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13 June 2022

Who will hold Rishi Sunak accountable for taxpayers’ missing £11bn?

Interest rate rises have had the unintended effect of draining the public purse.

By Freddie Hayward

Last week’s confidence vote continues to hang over the Prime Minister, as today the government prepares to publish a bill that could rip up the Northern Ireland protocol. The problem for the government is that those MPs who voted to remove Boris Johnson are now more likely to vote against its legislation in the House of Commons. This effectively corrodes Johnson’s majority and makes the government vulnerable to appeals from vocal Tory backbenchers.

That’s clearly been the case with the bill on the Northern Ireland protocol, said to have been written with input from members of the European Research Group – the band of Conservative MPs who have consistently lobbied for a hard Brexit. Opponents within the party are no less vocal. A leaked document from Tory backbenchers opposed to the bill demonstrates the vigour with which rebels plan to challenge the government. With its authority over its MPs shot, the government is likely to face fierce opposition over its plans for the protocol – and that’s just in the Commons.

Away from the drama of Brexit, a perhaps more significant story over the weekend lay in a report from the National Institute of Economic and Social Research (NIESR). It accused Rishi Sunak of squandering £11bn of taxpayers’ money by failing to take out insurance against interest rate rises on reserves of around £900bn created by the Bank of England’s quantitative easing (QE) programme. Most of the £900bn was used to purchase government bonds from pension funds and other investors, who put the proceeds in commercial deposits at the Bank, which then had to pay out interest in line with its official rates. As the interest rate has increased, the payments have risen. The NIESR argues that the government should have bought fixed-interest debt to protect it from future rate rises, saving £11 billion in the process. While the Treasury argues this was a decision for the Bank, the NIESR’s calculations raise questions about the proper management of government debt.

There’s also a longer-term problem here. As Gary Stevenson has set out, the quantitative easing programme has resulted in money being transferred to the rich. The Bank of England admits that QE was deliberately designed to increase asset values – such as in housing and shares – in order to stimulate the economy. This benefits people who own those assets. But as Harry notes here, only one in nine people in the UK directly own British shares. Since the financial crash in 2008, wages have stagnated while asset values have surged. The government’s quantitative easing programme rarely garners much public debate. But with the cost-of-living crisis deepening, accounting for who holds the billions of pounds created through QE is poised to become a prominent political issue.

This piece first appeared in the Morning Call newsletter; subscribe here.

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