A Potential £85 Billion Burden for Taxpayers
The Bank of England's bond-buying program, known as the asset purchase facility, is facing potential losses of £85 billion over the next decade. This revised estimate, higher than the initial projection of £80 billion, raises concerns about the burden this could place on taxpayers.
Under an agreement established when the program began 15 years ago, taxpayers are responsible for covering any losses incurred. While the program initially generated substantial profits of £123.8 billion, recent developments suggest a shift. Rising interest rates aimed at curbing inflation have led to a decline in bond prices, potentially crystallizing future losses for the Bank.
Analysts propose mitigating the public finances' exposure to interest rate fluctuations by paying interest on only a portion of commercial banks' deposits. However, this approach essentially levies a tax on banks, which have benefited from increased loan charges amid rising borrowing costs.
The Bank currently plans to divest £100 billion of bonds annually, having peaked at nearly £900 billion of government and corporate bonds on its balance sheet. The bond-buying program, also known as quantitative easing, aims to stimulate the economy by driving down interest rates and injecting liquidity into banks. It has been deployed during the 2008 financial crisis, the pandemic, and briefly following Liz Truss's mini-budget, and remains a crucial tool for navigating economic turbulence.