Bank Of England posts record £995m profit!

Last year the Bank made it’s largest profit since it’s inception in 1694.

The £995m pre tax profit for the year to February was derived as a result of increased activities resulting from the financial crisis – most notably the decision taken to provide financing of up to nine months to institutions based on the then interest rate of 5.5%. When the base rate fell to the current level of 0.5%, the bank reaped the rewards of the wider spread – a five-fold increase in profits from the previous year.

Last night the BoE were defending this windfall, suggesting it is only right that the bank should profit from setting the right incentives for financial institutions to use it’s facilities and protect itself and the tax payer from credit risk.

The Chancellor will also reap rewards of this success, with the Treasury receiving half of these profits in the form of dividends, the remainder bolstering the Bank’s  reserves.

We posted a comment recently on the potential for the UK tax payer to bag a huge profit as the Government’s stakes in the high street banks increase in value.

Should the BoE have defend itself for these profits? Should the government have to do the same if and when it realizes profits from the eventual sale of it’s stakes in the high street banks?

We think not. Fortune favours the brave, and the government has been brave. Putting (quite literally) everything on the line, betting that the massive investment will not only prevent the country from folding, but could well swell the coffers to an enormous level in the years ahead.

One question though – will we see any tax breaks in the future as a result?

~ by stevelemon on May 19, 2009.