Question to the HM Treasury:

To ask the Chancellor of the Exchequer, with reference to the recommendations of the International Monetary Fund in its report entitled New Perspectives on Quantitative Easing and Central Bank Capital Policies, published on 17 May 2024, whether she plans to review the treatment of QE/QT profits and losses.

The Asset Purchase Facility (APF) is indemnified by HM Treasury so that all profits and losses accrued in the APF are owed to, or borne by, HM Treasury. This is in line with its financial relationship with the Bank and supports the Bank’s operational independence by allowing the MPC to make decisions on asset purchases without being constrained by the financial risk of the operations.

The advantages of HM Treasury’s indemnity arrangements were outlined in the Autumn Statement 2023 in Box 1.E, and are in line with best practice as set out in a recent IMF working paper.

https://www.gov.uk/government/publications/financial-relationship-between-the-treasury-and-the-bank-of-england

https://www.gov.uk/government/publications/autumn-statement-2023

https://www.imf.org/en/Publications/WP/Issues/2023/06/02/Quasi-Fiscal-Implications-of-Central-Bank-Crisis-Interventions-534076

Excess cash from asset purchases between 2009 and 2012 initially accrued in the APF. When it became clear that asset purchases under QE were being held for longer and at a larger scale than initially envisaged, the government decided to normalise the cash management arrangements such that any excess cash would be transferred to the Treasury on a quarterly basis. The cash transfers from the APF to the Treasury that took place until 2022 helped reduce the government’s cash requirement and the amount of gilts that would need to be issued by the DMO, therefore reducing the government’s future debt interest costs and supporting the overall position of the public finances. Cashflows were always expected to reverse as quantitative easing is unwound and gilts are sold back into the market.