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Public Accounts Committee slams Treasury
As you may be aware, the Treasury Select Committee is currently holding an inquiry into Quantitative Easing. However, the Commons Public Accounts Committee – which aims to ensure the taxpayer is getting value for money – has also been looking at the role of the Treasury with respect to QE and other assorted attempts to boost the economy.
It was less than impressed. The Committee found the Treasury’s accounts so “impenetrable” that it had to call for another report to explain them! This “is of particular concern when the Treasury should be a leading proponent of clarity in financial reporting.” One MP suggested that, in future, the Treasury should get the Plain English campaign to turn their report into more accessible language.
The Committee were extremely critical of the way the Treasury had implemented various lending schemes which, had in fact, failed to increase lendin, and of the way in which it had indemnified the Bank of England against losses on Quantitative Easing. “The Treasury has limited understanding of its role in these measures,” said the Committee. “It has not set out its goals and intended outcomes, and it has limited management information to help it monitor progress, giving the impression of a series of expensive experiments indemnified with taxpayers’ money.”
The Treasury is at sea over QE
The Committee’s conclusions on Quantitative Easing were damning in the extreme. “The Treasury has not convinced us it understands either the risks it has taken on by indemnifying the Bank of England against losses on Quantitative Easing or the expected benefits. The indemnity creates substantial taxpayer exposure, but the Treasury is not clear on how Quantitative Easing is to be evaluated or what the intended outcomes are. It does not know what has happened to the amount – some £375 billion so far – injected into the economy, or how the effects might be distributed across society. The Treasury must provide more transparency on what Quantitative Easing is seeking to achieve.”
Giving evidence to the Committee, Sir Nicholas Macpherson, the Treasury Permanent Secretary, said, “When we set it up, we did not anticipate that Quantitative Easing would last as long as it has; nor did we anticipate that such a large fund would be built up.”
“When we set it up, we did not anticipate that Quantitative Easing would last as long as it has; nor did we anticipate that such a large fund would be built up.”
The Committee said it “expected the Treasury to have a better understanding of the risks it had taken on and the effects of the money injected into the economy under this measure. The only information on how it had influenced the economy was produced by the Bank of England when the scheme was £200 billion in size. The scheme now stands at £375 billion and the Treasury could not explain how the later tranches had affected the economy as a whole, how any effect was distributed across society, or how the banks had changed their behaviour after selling gilts to the Bank of England. The Treasury described the scheme as an experiment whose full result would not be known for many years.”
The Bank of England runs rings around the Treasury
You would imagine that a policy as far-reaching as Quantitative Easing – which has seen the Bank of England spend £375 billion to buy up a third of all existing government stocks – would have come about as a result of detailed discussions between our central bank and the Treasury. Yet this report makes it abundantly clear that the Treasury had only the slightest idea what it was letting the British taxpayer in for, what the results would be and what the consequences – and the eventual bill – might be.
Instead of holding the Bank of England to account, the Treasury was effectively giving it a free hand. The Bank would have appreciated the inadequacies of Treasury officials and realised that they were unlikely effectively to challenge any proposals made by Sir Mervn and his cohorts.
This is not only a devastating indictment of the most important of all government ministries but a slap in the face for the British taxpayer. It is appalling that it has taken four years for parliament to look in detail into this extraordinary financial experiment, which has had such appalling consequences for savers and pensioners and which has redistributed wealth to the wealthiest at the expense of the rest of us.
As an aside, given how rarely the interests of savers are heard on the lips of our MPs, a little kudos should go to Ian Swales, LibDem MP for Redcar who, when QE and its inflationary impact was being discussed during the evidence sessions, said: “It has also had a depressing effect for savers, of course, which affects a lot of our constituents.” An MP who appears to have been listening. Remarkable.