to 0.1% and financed deficits without market panic.
Historical cases: U.S. had 0% rates in the 1940s (war financing), no collapse.
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CONCLUSION: A RADICAL, BUT LOGICAL SHIFT
Adopting a zero-rate policy in the UK would:
Decouple money creation from private debt.
Prioritize public purpose over financial sector profits.
Require a move from monetary to fiscal dominance.
But: it demands a complete break from neoliberal orthodoxy, shown to be possible in crises like 2008 and COVID, but fiercely resisted in 'normal' times.
TIMELINE
PHASE 1: POLITICAL PREPARATION (FIRST 6 MONTHS)
1. NARRATIVE SHIFT:
New government in 2029 frames 0% rates as "monetary decolonisation", freeing the UK from rentier capitalism.
Emphasis on "People’s Quantitative Easing" (PQE) for green infrastructure, bypassing bond markets.
2. BANK OF ENGLAND (BOE) REFORMS:
Appoint MMT-sympathetic BoE leadership.
Abolish Interest on Reserves (IOR), stop paying banks risk-free profits (currently £8bn per year).
Launch "Strategic Public Financing Unit" to coordinate direct BoE lending to NHS and social housing.
3. LEGAL CHANGES:
Amend the Bank of England Act 1998 to remove inflation-targeting mandate (replace with full employment & climate change goals).
Suspend gilts issuance for 12 months to test market reaction.
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PHASE 2: TRANSITION (MONTHS 6–18)
1. RATE CUTS TO 0%:
BoE drops Bank Rate to 0%, announces permanent floor.
Markets panic briefly, but BoE backstops gilt prices via unlimited QE if needed.
2. FISCAL EXPANSION:
£200bn "National Reconstruction Fund" (digital GBP created by BoE, spent on infrastructure repairs).
Job Guarantee launched at £15 per hour (funded via Ways & Means overdraft).
3. BANKING SECTOR ADJUSTMENTS:
High street banks scream, but adapt:
Shift from interest income to transaction fees (minimised by the competition from a State-owned retail bank) and public-private partnerships.
Create a National Savings Fund, fully guaranteed by the currency-issuing capacity of the State which could provide competitive returns on savings lodged with the fund.
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PHASE 3: NEW NORMAL (18–36 MONTHS)
1. INFLATION MANAGEMENT:
Demand-pull inflation hits 5%, government responds with:
Targeted VAT hikes on luxury goods.
Rent controls & social housing surge.
No rate hikes, BoE uses sectoral taxes (e.g. windfall taxes on landlords) instead.
2. BOND MARKET EVOLUTION:
Gilt market shrinks 60% as BoE permanently monetises deficits.
Pension funds reallocate to equities, infrastructure, and the National Savings Fund.
3. POLITICAL BACKLASH & CONSOLIDATION:
City of London lobbies for reversal, government counters with public banking options (e.g. Post Office Bank 2.0).
2034 election: Labour/Tories split over "new economics", People Power wins majority.
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RISKS & MITIGATIONS
Capital flight
MMT demonstrates capital flight can't occur with fiat currencies but, to anchor assets and resources, introduce ForEx controls and Exit and Lookback taxes.
Bank protests
Public digital GBP accounts at the BoE to bypass them.
Pension fund instability
Guaranteed State-backed minimum returns.
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OUTCOME: A TRANSFORMED UK ECONOMY
Unemployment: Eliminated/reduced to transitory and voluntary only.
Housing: 500,000 State-funded social homes built per year.
Debt-to-GDP: Always irrelevant, but now conclusively so as the BoE holds 100% of gilts at 0%.
Inequality: Gini coefficient falls to 1960s levels.
Power shifts from finance to democracy, and now works for the many, not the few.
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