The Institute for Public Policy Research (IPPR) has called on Chancellor Rachel Reeves to introduce a new tax on banks and urge the Bank of England to stop selling bonds, aiming to reduce the government's £22 billion annual losses from quantitative easing (QE). The thinktank argues that the current policy is a drain on public finances, with money flowing to commercial banks while families struggle with rising costs.
In its report 'Fixing the Leak', the IPPR's Carsten Jung says the Treasury should rein in QE costs. The emergency policy, started in 2009, involved buying £895 billion of bonds from banks, crediting them with reserves. As the Bank winds down QE through quantitative tightening (QT) at £100 billion a year, sales occur at a loss. Additionally, higher interest rates mean the Bank pays more on reserves than it receives on bonds, costing £22 billion annually.
Jung proposes taxing big banks on QE-related reserves, potentially raising £8 billion a year. This would avoid the Bank's objections to 'tiered reserves', which Governor Andrew Bailey argues could interfere with inflation control. The IPPR compares this to a 1981 tax on deposits under Margaret Thatcher.
The report also suggests halting bond sales to reduce losses, noting that gilt markets have been jittery. Bailey hinted at slowing QT due to volatile long-term bond yields. Reeves is considering revenue-raising measures ahead of her autumn budget, with rising yields potentially wiping out fiscal headroom.
A Bank of England spokesperson said tax decisions are for the government, while the Treasury emphasised its focus on growing the economy and the MPC's operational independence.
