Reform UK vs the Bank of England: The Real Fight Over Money

Banks currently get interest on the reserves they hold at the Bank of England, but Reform's latest policy initiative is to suggest we scrap those payments, saving, they claim, British taxpayers billions of pounds every year.

At first glance this sounds like common sense. Banks are sitting on piles of cash at the central bank—so why should taxpayers keep paying them interest?

But there are also some possible downsides...

The Lure of “Free Money”

Reform UK keeps pointing to the huge reserves banks have at the Bank of England. This all traces back to quantitative easing during the financial crises and the pandemic, when the Bank bought up government bonds to keep the economy afloat. That move pumped more than £750 billion into the banking system at its peak.

And since the Bank of England pays interest on those reserves, taxpayers pick up the tab.

Reform UK’s supporters claim that if the government just stopped these payments, it could unlock a mountain of cash for public services.

But Critics call this “fiscal fool’s gold.”

The headline number being quoted by Reform is £35 billion a year, but real savings would be much smaller. Interest rates will fall. Reserves will shrink. By the end of the decade, the savings could drop to under £10 billion a year, or maybe even less.W

And this might create further problems...

If governments realize they can borrow from the central bank for free, they might start relying on that trick. Economists call this “unremunerated reserves,” which basically means banks would have to leave their money at the central bank without earning anything.

That might seem like a clever way to save in the short run, but it blurs the line between monetary policy and government spending.

Central bank independence isn’t just some technical detail. It’s there to stop politicians from fiddling with money for short-term wins. Break that firewall, and you risk shaking financial markets and scaring off investors.

The Bigger Picture

This whole debate says a lot about the constant tug-of-war in economic policy: the hunt for quick fixes versus the need to keep things steady.

Reform UK’s pitch taps into real anger about the cost of quantitative easing and ballooning government debt.

But cutting off interest payments to banks could backfire, making things worse in the long run.

At the end of the day there really is no such thing as free money: someone, somewhere down the line ends up picking up the tab!