Chancellor Rishi Sunak has been accused of losing £11 billion of taxpayers’ money that has been used to pay interest on the government’s debt.
Analysis by the National Institute of Economic Research [NIESR] shows that the chancellor did not insure against higher interest rates last year on the £895 billion that the Bank of England generated through quantitative easing.
This means that the government has been forced to pay out more interest than would have been necessary on those reserves.
NIESR director Professor Jagjit Chadha, told the Financial Times that the chancellor’s mistake had left the UK with “an enormous bill and heavy continuing exposure to interest rate risk”.
Chadha said that the government should have insured the cost of servicing its debt against the risk of losing interest rates last year, when rates stood at 0.1 per cent.
He said: “Such a lost opportunity is an unnecessary cost to the public finances at a very difficult time.
“It would have been much better to have reduced the scale of short-term liabilities earlier, as we have argued for some time, and to exploit the benefits of longer-term debt issuance. This is very much a question for the Treasury to answer.”
Chadha and his colleagues have suggested that the debt be converted into government bonds, so that ministers have longer to repay it.
The £11 billion estimate loss made by the NIESR exceeds the amount that the Conservatives accused Gordon Brown of losing between 2003 and 2010, when he sold off some of the UK’s gold reserves for lower prices.
The Treasury has said in response to the blunder that quantitative easing is down to the Bank of England.
The Treasury said: “There are long-standing arrangements around the asset purchase facility - to date £120 billion has been transferred to HM Treasury and used to reduce our debt, but we have always been aware that at some point the direction of those payments may need to reverse.
“We have a clear financing strategy to meet the government’s funding needs, which we set independently of the Bank of England’s monetary policy decisions.
“It is for the [Bank's] Monetary Policy Committee to take decisions on quantitative easing operations to meet the objectives in their remit, and we remain fully committed to their independence.”
Meanwhile, treasury minister John Glen has dismissed the claim that £11 billion of taxpayers' money was lost by not insuring against higher interest rates as "not true".
Elsewhere, the Labour party has also hit out at the chancellor over the error, with shadow treasury minister Tulip Siddiq saying that he was responsible for losing “astronomical sums” that would leave “working people picking up the cheque for his severe wastefulness while he hikes their taxes in the middle of a cost-of-living crisis.”
Siddiq added: “This government has played fast and loose with taxpayers' money. Britain deserves a government that respects public money and delivers for people across the country.”
Image taken from Wikimedia Commons
