A Labour-affiliated group has called for the UK government to curtail the powers of the Bank of England, citing concerns over substantial taxpayer losses linked to the central bank’s recent monetary policy actions. The group, Mainstream, which is associated with Labour’s soft-left and supported by Andy Burnham, argues that the Bank’s approach to quantitative tightening (QT) since 2022 has increased the government’s debt-servicing costs and undermined democratic fiscal oversight.

Mainstream highlights that the UK is unique among major economies in actively selling bonds acquired during the financial crisis and the COVID-19 pandemic back to investors amid a period of high interest rates. This policy, intended to reduce the Bank of England’s balance sheet, has led to significant losses due to falling bond values. The Office for Budget Responsibility estimates these losses could total approximately £164 billion over the lifetime of the assets. Because these losses are covered by direct payments from the Treasury, they effectively increase government borrowing costs.

The organisation’s report criticises this process, describing the Bank of England’s bond transactions as the accumulation of “discretionary fiscal powers” that bypass parliamentary accountability. Daniela Gabor, the report’s author and a professor of economics at SOAS University of London, stated that successive governments have experienced a loss of fiscal autonomy as a result of market pressures related to the Bank’s policies. She argued that these discretionary powers wielded by the Bank must be restrained to preserve democratic control over public finances.

Mainstream proposes the establishment of a formal coordination framework between the Treasury and the Bank of England to integrate fiscal considerations into monetary policy decisions. The network contends that the existing institutional arrangement is inadequate to manage the interaction between the two arms of economic policy effectively.

Louise Haigh, first secretary of state and an ally of Andy Burnham, has expressed support for improved coordination. In May, she commented that the timing is appropriate for the government to align fiscal and monetary policy more closely to prevent the Bank’s policies from causing undue harm to the government’s balance sheet.

The Bank of England has maintained that its monetary policy decisions, including quantitative tightening, are designed to achieve inflation targets and maintain economic stability. However, critics argue that the current approach has unintended fiscal consequences that necessitate a review of the Bank’s operational remit and its relationship with government fiscal policy.