Draft Cash Ratio Deposits (Value Bands and Ratios) Order 2018

Andrew Bridgen Excerpts

Tuesday 15th May 2018 General Committees

[John Glen]

I thank the hon. Lady for her observations and challenges. As I set out at the beginning of my speech, the context was to secure sufficient funding for the Bank of England’s execution of its monetary policy and financial stability functions. I recognise that there was a range of contributions to the consultation, with 19 responses received to the informal consultation and three to the public consultation, but overall there were no substantial arguments against the proposal.

The hon. Lady raises the question whether there should be a fee-based mechanism. In any consultation there will be a range of views, but I think the consensus was on tweaking the existing model to give more assurance on the amounts that will need to be deposited, and to reflect a more responsive approach to prevailing gilt returns.

[Andrew Bridgen (North West Leicestershire) (Con)]

The Minister pointed out in his opening address that the Bank of England had suffered a deficit on the current system, as a result of lower than expected gilt yields. Will the new system allow the Bank to eliminate that deficit, or will it be carried forward?

[John Glen]

For the deficit over the last five-year period on its expenditure on these two functions, the Bank will have been obliged to find the funds from other sources within its organisation. We want to ensure that these particular functions—the monetary policy and financial stability functions—are properly funded and that there is flexibility over the amounts based on the prevailing gilts; they will be transparently and publicly available, because they are quoted all the time.

On the risk of the expansion of costs in the light of Brexit, the Government are working toward a solution that involves a long-term economic partnership. The enduring functions of the Bank of England to satisfy monetary policy and financial stability will continue. If, at some future point, the Bank of England realises further costs, it will be for the Bank to have conversations with the Treasury about the matter, but that is not anticipated. The Bank has been able to make projections over the next five years and commit to a budget that it is happy with under this model.

I have just received some advice on carried-forward costs. There are no fixed costs over five years, and there will be no carry-forward of the deficit. That will be dealt with, and we will start on the basis of the budget over the coming five years.

The hon. Lady made some wider observations about corporation tax. I think that they are out of the scope of this discussion, which is simply about the provision for this function of the Bank of England.