Bank of England defends quantitative easing as taxpayer cost debate intensifies

The Bank of England has issued a robust defence of its quantitative easing programme following criticism from Nigel Farage, leader of Reform UK, who cautioned that taxpayers could face a bill of up to £120 billion. In its latest update, the Bank explained that its bond purchases during the 2008 global financial crisis and the Covid pandemic helped stabilise the economy and enabled the government to issue debt on more favourable terms.

The central bank emphasised that these interventions led to a lower cost of long term government debt. This, according to the Bank, translated into wider fiscal benefits including stronger employment opportunities and increased tax revenues. While the Bank acknowledged losses on its bond portfolio could reach £120 billion, it argued these losses may be offset by lower interest payments on government debt thanks to the reduced yields resulting from quantitative easing.

This marks the first time the Bank of England has published an estimate on the fiscal savings yielded by its intervention, indicating these could range from £50 billion to £125 billion. Andrew Bailey, governor of the Bank, communicated to Chancellor Rachel Reeves that the full benefit would emerge over time due to the extended maturity of government bonds issued when yields were suppressed by quantitative easing measures.

Chancellor Reeves responded that steps would be taken in collaboration with the Bank to minimise financial costs and manage risks to the public purse. The Bank continues to reject claims that it has mishandled the process or created an undue burden on taxpayers. Since 2008, it has purchased up to £895 billion in government and corporate bonds as a response to multiple economic shocks, including the Brexit fallout and the pandemic.

Bond purchases by central banks work by raising the price of bonds and lowering their yields, which in turn eases borrowing across the economy. This should, under normal conditions, encourage household spending and business investment, supporting economic growth. The Bank of England maintains that such dynamics have allowed the government to borrow at lower interest rates than would have otherwise been possible.

Interest payments on deposits held by commercial banks at the Bank have risen as the base rate increased to 4 per cent to tackle inflation. These payments now exceed the income generated from the Bank’s bond portfolio, leading to losses covered by the Treasury. Critics such as Richard Tice, deputy leader of Reform UK, maintain that the costs of the UK’s quantitative easing programme far surpass those seen in Europe or the US relative to economic output. The debate over the long term consequences of these measures and their true cost to taxpayers looks set to continue.