Nigel Farage and co. are taking aim at the Bank of England in a way that may help Chancellor Rachel Reeves out of her budget woes — if she dares go along with it.
The Reform U.K. leader and his deputy Richard Tice dropped in on Bank Governor Andrew Bailey on Thursday to press him into changes in monetary policy that could help trim the public sector’s interest bill, but which could also unnerve investors.
The Reform U.K. leader and his deputy Richard Tice said they had urged Bailey at their meeting to stop paying interest on the excess money created by the Bank during a decade of ‘quantitative easing.’ That money is now largely held on deposit back at the BoE by commercial banks, which earn a risk-free return of 4 percent on it at the current Bank Rate. Critics on both right and left wings of the political spectrum argue that amounts to a massive taxpayer subsidy to the banks.
The Reform duo also urged the Bank to stop the active selling of the gilts it bought during the QE period, something that several analysts and investors have argued is putting unnecessary upward pressure on the government’s borrowing costs. Tice told POLITICO on Thursday that stopping gilt sales alone could have taken around £1.5 billion off the government’s bill for debt interest this year. The Bank argues that the taxpayer wouldn’t end up paying any less in the long run, though.
Reform is now seeking a full parliamentary debate on ‘quantitative tightening’, or QT, when MPs return from their recess, something he may get in the second half of next month if the Leader of the House of Commons is sympathetic. “It’s much more powerful as a debate in government time, as opposed to a backbench business debate,” Tice argued.
The political argument is simple. “If Parliament via the Chancellor of the Exchequer gave a different steer to the Bank of England, this could significantly reduce the need for tax rises at the Budget,” Tice said in a statement released after the meeting.
Reeves can ill afford to ignore anything that will raise money at a time when sluggish growth and productivity and constant increases in spending have made it all but impossible for her to stick to her own self-defined fiscal rule. And left-leaning think-tanks such as the Institute for Public Policy Research and Positive Money have already come to much the same conclusions.
Yet Reform’s high-volume handling of a meeting that the Bank styled as a routine meeting with elected politicians represents something of a break with convention. Since Tony Blair’s government granted the Bank independence in 1997, party leaders have refrained from appearing to give instruction to the Bank on how to conduct monetary policy.
Tice, however, in comments to POLITICO, argued that the issue is essentially a fiscal one, since the losses incurred by the Bank through QT have to be picked up by the taxpayer. “Parliament has failed in its duty to give the Bank more direction and support in this area,” he said. “It’s left the Bank to make its own decision and sort of … swing in the wind.”
Reform’s intervention comes at a time when U.S. President Donald Trump is putting heavy pressure on the Federal Reserve to cut interest rates to support flagging growth. By contrast, talking to POLITICO, Tice said he and Farage had “absolutely not” put any pressure on Bailey to lower rates.
A spokesperson for the Bank said the Governor “had a productive meeting with Reform U.K. on Thursday as part of the Bank’s engagement with political representatives,” but declined to elaborate.
Tice and Farage said the meeting also covered cryptocurrency and stablecoins, an issue where the MP for Clacton has called the Bank “out of touch” and “behaving like a dinosaur.”
Farage was particularly incensed by the Bank’s proposal to put a limit of £10,000 on the amount of stablecoins that investors can hold. The Bank expects to publish formal proposals on stablecoin regulation by the end of 2025.
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