Chancellor Rishi Sunak has been accused of throwing away £11 billion in taxpayer funds by overpaying for interest servicing government debt.
Recent comments by the National Institute of Economic and Social Research (NIESR) said Sunak failed to insure against interest rate growth on £900 billion in reserves created through the quantitative easing programme.
According to NIESR, the loss exceeds the amount the Conservatives accused former Prime Minister Gordon Brown of losing after he sold UK gold reserves at extremely low prices.
The comments were made to the Financial Times by NIESR director Professor Jagit Chadha, who mentioned that Sunak’s failure had left the UK saddled with “an enormous bill and heavy continuing exposure to interest rate risk.”
The Financial Times reported that the Bank of England created £895 billion in money using its quantitative easing, the major share of which was used to purchase government bonds from pension funds and other investors.
The Bank had to pay interest at its official rate after the investors put the proceeds in commercial bank deposits at the Bank of England.
NIESR confirmed it urged the government to insure the cost of servicing this debt against the risk of rising interest rates by converting it into government bonds with longer maturity, back when interest rates were still at 0.1% last year.
Professor Chadha pointed the finger at Sunak for ignoring their advice and consequently losing the taxpayer £11 billion in avoidable expenses.
The Chancellor has faced heavy scrutiny as inflation hit 9% in May and the cost of living climbs, with UK households turning to food banks and credit card debt at record levels.
“These are astronomical sums for the chancellor to lose, and leaves working people picking up the cheque for his severe wastefulness while he hikes their taxes in the middle of a cost-of-living crisis,” said shadow Treasury minister Tulip Siddiq.
A spokesperson for the treasury commented: “There are longstanding arrangements around the asset purchase facility – to date £120bn has been transferred to HM Treasury and used to reduce our debt, but we have always been aware that at some point the direction of those payments may need to reverse.”
“We have a clear financing strategy to meet the government’s funding needs, which we set independently of the Bank of England’s monetary policy decisions.”
“It is for the monetary policy committee to take decisions on quantitative easing operations to meet the objectives in their remit, and we remain fully committed to their independence.”
