Bean said the QE programme has already cost UK taxpayers £38bn over the last 16 months, and is expected to be as high as £200bn.
Former Bank of England deputy governor for monetary policy Charlie Bean has called on the central bank to reform its quantitative easing programme, to lessen the cost burden on taxpayers during the unwinding process.
In an interview with Bloomberg, Bean said the QE programme has already cost UK taxpayers £38bn over the last 16 months, and is expected to be as high as £200bn, as it is unwound over the next decade.
He argued for the creation of a new, lower interest rate to be paid on a portion of the £895bn of commercial bank deposits created under QE, similar to the European Central Bank's tiering of payments on reserves.
'Untested' quantitative tightening was 'leap in the dark' for Bank of England
Bean, who served as deputy governor between 2008 and 2016, said BoE members have "inflicted substantial costs on the taxpayer without adequate political legitimacy and accountability".
His comments follow a report by the Treasury Committee last week into quantitative tightening (QT), which questioned the fiscal burden of QE, as well as the ‘value for money' for taxpayers, as losses are being indemnified by quarterly transfers from the Treasury.
This is because under QE, the BoE bought £895bn of gilts and bonds between 2009 and 2021 to prop up the economy. By 2022, this resulted in total gains of £124bn, but the central bank has forecast losses of £200bn, £40bn of which this year alone, meaning the lifetime cost of QE could hover around £80bn.
The losses come from the fact that the commercial bank deposits created under QE are paid at the Bank rate, which currently stands at 5.25%, while the BoE earns around 2% on the portfolio of bonds it bought during the programme.
As a result, the central bank only makes a profit if the Bank rate is below 2%; anything above will result in a loss. Any losses will be indemnified by the Treasury, with the money coming from UK taxpayers.
BoE's Breeden: 'No evidence' quantitative tightening poses risk to financial stability
Bean said: "Fiscal risks could be moderated if the interest bill on the reserves was not so sensitive to Bank rate. So, I have some sympathy with the argument that it would have been a good idea to reduce that sensitivity by fixing the interest rate on some intra-marginal tranche of the reserves, ie, introduce tiering.
"I think it would make sense to pay something like the average level of Bank rate or the Bank's estimate of R* [the natural interest rate], say, 2% or 3%, but it would help if that had been introduced in the past rather than now, when Bank rate is far above that level."
He continued: "We have drifted into this world where central bank balance sheets are so large they have fiscal and financial stability consequences."
