How Rachel Reeves Could Use Bank Of England Reserves To Boost Her Spending Power

Could reforming Bank of England reserves be a way for Rachel Reeves to raise money for ailing public services? A number of economists with links to Labour believe so.

Since winning power in July, the new Labour Government has stressed repeatedly just how dire a state the public finances are in thanks to 14 years of Conservative rule. Prime Minister Keir Starmer has warned that "painful" decisions await when Chancellor Rachel Reeves sets out the Budget in October, in order to repair what they claim is a £22bn "black hole" left by the Tories. Tax rises and spending cuts are widely believed to be on the horizon.

It is a tough message for the Government to deliver to the country at a time when public services are under strain and cost-of-living pressures continue to challenge households.

According to some left-leaning think tanks, however, there are other ways that Reeves could raise vital funds that haven't been the subject of much discussion up to now. They relate to billions of pounds held by the Bank of England.

The Treasury, funded by the taxpayer, currently pays around £40bn per year on interest repayments on BoE reserves, a figure economists broadly agree is higher than was expected when the arrangement was set up after the financial crisis in 2008. 

The Institute for Public Policy Research and the New Economics Foundation say exploring bank reserves could be a method of saving money for the Government and allow it to spend more to fund the UK's ailing public services. Former Labour prime minister Gordon Brown has has also suggested a change in the rules could free up money for ministers to spend money on areas like the NHS and schools. 

Perhaps unexpectedly, Nigel Farage's right-wing Reform UK has also expressed support.

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