My speech on the big bond losses. ( edited)

My Lords, I wish the maiden speakers well today. Time does not permit me to give a sensible commentary  or good advice on a very complex Budget with so many small measures. Let  me just endorse the remarks of my noble friend on the Front Bench, who provided excellent analysis and very good policy advice, having had a little bit more time to do so.

Let me instead press the Minister on a very important topic that hardly ever gets debated, which is at the heart of our fiscal and monetary policy. The OBR’s latest forecast says that between 2022, when the APF last made a profit, and 2033, when it thinks the bulk of the bonds will have been sold by the PPF,the total losses will be over £220 billion. The forecast loss for 2027-28 is £14.6 billion. When I last asked the Minister about this, I was told that the Bank of England is independent, and therefore he could not give an answer on these subjects.

I refer the Minister to some correspondence on 17 September this year, when very major changes were announced in the handling of the £482 billion of bonds still held in the APF at the Bank of England. The Chancellor’s letter to the governor expressly says that he is authorising the changes, and the letter goes on to chronicle how, quite properly, there have been very serious and probably lengthy negotiations between the Treasury and the Bank about how these matters are going to be handled. I think the Commons and the Lords deserve a proper, detailed Statement from the Minister and the Government on what will be the fiscal and monetary consequences of the changes that have been agreed or are still being negotiated.

There are two in particular that time might allow me to mention. First, the decision has been made that £120 billion of longer-dated paper will no longer be sold under the quantitative tightening programme. I believe that they will rest in the APF, which means that the APF will have to last for several decades pending their eventual redemption by the Treasury. I would like to know why they are doing that. I might even agree with it—it may make some sense—but we should know the numbers and the background of how that will probably help the fiscal position.

Then there is the decision, which is still not fully detailed but which I think they intend to go ahead with about future sales of the medium-dated bonds. They will not be sold in the market next year and thereafter but sold direct to the Treasury. Why has the Chancellor accepted this and why does he wish to buy these bonds himself, direct into the Treasury? They will obviously be bought at the market price, not at the original purchase price, so it will trigger the need for the Treasury to send the loss money to the Bank of England. It will also mean that the DMO, the organisation controlled by the Treasury that issues new debt, will have to issue considerably more new debt to cover the costs of purchasing the bonds from the Bank of England. This is complicated and it does not make headlines, but these are very big numbers being moved around. We deserve an explanation of why they think it is worth moving these things around like this, and whether there is any point in doing it, given the size of the losses, which are probably going to be very big, however you arrange the accounting around them.How much extra new  debt will they issue?

Some say that these losses do not matter and that it is all very technical, a shift between government and the Bank all within the wider public sector. That misleads as it is a long-term transfer from the public sector and taxpayers to the private sector. Those people and institutions who were bright enough to sell their bonds at very high prices to the Bank and Treasury—when they were offering ridiculously high prices—will be the beneficiaries if they now buy the bonds back from the Bank and the Treasury at much lower prices. So they have a very large profit, which matches the very large loss for the taxpayer. I ask the Government to come clean and give us some explanation—what went wrong and how are they paying the bills? What will the the impact on the government’s budget ex the Bank of England? What is the impact on money and credit? Is the idea to relax money policy a bit, and to reduce losses that have to be paid for by the Treasury?