QE move to lower borrowing costs
Chancellor George Osborne was today handed £35bn to cut the national debt after a Government accounting change channelled cash to the Treasury from profits on the Bank of England's quantitative easing programme.
The Treasury insisted that the shift was not a backdoor attempt to help the Chancelllor meet his fiscal targets but was "a reasonable piece of cash management".
A source told PoliticsHome: "Why hold £35bn in a savings account when you have a huge overdraft?"
But Labour accused Mr Osborne of "smoke and mirrors", with Shadow Chief Secretary to the Treasury saying her party "will look very closely at how the OBR and ONS account for this change and whether it ends up costing the taxpayer more in the long-term".
The move means the Chancellor should now hit a key target for his upcoming Autumn Statement, with the public debt/GDP ratio falling, even though the accounting move will not have a "significant impact" on the public finances.
But the OBR also warned that although the initial impact on the public finances would be positive "it will turn negative as and when monetary policy tightens".
It also said the move would mean a more regular appraisal of the impact of QE on the public finances, which was "more transparent than the current system".
Markets and economists were surprised by the Bank's decision to suspend its emergency bond-purchase programme despite increasing quantitative easing in the US and eurozone central banks.
The Monetary Policy Committee has not explained its decision to pause after £375bn of bond purchases and the move raises doubts about the potential for further easing to boost the economy.