The Bank of England increased its interest rates over recent years, aimed at reducing inflation. But this has also had an unintended effect on the Bank of England’s massive government bond buying – ‘quantitative easing’ – programme.
After a period of making significant profits on this programme, the Bank of England is now making record losses, which is historically very unusual for central banks. The Treasury is paying for these losses, making the UK an international outlier, and the sums involved are staggering: Bank of England losses will cost the taxpayer £22 billion a year in every year of this parliament.
These losses come from two sources: valuation losses from selling government bonds below purchase value; and interest rate losses.
In this report we recommend a two-pronged approach to address this issue.
First, to recoup interest rate losses for the taxpayer currently occurring at the Bank of England, the government should implement a ‘QE reserves income levy’ on commercial banks.
Second, the gov
