Labour MP's call to 'stop banks charging interest' branded insane

A Labour MP who called for banks to stop charging interest on loans has been decided by economists with one branding the suggestion “insane”.

Neil Duncan-Jordan, the Member of Parliament for Poole, made the call in a video on social media, where he demanded the “wealth transfer to the rich” was stopped in the net budget. He laid out what he called a set of “practical steps” to achieve this, including “we should end paying interest on bank loans”, as well as calling for a windfall tax on utility companies and banks.

Economists slammed the suggestion, with Max Marlow of the Adam Smith Institute warning that “if the government were to abolish interest on bank loans, it would in one fell swoop destroy the mortgage market, all loans for businesses, and individual loans - think Y2K but for the entire economy. It is frankly an insane suggestion.”

Y2K was a rumoured computer bug in 1999, which programmers believed could have caused computers to effectively switch off when the new year ticked over to 2000.

As of march this year the total value of the UK loan market was roughly £1.6trillion, according to the Financial Conduct Authority.

Economist Julian Jessop from the think tank, the IEA, said that “banning any bank from charging interest would be bonkers”, but pointed out that the MP was “endorsing a Reform Party proposal”, namely that commercial banks should no longer be paid interest on the deposits they hold at the Bank of England.

Mr Duncan-Jones defended his proposal, saying: "Several economists have spoken positively about reducing the amount that the Bank of England pays in interest to commercial banks on the money they hold with the Bank of England."

He added: "The Bank currently pays 5.25% on these deposits. The Bank of England could pay interest on a smaller portion of reserves or reduce the interest paid – saving £11.5 billion per year."

Mr Marlow suggested that the Bank of England's regime of putting an interest rates on reserves “allows the Bank to tempt commercial banks to deposit with them and thus control short-term interest rates”

He added that “Whilst it is not a totally mad idea, it would mean that the Bank would have to intervene more in money markets; given its performance over the last five years, I think that would be a poor policy choice.”

Before his election, Mr Duncan-Jordan was a regional officer for the Labour backing trade union, Unison. He won his seat of Poole from the Conservative Party in 2024, with a majority of 18 votes.