British Chancellor Rishi Sunak has been accused of squandering £11 billion ($14bn) of taxpayers’ money by paying too much in interest while servicing the government’s debt.
The losses were the result of Mr Sunak’s failure to insure against interest rate rises on £900bn of reserves created through quantitative easing, the National Institute of Economic and Social Research said.
In the past, the Conservatives have accused Labour's former chancellor Gordon Brown of losing when he sold some of the UK’s gold reserves at rock bottom prices, but Mr Sunak's losses have exceeded this amount.
The institute’s director, Prof Jagjit Chadha, told the Financial Times that Mr Sunak’s actions had left the country with “an enormous bill and heavy continuing exposure to interest rate risk”.
Labour said the losses were “astronomical” and accused the government of “playing fast and loose” with public finances.
In response, the Treasury said it had a “clear financing strategy” in place to meet the government’s funding needs.
According to the FT report, the Bank of England created £895bn of money through the quantitative easing programme, most of which was used to buy government bonds from pension funds and other investors.
When those investors put the proceeds in commercial bank deposits at the Bank of England, it had to pay interest at its official rate.
Last year, when the official rate was still 0.1 per cent, the institute urged the government to insure the cost of servicing the debt against the risk of rising interest rates by converting it into government bonds with longer maturity.
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Prof Chadha said it had now calculated that Mr Sunak’s failure to heed its advice – despite regular warnings about the risks of higher inflation and interest rates – had cost taxpayers £11bn.
“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 told the FT.
Shadow Treasury minister Tulip Siddiq said: “These are astronomical sums for the chancellor to lose, and leaves working people picking up the cheque for his severe wastefulness while he hikes their taxes in the middle of a cost-of-living crisis.
“This government has played fast and loose with taxpayers’ money. Britain deserves a government that respects public money and delivers for people across the country.”
A Treasury spokesman said that there were 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," the spokesman said.
“We have a clear financing strategy to meet the government’s funding needs, which we set independently of the Bank of England’s monetary policy decisions.
“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.”
