The Treasury has handed the Bank of England £110.72 billion of taxpayers’ money since October 2022 to cover losses on its quantitative easing programme, ministers have disclosed.
The figure emerged in a written parliamentary answer to the former pensions minister Baroness Altmann, which also sets out official forecasts of another £73 billion in payments over the four years to 2029-30.
Quantitative easing, or QE, saw the Bank create new money to buy government bonds, starting in the 2009 financial crisis and expanding through the pandemic. At its peak in February 2022 the Bank held £895 billion of gilts, as government bonds are known, in a fund called the Asset Purchase Facility. The Treasury agreed from the start to cover any losses.
For years the scheme made money and the Treasury pocketed the profits. The answer shows £7.2 billion flowing to the Treasury in 2021-22 and £4.2 billion in 2022-23.
Then interest rates rose. The Bank pays interest at Bank Rate on the money it created to buy the bonds, while many of the bonds pay low fixed returns. Selling them back to the market below the price paid locks in further losses. The bill has fallen on the taxpayer ever since.
Year by year
According to the answer, the Treasury paid £5 billion in 2022-23, £44.5 billion in 2023-24, £36.3 billion in 2024-25 and £16.7 billion in 2025-26. Those four years add up to £102.5 billion, which suggests roughly £8 billion more has already gone out in the first months of this financial year.
Lord Pitt-Watson, the Treasury minister, said: “Since October 2022, HM Treasury has transferred £110.72bn to the Bank of England to cover losses arising from the indemnity of the Asset Purchase Facility, the vehicle used to implement quantitative easing.”
He said the money covered “losses incurred from net interest costs and the sale and redemption of bonds as the portfolio is unwound”.
Baroness Altmann had also asked about the extra cost of servicing government debt. The answer did not address that part of her question.
More to come
The payments are far from over. The Office for Budget Responsibility forecast in March that the Treasury would hand over £15.5 billion in 2026-27, £18.4 billion in 2027-28, £20.8 billion in 2028-29 and £18.2 billion in 2029-30. That is a further £72.9 billion, or £57.4 billion in the three years after this one.
Ministers told peers last week that the Chancellor, John Healey, is “committed to meeting his fiscal rules”. The OBR’s next forecast, due on 28 October, will update the bill.
Last month the Bank’s Monetary Policy Committee set out a plan to run down the rest of its holdings by 2034. It held Bank Rate at 3.75 per cent at the same meeting.
The Bank said its stock of gilts had already fallen from £895 billion to £488 billion. Under the new plan it will sell £20 billion a year alongside bonds that mature, an average reduction of £46 billion a year. That compares with £87.5 billion a year over the past four years.
Government may buy back its own bonds
The Bank has also paused its bond auctions while it works with the Treasury on a model under which the Debt Management Office, part of the Treasury, would buy £146 billion of longer-dated gilts directly from the Bank at market prices. A final decision is due before April 2027.
In that case, the Government would be buying back its own debt from its own central bank, with any loss on the deal still landing on the public purse.
The Treasury said the cash transfers are published every month by the Office for National Statistics in its public finances figures.
On the OBR’s March forecast, the payments will continue every year until the end of the decade, peaking at £20.8 billion in 2028-29.
