2 hours ago
6
The Reform UK leader, Nigel Farage, has stepped up calls for the Bank of England to halt bond sales and cut the interest it pays to UK banks, after a meeting with its governor, Andrew Bailey.
They met on Thursday morning at the Bank’s Threadneedle Street headquarters along with the Reform MP Richard Tice, after an exchange of letters in which the governor agreed to a meeting.
Farage and Tice would like to see politicians take a firmer grip on the operation of the institution, made independent by Gordon Brown when he was chancellor, in 1997.
In a statement released after the meeting, Tice said: “If parliament, via the chancellor of the exchequer, gave a different steer to the Bank of England this could significantly reduce the need for tax rises at the budget.
“Subsequently I will be writing to the chancellor and the leader of the house requesting an urgent debate as soon as parliament returns.”
The shadow chancellor, Mel Stride, accused Reform of “playing with fire”. He said: “Politicising interest rates and undermining the Bank’s independence risks instability and higher inflation – which means rising costs. Freeing interest-rate decisions from political pressures was precisely why an independent monetary policy was established in the first place.”
The Bank currently pays interest on the vast bank reserves created during the emergency policy of quantitative easing (QE). It is also in the process of running down the stock of government bonds it bought through QE, in a programme known as quantitative tightening (QT).
Critics, including Reform, have pointed out that these bonds are now being sold at a loss, which must be borne by the Treasury. The Bank has also conceded that QT has had a modest upward effect on the yield – effectively the interest rate – on government bonds, known as gilts.
Bailey rejected Reform’s arguments in a public letter to Tice in June. In particular, the governor said deciding not to pay interest on the banks’ reserves should not be within the Bank’s remit.
“We have in the past noted that removing remuneration on reserves is akin to a tax on banks,” he said. “It is only appropriate that such a tax be imposed by the elected government of the day.”
after newsletter promotion
Last week the Bank’s monetary policy committee announced that it intended to sell about £21bn worth of government bonds in the coming year. With about £49bn of bonds expiring, that marked a slower pace of QT than in the past 12 months, amid febrile global bond markets.
Some left-of-centre thinktanks, including most recently the Institute for Public Policy Research, have also called for the Treasury to recoup some of the gains made by banks from rising interest rates.
The IPPR urged Rachel Reeves to levy a windfall tax on banks, in proportion to the QE reserves they hold, calculating that QT is now costing the Treasury £22bn a year.
A Bank spokesperson said: “The governor had a productive meeting with Reform UK on Thursday as part of the Bank’s engagement with political representatives.”
