Sunak 'wasted £11bn' on debt repayments says UK think tank
By Frank Prenesti
Date: Friday 10 Jun 2022
(Sharecast News) - UK finance minister Rishi Sunak "wasted" £11bn in taxpayer cash to pay interest on government debt, a think tank said on Friday.
The National Institute of Economic and Social Research said Treasury had failed to insure against interest rate rises, meaning higher payments on £900bn created through the quantitative easing (QE) programme.
NIESR director Jagjit Chadha, told the Financial Times Sunak's failure to act had left the country with "an enormous bill and heavy continuing exposure to interest rate risk".
The Bank of England created £895bn of money through quantitative easing. Most of this 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, it had to pay interest at its official interest rate.
The NIESR last year said the government should have insured the cost of servicing this debt - when rates were at 0.1% - against the risk of rising interest rates.
It said interest payments have "now become much more expensive" and it estimates the loss over the past year at around £11bn.
"Such a lost opportunity is an unnecessary cost to the public finances at a very difficult time," the think tank said.
It suggested converting the debt into government bonds with longer to pay it back.
"It would have been much better to have reduced the scale of short-term liabilities earlier, as we have argued for some time, and to exploit the benefits of longer-term debt issuance. This is very much a question for the Treasury to answer," Chadha said.
The Treasury said it would not have been commercially viable to convert such a high level of debt.
"The £11bn figure is based on the implausible assumption that it would be possible to undertake action of this scale in a single transaction," it added.
Reporting by Frank Prenesti at Sharecast.
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