MPs have demanded a review into the Bank of England’s independence, warning that it is saddling taxpayers with “entirely avoidable bills”.
A group of more than 40 Conservative MPs has written to the Chancellor, saying they are “deeply concerned” the Bank is acting in a way that is “out of step” with the central banks of most other major economies.
They say other mainstream central banks have adopted a “passive” form of quantitative tightening and are “shielding their populations from the costs of unwinding quantitative easing”.
In contrast, they warn, the Bank has chosen an approach that costs the British public billions, “without any consideration of the costs or value for money for taxpayers”.
‘We cannot afford to carry on down this path’
The MPs urge Jeremy Hunt to launch a review into the costs of its quantitative tightening programme as well as the Bank’s mandate and independence, adding: “We cannot afford to carry on down this path without consulting the public or Parliament.”
Signatories of the letter include Suella Braverman, the former home secretary, and former ministers Sir John Hayes, Sir Jacob Rees Mogg and Sir Simon Clarke.
They write: “The European Central Bank and the American Federal Reserve, along with many others, have decided to hold bonds on their balance sheets and run them off naturally as they mature, or wait for more market-friendly times to sell.
“This is at complete odds with the choice made by the Bank of England, starting in September 2022, to pursue aggressive quantitative tightening that forces taxpayers to bail it out for its losses. The Bank’s own estimates show that this approach will cost the taxpayer up to £130 billion.
“This year alone the unelected Monetary Policy Committee plans to spend £40 billion without any consideration of the costs or value for money for taxpayers.
“Our constituents would rather see this money spent on public services and we note, for example, that this is the cost of tackling the NHS waiting list backlog.”
Think tank report on Bank due
The letter was organised by the Conservative Way Forward (CWF), a Tory think tank, which this week will publish a report titled “Bank of England: An International Outlier”.
The MPs say in the letter: “This subject is too serious and the figures so vast that it must be debated and dealt with openly and transparently, so that our constituents can be reassured that every penny being spent on their behalf is achieving value for money.”
Other signatories include Greg Smith, the CWF chair, Sir Iain Duncan Smith, the former Tory party leader, and Lord Frost, a former Cabinet minister.
The letter will pile further pressure on Andrew Bailey, the Governor of the Bank, who has faced criticism in recent weeks.
Earlier this month, an independent review warned that the Bank’s ability to control inflation had been undermined by “significant shortcomings” in its economic forecasts.
A withering assessment led by Ben Bernanke, the former chairman of the Federal Reserve, warned the accuracy of the Bank’s predictions had “deteriorated significantly” in the wake of the pandemic.
Mr Bernanke said there had been “deficiencies” in Threadneedle Street’s ability to predict the impact of economic shocks such as Russia’s invasion of Ukraine.
Mr Bailey vowed to learn from the report but refused to apologise, insisting: ‘We do not do hindsight.”
In February, a report by the Treasury Select Committee warned the Bank of England should not rush to print money during the next financial crisis.
MPs said rules surrounding so-called quantitative easing did not do enough to shield taxpayers from unnecessary losses.
While the committee insisted the Bank’s operational independence remained paramount, it called for more transparency over bond sales as the Bank estimated taxpayers faced an £80 billion hit based on current interest rate predictions.
“It strikes us as highly anomalous that decisions have been and are being taken concerning huge sums of public money without any regard to the usual value-for-money requirements,” MPs warned in their report.
A Treasury spokesman said: “The separation of fiscal and monetary policy is a key feature of the UK’s economic framework, and essential for the effective delivery of monetary policy.
“That is why it is vital the Government underwrites the Bank of England’s asset purchases so it can meet its monetary policy objectives, including returning inflation to 2 per cent.
“More than £120 billion has been transferred to the Treasury from the Bank of England between 2012 and 2022, details of which are routinely published. However, it was always expected that losses would be incurred when this was unwound, and any future gains or losses are highly uncertain.”
