Reform UK demands political grip on Bank, sparking debate over independence
Nigel Farage has intensified his campaign against the Bank of England’s quantitative tightening programme, warning that taxpayers are bearing the cost of bond sales executed at heavy losses.
The Reform UK leader, joined by chairman Richard Tice, met Governor Andrew Bailey at Threadneedle Street this week to press the case that the Bank’s unwinding of quantitative easing (QE) has unfairly advantaged commercial banks while deepening the burden on the Treasury.
Treasury Losses Under the Microscope
The Bank has been shrinking its balance sheet by selling gilts accumulated during QE, a process officials argue is necessary to normalise policy. But the sales, often at prices far below their original purchase value, have translated into substantial losses.
Independent estimates suggest the cost to taxpayers is running at £18–22 billion annually. For Jeni Browne of Mortgage Finance Brokers, the episode demands closer political oversight. She said the exchange “highlights a crucial issue that deserves more public and parliamentary scrutiny.”
Concerns Over Commercial Banks
While the Bank maintains that quantitative tightening protects the long-term integrity of the public finances, critics argue that commercial lenders are profiting disproportionately from the policy mix. Browne noted that “the scale of losses from quantitative tightening, and the perception that commercial banks may have benefitted disproportionately, raises legitimate concerns.”
Matthew Arena, managing director of The Brilliant Group, agreed that concerns over the distributional effects of QT should be taken seriously, but argued there are better remedies than curtailing the Bank’s autonomy. He suggested that “if the government feels the commercial banking sector has benefited excessively, for example, a possible windfall tax on ‘excesses’ earned from that policy” could be explored, rather than weakening the central bank’s independence.
Independence in Question
Farage and Tice went further, suggesting that political oversight of monetary policy should be strengthened, even raising the prospect of placing Treasury officials on the Monetary Policy Committee. Such interventions would mark the most significant challenge to the Bank’s independence since it was enshrined under Gordon Brown in 1997.
Browne urged caution, warning that “any proposals to limit the Bank’s independence should be weighed carefully” given the vital role autonomy plays in economic stability. Arena echoed this, noting that “the Bank of England is currently one of the most transparent and accountable independent central banks in the world” and that curtailing its independence offers “minimal gains but significant downsides.” He added that history shows “central bank independence delivers better long-term outcomes for those economies in comparison to politically controlled equivalents.”
Mortgage Market Repercussions
For lenders and brokers, the implications are direct. Rising gilt yields, in part a by-product of QT, have driven swap rates higher and contributed to volatility in fixed-rate mortgage pricing. Lenders have repeatedly been forced to adjust products in response to market shifts, unsettling brokers and borrowers alike.
With rates held steady at 4 per cent in the Bank’s latest decision, industry figures will be watching closely to see whether political pressure alters the pace of QT — or whether Bailey stands firm. As Matthew Arena of The Brilliant Group observed, “these matters can be addressed in a manner that does not materially affect the Bank’s independence.”
Brokers, meanwhile, warn that undermining that independence could have broader consequences. Serena Smith of Mortgages with Serena said: “Stability and trust in our financial system rely on the Bank being free from political interference. That independence underpins mortgage markets; it’s what gives lenders the confidence to lend and homeowners the confidence to commit to long-term borrowing.”
She added that for borrowers, the debate is not just about gilt sales or stablecoins: “It’s about the cost of their mortgage and their ability to plan for the future. If monetary policy becomes a political football, we risk far more instability filtering down into household finances than the headlines suggest.” Sidebar: Why Losing Bank Independence Risks Higher Rates
The immediate effect of curbing the Bank of England’s independence might look attractive: governments under election pressure often prefer cheap credit, pushing for lower rates to stimulate growth and support asset prices. But without the Bank acting as a check, such political influence can sow longer-term instability.
Markets quickly demand a risk premium if they believe inflation will not be contained. That shows up in higher gilt yields, weaker sterling, and rising expectations of price growth, all of which push up borrowing costs for households and businesses, regardless of the Bank’s official policy rate.
History offers stark lessons. In Turkey during the 2010s, political interference kept rates low despite soaring inflation, leading to a currency crisis and far higher eventual borrowing costs. By contrast, Germany’s Bundesbank and, later, the ECB demonstrate how strong independence can anchor credibility, delivering structurally lower inflation and interest rates.
In short, central bank independence is not a technocratic nicety. It is what underpins long-term stability, trust in markets, and crucially for lenders and borrowers, affordable mortgage rates.
Other Areas of Contention: Stablecoins
While quantitative tightening dominated the meeting, Farage and Tice also pressed the Bank of England on its caution towards stablecoins. The Reform UK leaders have argued that digital currencies could boost innovation in the City, accusing the Bank of being overly risk-averse.
Matthew Arena of The Brilliant Group offered a more nuanced view. Stablecoins, he said, “are an innovation in the cryptocurrency space and one that could bring many positives,” but the risks to financial stability remain significant. The Bank’s role, he stressed, is to deliver structural stability, and that “is of immeasurable value.” Regulation, rather than rejection, should be the starting point, with “controls in place to protect end users and the financial system itself.”
