Jacob Rees-Mogg has accused the Bank of England of “miserable incompetence” over its failure to reduce inflation more quickly and its bond-selling strategy, as rightwing Tories prepare to renew their attacks on the Bank’s independence.
The former business secretary accused the Bank of damaging the economy with its interest rate decisions and costing the taxpayer tens of billions of pounds by selling off government debt too quickly in an attempt to reduce its balance sheet – a policy known as quantitative tightening (QT).
His comments came as members of Conservative Way Forward, a Thatcherite group of Tory MPs, prepared to launch a report that once more called into question the Bank’s independence, echoing criticism levied at the bank by the former prime minister Liz Truss.
Rees-Mogg said: “Quantitative tightening is not part of the Bank’s independent monetary strategy. It is a joint policy between it and the government funded by tax. This year it could cost £46bn because the Bank has failed again.
“Its miserable incompetence allowed inflation to peak at almost six times its target rate and now it is demanding higher taxes because of its hopeless bond trading strategy. It makes Nick Leeson, who bankrupted [the London-based bank] Barings, look clever.”
The Bank of England has been contacted for comment.
Relations between the Bank and the right of the Tory party have been fractious since Liz Truss’s short tenure in Downing Street, during which she considered sacking its top bosses, she later admitted.
Many Conservatives have criticised the Bank for not raising interest rates more quickly, a decision they said had led to monetary policymakers having to keep them higher for longer than in other countries. The Bank decided last week to keep the base rate at 5.25%.
Truss’s allies have since called for decisions on interest rates to be handed back to ministers, more than 25 years after they were taken out of the reach of government by Gordon Brown.
On Tuesday members of Conservative Way Forward will call for a review into the Bank’s independence as part of a report that focuses on the losses made by the Bank’s quantitative tightening policy.
Like other central banks, the Bank of England began buying up government debt in the wake of the 2008 crash in an attempt to stimulate the economy. It is now seeking to undo those purchases, in part to give it more room to repeat them in the event of another financial crisis.
Unlike other central banks, however, the Bank has decided not to let the bonds it holds expire naturally, but instead to sell them into the private market more quickly, with any losses incurred being footed by the taxpayer. Earlier this year, Harriett Baldwin, the chair of the cross-party Treasury select committee, called the policy a “leap in the dark for the British economy”.
Tuesday’s report will deepen the pressure on the Bank to change course. The report’s authors highlight a recent forecast by the Bank that it will make a cashflow loss in 2024 of £46bn, pointing out such an amount of money would cover the daily budgets of the five of the government’s biggest departments combined.
Greg Smith, the chair of Conservative Way Forward, said: “The Bank of England is pursuing a QT policy that is out of step with what the world’s major central banks are doing, and this is causing huge losses to the taxpayer.”
A spokesperson for the Bank said: “Up until September 2022, the Bank sent £123.9bn to HM Treasury, and it was always recognised that payments would reverse in future.
“The Bank also pays billions of pounds in seigniorage income [the difference between what it costs to produce currency and how much the currency is worth] from the issuance of banknotes to the Treasury, which other central banks retain to balance their books.
“Future payments are highly uncertain and stopping active sales won’t necessarily change the lifetime profit or loss of the Asset Purchase Faciility.”
