Think what £65 billion could be spent on!

With the pound still falling, the Bank of England has used its inflation mandate to restart Quantitative Easing – a process that, at least until a few days ago was being slowly reversed.  QE involves the Bank buying  government debt – mostly gilts –from private and institutional investors. 

Of course, technically, QE doesn’t reduce the overall size of the National Debt, but it means that in recent years more and more of it has been held by the Bank of England. In otherwords one part of the state apparatus (the Treasury) is in debt to another (the Bank). Not much to worry about surely? – there’s no reason at all why the Bank has to sell this debt back to the markets, the Treasury can simply reissue it.

QE involves the Bank of England creating new money. Many orthodox economists consider this potentially inflationary and obviously the Bank can’t keep on doing this for ever. But QE was used to prevent banks collapsing in the 2008 financial crisis and much more recently to pay for the emergency Covid spending.

The point is that now, this extra spending is being used to reduce bond yields (rates of interest on bonds ultimately determines more general rates) and to support the pound – overseas holders of sterling claims are less likely to cash them in – taking pressure off import prices. There was also concern that pension funds who depend on gilt holdings might be exposed. These things are obviously important, but they’re a response to a kamikaze economic strategy. Think what £65 billion could have spent on instead.  It’s more than the entire secondary education budget and more than twice as much as Keir Starmer is proposing to spend on a new green economy.