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"Money printing" takes a bite out of pensions

Quantitative easing has left companies with a £90bn bill

MPs were told today that the Bank of England’s £375bn policy of quantitative easing had left companies with a £90bn bill to fill pension fund deficits.

Mark Hyde-Harrison’s warning follows the Treasury’s decision to use its QE programme in order to transfer the £35bn built up at the Bank.

The chairman of the National Association of Pension Funds said that inflexible pension regulations would make companies unable to strengthen their balance sheets, as they would have normally spent the funds they’ll need to pay down these deficits.

He also told the members of the House of Commons Treasury Select Committee, who are supervising the Bank’s plan to buy government bonds, that it had resulted in a knock-on effect of limiting growth in the economy.

Quantitative easing has contributed to the push of final-salary schemes into large deficits, by raising the price of gilts, reducing the returns on pension investments, and lowering yields.

Pension funds use government bonds in order to have the necessary funds to payout members in the future, and low interest rates, as well as low gilt yields have, have forced pension schemes to hold more assets to meet those obligations.

Mr Hyde Harrison warned the Select Committee that the schemes would need to find £9bn a year for the next ten years in order to fill the gap, and shared his concerns that the Bank of England would fulfil its promise to buy back the bonds when the time comes to unwind QE, instead of cancelling them.

Pension expert Ros Altman was reported to have accused the Committee to have “overlooked” the consequence of quantitative easing on pensions, and that asset purchase had “raised the cost of annuities”. She added that whilst having benefited the economy in the short term, asset purchases had distorted long-term saving schemes.

The Bank of England claims that its “money printing” programme had prevented a financial fall-out, which would have left pension funds and savers worse off.

Marie le Conte is a freelance journalist.

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Geoffrey Howe dies, aged 88

Howe was Margaret Thatcher's longest serving Cabinet minister – and the man credited with precipitating her downfall.

The former Conservative chancellor Lord Howe, a key figure in the Thatcher government, has died of a suspected heart attack, his family has said. He was 88.

Geoffrey Howe was the longest-serving member of Margaret Thatcher's Cabinet, playing a key role in both her government and her downfall. Born in Port Talbot in 1926, he began his career as a lawyer, and was first elected to parliament in 1964, but lost his seat just 18 months later.

Returning as MP for Reigate in the Conservative election victory of 1970, he served in the government of Edward Heath, first as Solicitor General for England & Wales, then as a Minister of State for Trade. When Margaret Thatcher became opposition leader in 1975, she named Howe as her shadow chancellor.

He retained this brief when the party returned to government in 1979. In the controversial budget of 1981, he outlined a radical monetarist programme, abandoning then-mainstream economic thinking by attempting to rapidly tackle the deficit at a time of recession and unemployment. Following the 1983 election, he was appointed as foreign secretary, in which post he negotiated the return of Hong Kong to China.

In 1989, Thatcher demoted Howe to the position of leader of the house and deputy prime minister. And on 1 November 1990, following disagreements over Britain's relationship with Europe, he resigned from the Cabinet altogether. 

Twelve days later, in a powerful speech explaining his resignation, he attacked the prime minister's attitude to Brussels, and called on his former colleagues to "consider their own response to the tragic conflict of loyalties with which I have myself wrestled for perhaps too long".

Labour Chancellor Denis Healey once described an attack from Howe as "like being savaged by a dead sheep" - but his resignation speech is widely credited for triggering the process that led to Thatcher's downfall. Nine days later, her premiership was over.

Howe retired from the Commons in 1992, and was made a life peer as Baron Howe of Aberavon. He later said that his resignation speech "was not intended as a challenge, it was intended as a way of summarising the importance of Europe". 

Nonetheless, he added: "I am sure that, without [Thatcher's] resignation, we would not have won the 1992 election... If there had been a Labour government from 1992 onwards, New Labour would never have been born."

Jonn Elledge is the editor of the New Statesman's sister site CityMetric. He is on Twitter, far too much, as @JonnElledge.