I am quoting from the Chancellor of the Exchequer’s published letter to the governor of the Bank of England, sent on 17.9.26
The letter arises from the many phases of the Bank buying bonds at high prices to drive longer term interest rates down under Quantitative easing, and now reversing the policy under Quantitative tightening to get rid of the bonds it bought so badly.
This letter gives the Bank of England permission to tackle the losses and sales of bonds.
Quotes are in “ “ .
“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.”
JR Chancellor here granting permission
“The MPC’s multi-year path for QT
I acknowledge the decision taken by the MPC to unwind the APF through an annual sales pace
of £20bn in purchase proceeds terms until gilts held for monetary policy purposes are fully
unwound by the end of 2034…….this is equivalent to an
average annual stock reduction of £46bn”
JR: this is a cut from £70 bn year to Sept 2026. Says he acknowledges but as he is paying the bills and as this affects the size of the APF which Chancellors have approved he could have approved.
“The Bank Executive’s strategy for backing banknotes
……
Given that the APF already holds gilts, and that the MPC intends to run its portfolio of APF gilts
held for monetary policy purposes to zero, I agree that it is appropriate for the Bank Executive
to set aside and retain a portion of the APF’s existing holdings to reflect anticipated banknotes
in circulation. This will avoid …….selling gilts as part of QT, which is the best outcome for
the taxpayer. I …..welcome that this avoids crystallising the upfront costs associated with
transferring the gilts across the Bank’s own balance sheet. £120bn of the longest-dated gilts
will therefore no longer be held for monetary policy purposes and so will not be unwound as
part of QT. “
JR important. this means the longest dated gilts sitting on the biggest losses will now be held to maturity to avoid taking large losses.
“I am writing to agree to the proposed changes…..
The implementation of QT
As you note in your letter, officials have been developing a model whereby all APF active gilt
sales are conducted to the government and not to the market. HM Treasury would instruct the
DMO via the Debt Management Account to purchase the APF gilts that the Bank Executive is
selling in its implementation of the MPC’s multi-year plan. Sales would be conducted at market
prices and in a pre-defined manner…… The DMO would subsequently on-sell the
gilts to the National Loans Fund for cancellation. The indemnity arrangements between HM
Treasury and the Bank would continue unchanged. HM Treasury would in due course instruct
the DMO to issue a corresponding amount of debt to finance such APF purchases through the
annual financing remit.
This sales model, whilst leaving the overall supply of gilts to the market from the public sector
unchanged, would see a return to a single public sector supplier of gilts to the market. ……
We will review progress before April 2027 such that, subject to a final decision to proceed,
implementation could begin in a way that allows this to be incorporated into the DMO’s annual
financing remit, as set by HMT.“
JR Interpretation: If they do this it takes the pressure of sales off the market and gets Treasury to buy back the bonds where they already have to pay the losses. Great deal for the Bank which gets out if a very badly bought portfolio and some reduction in losses taken by Treasury.As this will be the Treasury doing the buying it clearly is the chancellor’s decision.
I have left out some detail and various affirmations of Bank’s independence over monetary policy so it is clear this is the Chancellor signing off and approving a sales and QT programme, restating Treasury liability for the whole thing.
The Bank now acknowledges that its sales of bonds at losses has driven up interest rates a bit more.These changes will relieve a little of the pressures on UK debt.
September 18, 2026
Well said.
Was it really John Healey who prepared all these letters for him or was he just told to sign them? After all he just told the FT that he had no idea the UK finances were so bad – surely a self declaration of his own gross incompetence? He has a degree in Social and Political Science so probably is almost as innumerate and irrational as John ERM Major.
Any degree with the word “science” in the title rarely is.
Reply These letters were most likely written for him.The issue is does he understand what he is doing? the letter on inflation is a disgrace with no analysis of runaway UK energy costs from a very bad policy, and no comment on wage surge in public sector with continuing low productivity.
September 18, 2026
To reply:- indeed low productivity and so much of what they “produce” directly does positive harms anyway. THIS EVEN BEFORE any accounting for the vast harms done by extracting the funds from the private sector to pay for this state activity this killing more productive activity. Net Zero that largest lunacy here.
So the Parliamentary Committee for climate (?) wants to stop using the term “Net Zero” – call it whatever you like but it is the policy that is mad and needs a name rebranding will do nothing to endear this economic insanity to sensible voters.
September 18, 2026
LL, they always change the name when there are problems. Calder Hall…problems… Windscale…problems…Sellafied….
September 18, 2026
If this is not the language of the Chancellor or the Prime Minister it begs the question, do they actually understand it ,and who wrote it !
Reply The Chancellor signed the letter on his headed paper. Treasury officials guided by Bank official wrote it I expect.
September 18, 2026
As a chartered accountant, you would expect his opposite number Andrew Griffith to understand the letter. Perhaps he will grill John Healey in the commons over it.
I don’t believe there is a rule in the HoC that ministers aren’t allowed to be embarrassed about their ignorance.
Reply Yes, the Shadow Chancellor understands it. I hope he will press some questions, but Parliament has been sent home again. I asked the Lords Minister to tell us the losses, which are all set out by the OBR, but he said he did not know.
September 18, 2026
Healey is insignificant compared to what Trump has kicked up in the Middle East and the Arabs unable to get their oil to the rest of the world except through Suez, pushing up price of oil, and affecting the world economy. And the problem is only getting worse as Trump plays golf calling for a united Ireland.
September 18, 2026
Funny how they can do this for a liebour government but used to undermine the last government. I think the Governor of the BoE should be impartial which this one and Carney certainly weren’t.
September 18, 2026
And Trump as I predicted way back is turning out to be a significant threat to our economy (oil prices, tariffs, but oil and world economy far more concerning) and politics (reviving/refuelling socialism/WOKE popular again as reaction to Trump)
Reply Iran and the Houthis are the true threat
September 18, 2026
Oh, yeah, and Trump an existential threat to the UK calling for United Ireland.
Imagine Mrs Thatcher reacting to all this (1. Trump calling for United Ireland 2. Trump’s threat to oil and world economy and tariffs 3. Trump saying he’s reviewing his position on Falklands). Whatever she would think, one thing she would think for sure and that a man who acts like this cannot be trusted in politics).
September 18, 2026
@LifeLogic & @Reply – the style suggests as with Rachael Reeves it has the hands and the religion of ‘Trosten Bell’ previously the chief executive of the Ultra Socialist Resolution Foundation, all over it….
Bell was named as the tenth most powerful left-wing figure in the UK by the New Statesman.
September 18, 2026
The problem for Kemi, if she does announce the abolition of IHT, is that it will mainly remind every one of Osborne’s 2007 promises of £1m IHT thresholds each on becoming Chancellor only millionaires would pay IHT. When Brown abandoned his early election plans. When Sunak abandoned ship 6 months early to gift Two Tier with his huge majority the threshold was still just £325k – it had shrunk to £200k in real terms. So how will she convince voters the Tories can be trusted this time? Plus very few voters will ever pay and IHT anyway.
Personally I do not think Burnham will throw his majority away until he is forced to – in just under three years time. Dan Hodges does which rather confirms me view on this.
Reply Add in the family home allowance at £175,000 and allow for allowances for both parents and you get to £1 m for a family.
September 18, 2026
Reply – Reply
The rate is £325,000 per person John, simples.
A single person has no family home allowance, neither do couples with no children, or those who rent.
Live in a starter home in Wokingham value £300,00 even more expensive in London.
The simple and immediate answer is to exclude the primary residence from IHT.
Thus you level the playing field across the UK, and all living categories
September 18, 2026
True but only for couples married or civil partnership, with a main home and children or grand children to inherit that they want to give to. A pathetic, rather complex and very late fig leaf to con people he had delivered a bit. Osborne said “when I take office” and promised £1m threshold for each person “only millionaires will pay IHT”. A single person with no home or children now pays it at £200k in real terms.
Though it did work to scupper the dire Gordon Brown!
September 18, 2026
@Lifelogic – the UK is the 6th highest inheritance tax charging nation in the World and twice the World average.
All the Countries that are lower than the UK have more surviving and thriving industries and business. The UK Parliament is not just stealing from grieving families they are stealing the countries wealth creation. Often forcing wealth creation out of the Country
September 18, 2026
Plus energy at 5 times what it should be for good measure.
September 18, 2026
But estates of over £2m do not qualify for the Family Home Allowance, so this £1m is just window dressing.
September 18, 2026
Well done John
September 18, 2026
It seems they have finally listened to you John.
Now we have a new deck coordinator of deck chair movement on HMS Treasury I am sure he will place them in a prime position to ensure the private sector will ride them to the bottom….
It is revealing Healey/The Treasury uses the term the Public Sector debt, rather than simply the Public Debt? This small but telling use of language informs us they see the Public Sector as a debt issuance player, a stand alone, away from the wider economy over which is impacts. No doubt they have become acclimatised to simply borrowing when more ‘resource’, needed to give away, is required.
September 18, 2026
Doubt that Labour would ever acknowledge any advice from a Tory, but it’s obvious they have been talking about this for some time and earlier this week there was an article by some chap in the Graun pointing out how expensive it is but he did state that the origin of the process was started by Chancellor George Osborne in the early 2010s where the Treasury profited enormously when interest rates were falling.
September 18, 2026
Then from the Media – “Britain’s borrowing costs fell at the fastest rate in Europe and the G7 on Thursday after the Bank of England confirmed it would end sales of long-dated government debt.”
The BoE is no longer going to punish the Taxpayer due to their political manoeuvring and incompetence. Next we we have them trying to do their ‘job’ get inflation down to 2% from its 3.1%. I have never know any organisation/business were those in charge miss their targets by 55% that stay in position. That is the UK Parliaments and its chosen Governments neglect of ‘their’ duty, their ‘job’ to manage and seek value from ‘our’ money.
The BoE’s leadership seemingly in recent years has shown itself to be ‘political’ before ‘job’ – I can smell an early election to ensure they Socialist Left can maintain its destruction
September 18, 2026
If any one was sucked into believing the BoE was 100% independent and not as it always is/was controlled by the Chancellor, the Government, Parliament these latest Statements confirm its true position. The BoE is part of the political process, and all their manoeuvring is at Parliaments behest. As with Parliament it was never about the Country, the People it was always the next election
September 18, 2026
A small step in the right direction, but why so small, and why has it taken so long?
September 18, 2026
I wouldn’t dream of asserting that I understood all of that, but this sounds like good news;
I strikes me that the treasury won’t be getting much profit back though.
Why did it take so long for labour to work this out?
Reply It is all huge losses. Treasury probably did not work it out. I suspect it is a new Bank ploy to get rid of all the embarrassing bonds on losses back to the Treasury
September 18, 2026
The letters rather remind me of “find the lady”
September 18, 2026
I know what QE means but I don’t see It written here? and as for the rest there should be a key note explanation at the bottom.
Reply Will do
September 18, 2026
Congratulations; your long campaign has finally succeeded.