\n<\/p>\n
Rachel Reeves should levy a new bank tax and urge the Bank of England to halt bond sales to reduce the government\u2019s \u00a322bn-a-year losses from quantitative easing, the IPPR thinktank has argued.<\/p>\n
In a report called Fixing the Leak, the IPPR\u2019s associate director for economic policy, Carsten Jung, says the Treasury should rein in the costs of QE as public finances are tight.<\/p>\n
\u201cWhat started as a programme to boost the economy is now a massive drain on taxpayer money,\u201d he said. \u201cPublic money is flowing straight into commercial banks\u2019 coffers because of a flawed policy design. While families struggle with rising costs, the government is \u2026 [in effect] writing multibillion-pound cheques to bank shareholders.\u201d<\/p>\n
The emergency policy, first enacted in 2009 during the global financial crisis, involved buying up \u00a3895bn of bonds from the UK\u2019s banks and, in exchange, crediting them with reserves at the Bank of England.<\/p>\n
The Bank is now winding down QE \u2013 a process known as \u201cquantitative tightening\u201d (QT) \u2013 by selling the bonds at a rate of \u00a3100bn a year, but these sales are taking place at a loss.<\/p>\n
In accordance with a promise from Alistair Darling, then chancellor, the Treasury bears the financial risks of QE, so these losses hit the government\u2019s finances.<\/p>\n
In addition, the higher Bank of England base rate, now set at 4% to combat above-target inflation, means the Bank is paying out higher interest rates on banks\u2019 reserves than it is receiving on the bonds it holds. In total, these losses amount to a \u00a322bn-a-year hit to the public finances, according to the IPPR.<\/p>\n
Jung calls for the Treasury to tax the big banks on their QE-related reserves, saying the profits of the big four have more than doubled since before the Covid pandemic.<\/p>\n
He says such a policy could bring in \u00a38bn a year and sidestep the Bank\u2019s objections to a widely mooted alternative known as \u201ctiered reserves\u201d, which the Bank\u2019s governor, Andrew Bailey, has argued could interfere with its job of combating inflation.<\/p>\n
The IPPR compares the new bank levy it recommends with a tax on deposits implemented by the Conservative prime minister Margaret Thatcher in 1981, as rising interest rates led to higher bank profits.<\/p>\n
Jung said: \u201cA targeted levy, inspired by Margaret Thatcher\u2019s own approach in the 1980s, would recoup some of these windfalls and put the money to far better use, helping people and the economy, not just bank balance sheets.\u201d<\/p>\n
With gilt markets consistently jittery in recent months, the report also suggests the chancellor recommends to the Bank that it halt the process of selling off its stockpile of bonds.<\/p>\n
The Bank\u2019s nine-member monetary policy committee will decide the pace of QT for the year ahead at a meeting on 18 September.<\/p>\n
skip past newsletter promotion<\/p>\n
Sign up to Business Today<\/span><\/p>\n Get set for the working day \u2013 we’ll point you to all the business news and analysis you need every morning<\/p>\n Privacy Notice: <\/strong>Newsletters may contain info about charities, online ads, and content funded by outside parties. For more information see our Privacy Policy. We use Google reCaptcha to protect our website and the Google Privacy Policy and Terms of Service apply.<\/span><\/p>\n after newsletter promotion<\/p>\n Bailey appeared to hint at the Bank\u2019s quarterly monetary policy press conference this month that it would consider slowing the sell-off in the face of volatile long-term bond yields that move in the opposite direction to prices.<\/p>\n \u201cThere has been a change in the liquidity of the curve at the long end and that has affected yields,\u201d he said, adding that all options were on the table for the meeting. Yields on 30-year government bonds, known as gilts, were close to a 27-year high this week.<\/p>\n Reeves is known to be considering a range of revenue-raising measures in the run-up to her autumn budget, with rising bond yields and a potential forecast downgrade from the Office for Budget Responsibility expected to wipe out the \u00a39.9bn of \u201cheadroom\u201d against her fiscal rules.<\/p>\n A spokesperson for the Bank of England said: \u201cTax and spending decisions are for the government, not the Bank. We remain 100% focused on making sure that inflation returns all the way to the 2% target, because low and stable inflation is the foundation of a healthy economy.\u201d<\/p>\n A Treasury spokesperson said: \u201cAs set out in the plan for change, the best way to strengthen public finances is by growing the economy, which is our focus.\u201d<\/p>\n They added: \u201cThe [MPC] has operational independence to set monetary policy, including how it approaches asset sales, which is essential for the effective delivery of monetary policy.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":" Rachel Reeves should levy a new bank tax and urge the Bank of England to halt bond sales to reduce the government\u2019s \u00a322bn-a-year losses from quantitative easing, the IPPR thinktank has argued. In a report called Fixing the Leak, the IPPR\u2019s associate director for economic policy, Carsten Jung, says the Treasury should rein in the<\/p>\n","protected":false},"author":1,"featured_media":18200,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[48],"tags":[10001,10727,1285,11075,1271,328,11074,101,7939,3111,11076],"class_list":{"0":"post-18199","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-politics","8":"tag-argues","9":"tag-banks","10":"tag-big","11":"tag-easing","12":"tag-economic","13":"tag-policy","14":"tag-quantitative","15":"tag-tax","16":"tag-thinktank","17":"tag-treasury","18":"tag-windfalls"},"_links":{"self":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/18199","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=18199"}],"version-history":[{"count":0,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/18199\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/media\/18200"}],"wp:attachment":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=18199"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=18199"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=18199"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}