The Guardian view on the Bank of England’s £120bn bill: power without accountability | Editorial
Quantitative tightening has blurred the line between monetary and fiscal policy, leaving ministers accountable for decisions they cannot directly control When Labour made the Bank of England independent in 1997, the idea was that the Bank set interest rates while the Treasury taxed and spent. Monetary policy was in Threadneedle Street, fiscal policy in Whitehall. But in August the Bank of England…
The Bank of England's £120 billion commitment has blurred the distinction between monetary and fiscal policies, raising questions about accountability. When Labour established the Bank's independence in 1997, the intention was for monetary policy to be set by Threadneedle Street while fiscal policy remained in the Treasury's domain.
However, in August, the Bank revealed that its key strategy, quantitative tightening (QT), could incur a £120 billion liability for the Treasury. The Bank's QT policy, designed to support the economy, involves purchasing government bonds, but this constitutional arrangement has become outdated in light of recent financial crises and global uncertainties.
Former deputy governor Charlie Bean has pointed out that the current setup allows the Bank's Monetary Policy Committee to wield significant influence over public spending decisions, despite lacking direct accountability. The Treasury's practice of indemnifying the Bank for these losses should be reconsidered, as the £17 billion already paid last year represents a substantial burden compared to the Ministry of Justice's budget, which grapples with real issues like the prison crisis.
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