Free money! How the Bank of England used quantitative easing to get rid of £ 150 billion of UK debt
- Since March 2009, £ 745 billion has been created out of thin air under the scheme
- Money was used to buy government bonds from banks and other investors
- But £ 100 billion of this has reached maturity without being sold back to investors
More than £ 150 billion in free money has helped fund the government’s credit binge, a Mail on Sunday investigation may reveal.
Our investigation found that money printed under the Bank of England’s so-called quantitative easing (QE) program has been used to cancel some of the UK’s £ 2 trillion public debt.
Since March 2009, £ 745 billion has been created out of thin air under the scheme. The idea was to pump money into the economy in the wake of the 2008-2009 financial crisis and the program has been revived for the coronavirus pandemic.
More than £ 150 billion in government debt has been paid off effectively – at no cost – with money created and passed between the Treasury and the Bank of England
The money has been used to buy government bonds – so-called gilts – from banks and other major investors, and there has always been a promise that these gilts will eventually be sold back into private hands.
However, about £ 100 billion of these gold pieces have already reached maturity without being sold back to investors, documents show. That means that the Treasury had to pay the bank the face value of the bonds.
Any normal bondholder would have kept the money. But the Bank – a nationalized entity – promptly returned it to the Treasury, The Mail on Sunday understands. In addition, the bank has also repaid £ 57 billion of its coupon payments – the interest received – on the gold pieces.
As a result, more than £ 150bn of government debt has been effectively paid off – at no cost – with money created and passed between the UK’s two main financial authorities.
A Bank of England spokeswoman said the par value paid back by the Treasury on bonds will be used to buy more gold from other investors as the QE program is replenished to current levels.
The bank said it had not published a figure on the total number of bonds maturing, and the Treasury said it was a matter for the bank.
Officially, the UK has made a commitment not to ‘monetize’ public debt simply by printing money to finance it, but there are fears that it is nearing the border.
Chancellor Rishi Sunak has borrowed a lot of money to support the economy during the blockage of the corona virus.
Chancellor Rishi Sunak has borrowed money to support the economy during the coronavirus blockade
The Treasury has borrowed £ 173.7 billion so far in this financial year, over the five months from April to August, to deal with the coronavirus crisis – three times the £ 55.8 billion it raised in the full fiscal year from April 6. 2019 has borrowed. until April 5, 2020. Sunak has hinted that taxes may need to increase in the future to cover some of these additional expenses.
Last month, he did not promise a “horror show of tax hikes with no end in sight,” but also warned of “tough things to come.”
However, economists say poorly timed tax hikes or austerity cuts can derail any economic recovery, especially in light of constraints to contain a second wave of the virus.
Some experts point out that the current record low interest rates have made it cheaper than ever for the government to borrow money, putting Sunak under less pressure to find a way to pay off short-term debt.
The £ 150 billion for the debt paid off with QE money is the equivalent of one and a half times the projected cost of the ‘moonshot’ program to run 10 million daily Covid-19 tests next year. In addition, this is unlikely to be the final total for what amounts to free financing.
The financial community has traditionally believed that the so-called direct financing of government debt was the kind of activity of countries like Zimbabwe, and not advanced economies like the UK.