Almost every week a bank or firm – even an individual – is fined millions of pounds for cheating someone or other. In the last few weeks Barclays was fined £284m over rigging foreign exchange markets and Lloyds £117m over failing to pay the right redress to customers it had already conned by mis-selling them PPI.
So who gets this fine money?
It’s a question I am often asked. And the short answer is George Osborne or, as he is officially known – the Consolidated Fund!
In the past, fines by the regulator were small – a few thousands of pounds – and the money was used to offset some of the costs of regulation. But from April 2012 that changed. Seeing the large number of substantial fines coming through for banks that had cheated the markets by rigging LIBOR interest rates the Government decided that it would follow the US Treasury and keep the money itself – after the costs of enforcement (around £45 million a year) had been deducted by the regulator – the Financial Conduct Authority.
Initially the Government sweetened the pill of snaffling this money by dedicating the fines to good causes. The first announcement in October 2012 allocated £35 million of the LIBOR fines to ‘support Britain’s armed forces community’. A year later, in his 2013 Autumn Statement, George Osborne announced he would “make a further £100 million of LIBOR fines available to our brilliant military charities and extend support to those who care for the work of our police, fire and ambulance services.”
The money has partly been used to pay for rehabilitation of injured soldiers. The fines for cheating on the Forex markets are earmarked for the NHS. And before the election the Conservatives promised to use a £227 million fine imposed on Deutsche Bank to fund 50,000 apprenticeships. All things which you may think the Government would be paying for anyway.
Now the Government has told Money Marketing – which tried to track the money down – that the fines are collected centrally and “the Treasury then allocates it to relevant departments.” So it seems it will in future mainly be used to fund general Government spending.
The amounts that are now being raised are eye-watering. In 2014 alone fines totalled £1.4 billion, mainly from the big banks over foreign exchange and LIBOR fixing. And so far this year another £814 million has been clocked up for similar transgressions.
These are tempting sums for any Chancellor, especially one who is committed to begin the process of reducing the £1.5 trillion national debt before the end of this Parliament.
This piece was first published in the Money Box newsletter 11 June 2015. Subscribe here