Rishi Sunak is accused of squandering 11 billion British pounds of taxpayers’ money by paying too much interest to service public debt.
The National Institute for Economic and Social Research, the UK’s oldest non-partisan economic research institute, estimates that the losses stem from the Chancellor’s failure to take out insurance against rising interest rates a year ago on nearly £ 900 billion in reserves created by the process. of quantitative relief.
The loss to taxpayers is greater than the amount conservatives accused former Labor Chancellor and Prime Minister Gordon Brown of costing the UK between 2003 and 2010, when he sold some of the country’s gold reserves at the lowest prices.
Jagjit Chadha, director of Niesr, said Sunak’s decisions had burdened the UK with a “huge bill and a heavy continuing exposure to interest rate risk”, adding that it was the Finance Ministry’s fault.
“It would be much better to reduce the scale of short-term debt earlier, as we have argued for some time, and reap the benefits of long-term debt issuance,” he said.
The Treasury said: “We have a clear financial strategy to meet the government’s funding needs, which we set regardless of the Bank of England’s monetary policy decisions.
Under the QE program, the Bank of England raised £ 895 billion in money and used most of the money to buy government bonds from pension funds and other investors in the financial markets.
When these investors invested their proceeds in commercial bank deposits in the BoE, the central bank had to pay interest at its official interest rate.
Last year, when the official interest rate was 0.1%, Niesr recommended that the government insure the cost of servicing this debt against the risk of rising interest rates by converting it into government bonds with longer maturities.
“There are good reasons to consider adjusting the balance sheet now that interest rates are still low,” Nisr wrote last summer.
The government’s inaction, although Sunak regularly warns of the risks of higher inflation and interest rates on public debt service costs, now costs taxpayers 11 billion pounds, Chad said.
The Ministry of Finance is responsible for managing the details of the QE. Although BoE decided how much QE to implement, it acted as a government agent in the technical implementation of the program.
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The BoE is expected to raise interest rates from 1% to 1.25% next week and may even follow the Federal Reserve in applying a 0.5 percentage point increase to tackle inflation in the UK.
Consumer prices were 9% higher in April than a year earlier, the highest in the G-7, and inflation is expected to rise above 10% in the autumn.
As the United Kingdom has almost £ 500 billion of government debt related to inflation, debt service costs are expected to increase from £ 53.5 billion in 2021-2022 to £ 83 billion in 2022-23.
This increase is mainly due to higher inflation, but also reflects the rise in interest rates, which raises the net costs of the QE program for taxpayers.
Since its launch in 2009, QE has significantly reduced its total government debt service costs, while interest rates were close to zero, but will save much less money as interest rates rise.
The UK’s Expenditure Monitoring Authority said that one of the biggest risks to the UK’s public finances was exposure to interest rate risk, as QE reduces the effective maturity of government debt.
“Much of the impact of higher interest rates on public finances is now actually coming quite quickly,” OBR warned last year in its fiscal risk report.
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