Press Story

Bank of England quantitative easing losses are costing taxpayers £22 billion every year
Commercial banks’ share prices have doubled since the inflation crisis – fuelled by taxpayer-funded windfalls
IPPR proposes a Thatcher-style tax on bank profits to raise up to £8 billion a year for public services

The Treasury should bring in a new tax on commercial banks to address the unintended consequences of quantitative easing (QE), says the Institute for Public Policy Research (IPPR).

The UK taxpayer is spending £22 billion a year compensating the Bank of England for losses on its QE programme, public money which is partly being funneled to commercial bank shareholders.

The think tank says that this subsidy of commercial banks, at the expense of public services, is boosting bank profits while millions face the cost-of-living crisis. Since interest rates began rising in December 2021, the four largest UK banks have seen their annual profits more than double, up by £22 billion compared to pre-pandemic. IPPR says that some of this is a direct transfer of funds from the taxpayer to shareholders.

Under the current set-up, the Treasury pays the Bank of England for both interest rate losses and the drop in value of gilts bought during QE. These payments ultimately benefit commercial banks, and other financial institutions, which hold hundreds of billions of pounds of QE-related reserves at the Bank of England.

The UK is an international outlier in having its Treasury pay for its central banks losses. To rectify this, IPPR recommends that:

The Treasury introduces a QE reserves income levy on commercial banks, in a similar vein to Thatcher’s 1981 deposit tax on banks, to save £7-8 billion a year over this parliament
The Bank of England slows down quantitative tightening (QT), by ending the Bank of England’s fire sale of government bonds to save more than £12bn a year

IPPR says these two policies could save the taxpayer over £100 billion over the course of this parliament giving the government much needed fiscal headroom and allowing them to support households.

Carsten Jung, associate director for economic policy at IPPR, said:

“The Bank of England and Treasury bungled the implementation of quantitative easing. What started as a programme to boost the economy is now a massive drain on taxpayer money. Public money is flowing straight into commercial banks’ coffers because of a flawed policy design. While families struggle with rising costs, the government is effectively writing multi-billion-pound cheques to bank shareholders.

“This is not how QE was meant to work – and no other major economy does it this way. A targeted levy, inspired by Margaret Thatcher’s own approach in the 1980s, would recoup some these windfalls and put the money to far better use – helping people and the economy, not just bank balance sheets.”

ENDS

Carsten Jung is available for interview. Carsten is an associate director at IPPR and a former economist at the Bank of England.

CONTACT

Liam Evans, head of news and media: 07419 365 334 l.evans@ippr.org

NOTES TO EDITORS

The IPPR paper, Fixing the leak: How to end the £22 billion annual taxpayer losses at the Bank of England, by Carsten Jung, will be available for download at: www.ippr.org/articles/fixing-the-leak
Advance copies of the report are available under embargo on request
IPPR (the Institute for Public Policy Research) is the UK’s most influential think tank, with alumni in Downing Street, the cabinet and parliament. We are the practical ideas factory behind many of the current government’s flagship policies, including changes to fiscal rules, the creation of a National Wealth Fund, GB Energy, devolution, and reforms to the NHS. As an independent charity working towards a fairer, greener, and more prosperous society, we have spent almost 40 years creating tangible progressive change - turning bold ideas into common sense realities. www.ippr.org