I have pointed out before that on 17 September the Chancellor wrote an important letter to the Bank Governor granting permission and expressing agreement to the Bank now holding £120 bn of long bonds showing big losses at current prices instead of selling them, and agreeing to the Treasury buying up the other bonds instead of selling them in the market.
When I asked the Lords Minister why they were doing this I was wrongly told the Bank is independent. The Chancellor’s letter implies the opposite. Clearly the Chancellor has to agree to the Treasury buying the bonds and he has a big interest in when bonds are sold and at how big a loss as the Treasury has to pay for all losses.
Indeed the Chancellor makes clear his crucial role.
“The APF has been authorised by my predecessors to hold assets, primarily for monetary policy
purposes. In addition, and as set out below, I am today authorising a segregated portfolio of
APF gilts to be held for non-monetary policy purposes. Under the terms of the existing APF
indemnity, HM Treasury will continue to indemnify the Bank and the Bank of England Asset
Purchase Facility Fund (BEAPFF), so that any gains or losses arising out of, or in connection with,
the APF, including in relation to this segregated portfolio of APF gilts, are borne by HM Treasury.”
So why is he approving a segregated portfolio. Won’t this have to remain within the APF? Otherwise wouldn’t the APF have to transfer the bonds to another owner, triggering the losses and the Treasury guarantee against loss payments?
What is the monetary purpose of selling fewer of these bonds, and of selling the balance to the Treasury? How much will this save the Treasury in its very cost programme of paying for the losses? Let us have some clarity.