Gordon Brown says the government can raise billions of pounds from banks

Credit: PA

Jeremy Hunt and Rachel Reeves agree on one thing: that there's no money in the kitty, that the UK has too much debt and has to reduce it.

So Hunt won't cut taxes as much as he would like and Reeves won't invest in public services as much as Labour's supporters want.

That's largely because they are constrained by their so-called fiscal rules, and we can talk about how rational that is another time.

By contrast, the longest serving chancellor since the nineteenth century, Gordon Brown - who introduced fiscal rules to the UK - has a plan for them.

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He told me in an interview for the Peston Show that he would raise a minimum of £1.3 billion a year from banks - and perhaps a multiple of that - by implementing in the UK what the Swiss and Eurozone central banks do.

That is to classify some bank deposits at the Bank of England (BoE) as required minimum reserves, and pay no interest on those reserves.

The background is that the BoE pays 5.25% in interest to banks on £750 billion odd of their reserves. That's almost £40 billion a year effectively provided by taxpayers, which inflates the banks' profits and is a cost to the Treasury, because the government is liable for the BoE costs.

In practice the net loss to the BoE is less than £40 billion, because it generates interest on £730 billion of government bonds it owns.

But even so, there is a transfer of tens of billions of pounds from taxpayers to commercial banks. And if the BoE classified say £350 billion of reserves in the way that the Swiss National Bank (SNB) and European Central Bank (EBC) do, it would yield many billions of pounds of funds for a chancellor to deploy - on hospitals, schools, important infrastructure, you name it.

The banks will complain that they'll support the economy less if they are deprived of this risk-free income from the BoE, from all of us. Hands up if you are scared by that threat?

Some in the City may also complain that somehow the BoE's independence would be undermined - though as Brown said to me, no one serious says the independence of the SNB or the ECB has been tainted by cutting the interest payment on minimum reserves to zero.

As it happens, there is one party that has spotted the opportunity to raise money from banks in this way. Perhaps not the one you expect. It's Richard Tice's Reform.

But if Brown has seen the potential, maybe the shadow Rachel Reeves will too. Brown says money can always be found for what's urgent - and he says the greatest priority now is to lift children and families out of crippling poverty - with a bit of imagination.

The full interview with Gordon Brown is available to watch on Peston at 10.45pm on ITV1.

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