Source · Select Committees · Public Accounts Committee
Recommendation 15
15
Not Addressed
Treasury facing substantial losses from QE indemnification, impacting government debt control.
Conclusion
The Treasury indemnifies the activities of the Bank of England’s Asset Purchase Facility. This means that the Treasury receives any profits from QE but is also liable for any losses. The OBR told us that until very recently, QE was making “quite considerable profit” for the Treasury – and that between 2009 and 2022, the Treasury received cumulative gains of £124 billion. The Treasury told us that this changed from May 2022, when the Bank of England started raising interest rates, causing the Treasury to so far cover costs of £38 billion. The OBR estimated that over the lifetime of QE and quantitative tightening, the government will incur a net loss of £126 billion. When asked what impact this lifetime loss had on departmental spending, the OBR said that it affects government’s objective for getting “debt under control”.26
Government Response Summary
Although the committee's item was a conclusion, the government's response states it agrees with and has implemented a 'recommendation'. The response discusses general improvements in crisis management preparedness and NS&I's system transformation, but it does not directly address the observation about the £126 billion net loss from QE impacting the government’s objective for getting 'debt under control'.
Government Response
Not Addressed
HM Government
Not Addressed
5.1 The government agrees with the Committee’s recommendation. Recommendation implemented 5.2 Previous crisis episodes placed extraordinary demands on the government and capturing lessons learned have helped to improve its preparedness. 5.3 Following the Review of HM Treasury's management response to the financial crisis, the Professionalising Crisis Management project was established to ensure the department is ready to effectively respond to future financial stability events. It has expanded considerably since, and the department has developed a suite of manuals and resources to support the deployment of tools in crises. 5.4 More recently, the COVID-19 pandemic posed an unprecedented challenge that required the government to revise its financing requirement outside of the normal cycle. As discussed in the government's response to recommendation 4b of the Committee's Ninth Report of Session 2023-24, HMT remains committed to learning and sharing lessons from the response to the pandemic. In respect to borrowing, HMT has since agreed with the Office for Budget Responsibility (OBR) that it will consult the OBR on any future out-of-cycle internal fiscal projections (that, for example, might be used to inform a DMO financing update). In light of market challenges at the time, there was also an increase in the planned DMO end-financial year net cash position, to provide additional day-to-day liquidity. 5.5 Generally, setting the DMO’s remit each year involves taking into account the market’s feedback to design a programme that best meets the debt management objective. This serves as an annual lessons learned process, which remained robust during the pandemic. 5.6 NS&I’s funding target was also increased materially at the time. NS&I met this by maintaining high rates on easy access variable products, which led to very high demand for their products and services. When these rates fell, customers moved quickly to withdraw funds creating further operational pressures, which, regrettably, negatively impacted customers experiences and public trust in NS&I. 5.7 The operational pressures from both high inflows and subsequent outflows were exacerbated by NS&I’s older systems. NS&I’s transformation programme will deliver the systems scalability needed to meet sudden spikes in demand and the robustness customer ‘journeys’ that enable customers to complete these online without further support.