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Bank of England to transfer interest to Treasury

The Governor of the Bank of England has announced that interest earned on government debts will be transferred to the Treasury.

The move will cut the Government’s borrowing requirements and will help towards deficit reduction, as the cash sum is expected to reach £35bn by March.

In a letter to the Chancellor, Mervyn King said it was likely the Treasury would need to repay some of the funds eventually.

Mr King said: “While transferring the APF’s net income to the Exchequer will result initially in payments from the APF to the Government, it is likely to lead to the need for reverse payments from the Government to the APF in the future as Bank Rate increases and the APF’s gilt holdings are unwound by the Monetary Policy Committee.”

TUC General Secretary Brendan Barber said: “The Bank of England’s decision to hand £35bn of QE interest to the government changes nothing in the real economy, but allows the government to reduce the measured deficit. What is little more than a change in accounting rules gives the Treasury an apparent £35bn windfall.

“The Chancellor can play politics with this by claiming he is nearer his failed deficit reduction target. Alternatively he could invest £35bn in boosting economic growth to kick-start recovery in the certain knowledge that the markets would not punish him for running the same deficit as he was yesterday before he received this bonus.

“The UK faces historically low borrowing costs and the market is not demanding that this money is used to pay down debt. The economy has barely grown for two years and unemployment remains at elevated levels. £35bn could provide a much needed shot in the arm to get the economy moving again.”

This was posted in Bdaily's Members' News section by Tom Keighley .