Bank of England's £120bn Bill: Power Without Accountability 2026

The Bank of England's £120bn bill for quantitative tightening has ignited a fierce debate about power without accountability in UK monetary policy. This staggering cost, quietly revealed in August, highlights a growing tension between the Bank's independence and its fiscal impact on the Treasury. As the central bank's policies increasingly affect public spending, questions arise about who truly controls the purse strings.

The Evolution of Bank of England Independence

When Labour granted the Bank of England independence in 1997, the vision was clear: the Bank would set interest rates while the Treasury managed taxation and spending. Monetary policy resided in Threadneedle Street, fiscal policy in Whitehall. This separation aimed to shield interest rate decisions from political interference. However, the landscape has shifted dramatically. The financial crisis, Covid-19, and geopolitical tensions have blurred the lines between monetary and fiscal policy, exposing flaws in the original constitutional settlement.

Quantitative Tightening: The £120bn Question

Quantitative tightening (QT) is the process of reversing quantitative easing (QE), where the Bank bought government bonds to stimulate the economy. Now, as the Bank sells those bonds, it incurs losses that the Treasury must cover. Last year alone, ministers paid the Bank £17bn to cover these arguably notional losses – more than the entire budget of the Ministry of Justice, which is grappling with a real prisons crisis. This transfer of public funds to the central bank raises serious concerns about accountability and the use of taxpayer money.

Comparing QT Costs to Public Services

The Accountability Deficit

Critics argue that the current setup gives unelected Monetary Policy Committee (MPC) members immense power over public spending without democratic oversight. Former Bank deputy governor Charlie Bean acknowledged that independence cannot justify effectively giving the MPC control over decisions with great consequences for public spending. This admission underscores the urgent need to rethink the Treasury's indemnification of the Bank and the QT strategy itself.

Key Takeaways

• The Bank of England's QT could cost the Treasury £120bn, raising accountability concerns.
• Last year, the Treasury paid £17bn to cover the Bank's losses, exceeding the Ministry of Justice budget.
• The original independence model assumed monetary policy had predictable, indirect fiscal effects.
• Former deputy governor Charlie Bean admits independence cannot justify unelected power over public spending.
• Reform is needed to align monetary policy with democratic accountability.

Rethinking Monetary Policy for a New Era

The world has changed since 1997. Financial crises, pandemics, and trade wars have made monetary policy's fiscal effects more direct and significant. The constitutional settlement must evolve to reflect this reality. Options include ending the Treasury's indemnification of the Bank, giving Parliament a greater say in QT decisions, or redesigning the Bank's mandate to include fiscal considerations. Without such reforms, the Bank of England risks operating in a democratic vacuum, wielding enormous power without corresponding accountability.

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