Sunak accused of losing £11bn in servicing UK public debt

Sunak accused of losing £11bn in servicing UK public debt

Rishi Sunak has been accused of wasting £11billion of taxpayers’ money by paying too much interest to service government debt.

Calculations by the National Institute of Economic and Social Research, the UK’s oldest non-partisan economic research institute, show the losses stem from the Chancellor’s inability to secure insurance against rising interest rates a year ago on almost £900 billion of reserves created by the process of quantitative easing.

The loss to taxpayers is greater than the amount the Tories have accused former Labor Chancellor and Prime Minister Gordon Brown of costing the UK dearly between 2003 and 2010, when he sold off some of the UK’s gold reserves. countries at unbeatable prices.

Jagjit Chadha, director of Niesr, said Sunak’s decisions had imposed on the UK “a huge toll and continued high exposure to interest rate risk”, adding that it was the Treasury’s fault.

“It would have been much better to reduce the magnitude of short-term liabilities sooner, as we have argued for some time, and to exploit the benefits of issuing longer-term debt,” he said. he declared.

The Treasury said: “We have a clear funding strategy to meet government funding needs, which we set independently of monetary policy decisions by the Bank of England.”

Under the quantitative easing programme, the Bank of England created £895bn and used most of the cash to buy government bonds from pension funds and other investors in the markets financial.

When these investors placed the proceeds in commercial bank deposits with the BoE, the central bank had to pay interest at its official interest rate.

Last year, when the official 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. on a longer term.

“There are good reasons to consider balance sheet adjustment now that interest rates are still low,” Niesr wrote last summer.

Government inaction, despite Sunak regularly warning of the risks of inflation and higher interest rates on public debt service costs, has now cost taxpayers £11bn, said Chadha said.

The Treasury is responsible for managing the details of EQ. Although the BoE decided how much QE to implement, it acted as the government’s agent in the technical implementation of the program.

The BoE is expected to raise interest rates by 1% to 1.25% next week and may even follow the Federal Reserve in implementing a 0.5 percentage point hike to tackle the inflation problem of the UK.

Consumer prices were 9% higher in April than a year earlier, the highest in the G7, and inflation is expected to top 10% in the fall.

Given that the UK has nearly £500bn of public debt linked to inflation rates, the cost of servicing debt is expected to fall from £53.5bn in 2021-22 to £83bn. sterling in 2022-23.

This increase is primarily the result of higher inflation, but also reflects rising interest rates, increasing the net costs of the QE program to taxpayers.

Since its launch in 2009, QE has significantly reduced the overall cost of servicing public debt when interest rates were near zero, but will save far less money as rates rise.

The Office for Budget Responsibility, Britain’s spending watchdog, said one of the biggest risks to Britain’s public finances is exposure to interest rate risk, as QE reduces effective maturity public debt.

“Much of the impact of rising interest rates on public finances is now being felt quite quickly,” the OBR warned last year in its fiscal risk report.

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