Reform UK has called on Chancellor John Healey to scrap the Bank of England's plans to unwind its bond buying programme, arguing the move could save taxpayers close to £100 billion. Richard Tice, the party's deputy leader, has written to the Chancellor and the Leader of the House of Commons requesting an urgent full debate on the Bank's approach to selling off its gilt holdings.

The programme in question dates back to the Bank's response to the financial crisis and the Covid pandemic, during which it created money to purchase £895 billion of UK government bonds in order to support the economy. The Bank is now actively selling a portion of these bonds back to the market, often at prices considerably lower than it originally paid.

These sales have generated losses that fall on taxpayers rather than the Bank itself. Under a deal brokered by former chancellor George Osborne, the Treasury is required to backstop any losses the Bank incurs during the process of selling these bonds, meaning the cost of the current unwinding programme is ultimately borne by the public purse.

Tice's proposal centres on halting these bond sales entirely and ending the interest payments made on the money created through the original scheme. He argued that doing so could hand the Chancellor a £20 billion annual windfall, which he suggested could instead be used to fund higher defence spending. He pointed to projections from the Office for Budget Responsibility, which expects payments from the Treasury to the Bank to rise to £94 billion by 2030, arguing that halting the programme now would avoid the taxpayer incurring further losses of this scale.

In his letter, Tice argued that parliamentary intervention to redirect the Bank's approach could materially improve the public finances ahead of the forthcoming Budget, offering what he described as a realistic alternative to tax rises that might otherwise be required. He said the Bank's current strategy for unwinding its bond stockpile had already cost taxpayers well over £100 billion. He also drew an international comparison, claiming that UK taxpayer losses as a share of GDP remain roughly double those experienced in the eurozone and triple those in the United States, based on the approaches taken by the European Central Bank and the Federal Reserve respectively.

The Bank of England has firmly rejected this criticism. As part of the original quantitative easing programme, the Bank also pays interest to commercial banks on reserves they hold at the institution. Governor Andrew Bailey has warned that changing the terms of these interest payments could undermine the Bank's ability to control the price of money. Huw Pill, the Bank's chief economist, has gone further, comparing the proposed change to a bank tax that would ultimately be passed on to customers rather than absorbed by financial institutions.

Despite these objections, reducing the interest paid on reserves could, in theory, ease pressure on the public finances by lowering the government's day to day spending obligations. It is understood that the Bank will announce significant changes to its quantitative tightening programme this week, including a decision to stop selling long dated debt above 20 years that it acquired during the pandemic, alongside closer coordination with the Debt Management Office on future bond sales.

Tice's position has found some support beyond his own party. Several think tanks with links to Labour have also called for changes to the scheme. The New Economics Foundation, a left leaning organisation whose former director now serves as Energy Secretary, has argued that limiting interest paid on reserves, in line with the approach taken by the European Central Bank, could save the government £9 billion a year.

This is not the first time such proposals have been raised with the Treasury. Tice made a similar appeal to former chancellor Rachel Reeves last year. Reeves acknowledged at the time that quantitative tightening carried direct fiscal consequences, but argued that halting bond sales would simply spread losses over a longer period rather than eliminating them. She said holding the bonds for longer would incur a higher net interest cost, and pointed out that quantitative tightening reduces the sensitivity of the public finances to future changes in interest rates. She declined to hold a Commons debate on the matter.

Both the Bank of England and the Treasury declined to comment on Tice's latest intervention.

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