Options to reduce the fiscal costs of monetary policy
Five ways to deal with the government's stealth subsidies to banks
15 September 2026
The Treasury is sending billions to the Bank of England each year to subsidise losses stemming from the Bank’s quantitative easing (QE) programme and its reversal. These losses are directly benefiting commercial banks and private bond investors, whilst reducing fiscal space at the upcoming budget. Yet these costs can be reduced or recouped if the Bank and Treasury are willing, indeed all of the options to reduce the fiscal costs of monetary policy set out in this briefing are already standard practice in other countries and are entirely compatible with Bank independence.
With next year marking the 30th anniversary of Bank independence, and the context in which the Bank operates having changed substantially, now is a good moment to reconsider Bank-Treasury interactions.
This briefing sets out five ways options for reducing the cost of monetary policy:
- Slowing quantitative tightening
- Allowing the Bank to absorb its own losses
- Reducing losses directly through tiered reserves
- Reforming debt management
- Reclaiming losses through a windfall tax on banks.
Image: iStock
Topics Macroeconomics
