The Bank of England’s Asset Purchase Facility: fiscal impacts and proposals to expand the UK Government’s fiscal space

The Bank of England created the Asset Purchase Facility (APF) after the global financial crisis of 2007–08 to implement its quantitative easing (QE) programme. However, the Bank’s recent tightening of monetary policy has caused the APF to incur substantial losses, at great cost to the public finances.

This policy brief examines the policy options available to minimise this fiscal burden and create savings that could be directed elsewhere – including towards green investment projects that are vital to creating jobs and facilitating the UK’s net zero transition.

Key messages

• The APF has cost the Treasury £61 billion since October 2022, and its total cumulative losses could reach £270 billion by 2035. This represents a significant drain on the public purse at a time when substantial public investment is needed, including to drive the UK’s transition to a net zero economy.
• A range of policy options are available to minimise the fiscal burden, from accounting adjustments that would create greater fiscal flexibility to more significant policy changes that would generate real fiscal savings.
• To create greater fiscal flexibility, the Treasury could adjust the fiscal rules to exclude APF losses from its debt targets. Alternatively, it could seek legislative changes to remove the APF’s indemnity, which would shift losses onto the Bank’s balance sheet.
• To generate real fiscal savings, the Bank could implement a ‘tiered reserves’ system, thereby reducing the amounts it transfers to commercial banks. Alternatively, the Treasury could recoup losses by imposing a windfall tax on commercial banks.
• These measures could result in substantial savings, which could be used to increase public green investment by the 1% of GDP (roughly £26 billion) needed to facilitate the UK’s transition to a net zero, climate-resilient economy. But such proposals come with risks that require careful assessment.
• As the Government experiences increasing constraints on fiscal policy, the APF’s drain on public finances is becoming increasingly burdensome and untenable.
• The Treasury and the Bank of England should carefully consider the full range of policy options available, especially those that would result in real changes to the Government’s fiscal position.