Rishi Sunak accused of wasting £11bn in government debt blunder

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Rishi Sunak has been blamed for leaving the country with a 'huge bill'. Photo: Wiktor Szymanowicz/Future Publishing via Getty
Rishi Sunak has been blamed for leaving the country with a 'huge bill'. Photo: Wiktor Szymanowicz/Future Publishing via Getty

UK chancellor of the exchequer Rishi Sunak has been accused of squandering £11bn of taxpayers’ money by paying too much money to service the government’s debt.

The National Institute of Economic and Social Research (NIESR) said the losses stem from Sunak's failure to insure against higher interest rates a year ago on nearly £900bn created through quantitative easing (QE).

Jagjit Chadha, director of NIESR, told the Financial Times that the chancellor's actions had left the country with "an enormous bill and heavy continuing exposure to interest rate risk".

"It would have been much better to have reduced the scale of short-term liabilities earlier, as we argued for some time, and to exploit the benefits of longer-term debt issuance," he added.

The Treasury said that it has "a clear financing strategy to meet the government’s funding needs, which we set independently of the Bank of England’s monetary policy decisions".

Read more: UK braced for more economic gloom amid rising inflation and falling investment

The accusations revolve around the £895bn of assets the Bank of England (BoE) has bought through the QE process, launched in the aftermath of the financial crash in 2009.

ThreadNeedle Street mainly used the cash to buy government bonds from financial markets, after which it paid interest at its official rate when investors deposited the proceeds at commercial banks deposits at the BoE.

Although the BoE decides how much QE to implement, the Treasury is responsible for managing the details of quantitative easing, acting as an agent of government in the technical implementation of the programme.

A Treasury spokesperson added: "There are long-standing arrangements around the asset purchase facility — to date £120bn 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.

"It is for the 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."

Read more: UK on brink of recession, OECD warns

Last year, the think-tank recommended that the government insured the cost of servicing debt against the risk of rising rates by converting it into government bonds with a longer maturity, the FT reported.

However, it failed to do so and with interest rates currently at 1%, NIESR calculates this has now cost the taxpayer £11bn, despite regular warning about the risks of higher inflation and interest rates on the costs of servicing the government’s debt.

"It would have been much better to have reduced the scale of short-term liabilities earlier, as we argued for some time, and to exploit the benefits of longer-term debt issuance," Chadha told the FT.

Britain's inflation rate is currently running at five times the Bank of England's 2% target after CPI inflation hit a 40-year high of 9% in April.

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