Farage defends plan to end BoE payments on reserves

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Reform UK leader Nigel Farage has doubled down on his pledge to stop the Bank of England paying interest on reserves held by commercial lenders, saying: “I don’t like the banks very much because they debanked me.”

The populist party, which is leading national opinion polls, has previously called on the BoE to end the interest payments on reserves. They have swelled as a result of the bond-buying — or quantitative easing — programmes that started with the 2008-09 global financial crisis.

Holdings of UK government debt peaked in 2022 at £875bn in the wake of the Covid-19 pandemic and have since been pared back steadily under quantitative tightening.

Asked at the World Economic Forum in Davos if he intended to push ahead with the policy of ending payments, Farage said: “We’re going to do it and some of the banks won’t like it. I don’t like the banks very much because they debanked me.

“They wouldn’t give me an account and tried to force me out of the country,” he told Bloomberg News, referring to his “debanking” dispute in 2023 with Coutts.

The private bank jettisoned Farage as a client in part because of his politics, although he was offered an account with NatWest, owner of Coutts. Farage has since opened accounts with Lloyds Banking Group.

Last year, Coutts said it had paid an undisclosed sum to Farage to settle the episode, which led to the exit of Dame Alison Rose as chief executive of NatWest.

Pressed on whether Reform’s estimate of the £20bn cost to banks from an end to interest payments on reserves would be passed down to customers through higher mortgage rates, for example, Farage said: “Or they become more efficient, or they cut costs or they do whatever. They should not have had this money in the first place.

“The whole QE programme has not achieved anything very much other than to make the rich richer and the poor poorer,” he added.

The BoE is enduring losses on QT because it pays a higher interest rate on reserves than the coupon it receives on the bonds bought during QE. It is also selling bonds for a lower price than it paid. Under a 2009 deal with the Treasury, the taxpayer has indemnified the central bank for these losses.   

BoE governor Andrew Bailey has argued in the past that changing the current arrangements — while possible — could carry risks for financial stability if it weakened banks’ incentives to hold precautionary reserves.

In a letter to Rachel Reeves late last year, Bailey told the chancellor the benefits of the bond-buying programme were likely to “significantly or fully” offset its costs in the long term, after Reform called for more “debate” around the BoE’s balance sheet.

Farage was also asked whether Reform would install a new governor of the independent UK central bank if it won the next general election, which must take place by summer 2029.

“We’re going to pick different people with a different attitude towards everything to do with economic policy,” he said.

Bailey, whose term is due to end in 2028, was “a perfectly polite, nice man, but [post Brexit] they should have picked somebody who was a Brexiter to be in charge of the Bank of England and to think totally differently, especially around financial markets, financial market regulation”, Farage added.

Asked about concerns among bond investors about the impact of Reform winning the next election, Farage said that “as a former commodities trader, if there’s a big consensual view, take the opposite trade position”.

He suggested his party’s fiscal plans were similar to those adopted by then Conservative prime minister Liz Truss and chancellor Kwasi Kwarteng, whose ill-fated “mini” Budget of September 2022 triggered a jump in UK government borrowing costs and a crisis in parts of the pension system.

“I think the one big lesson from the Truss-Kwarteng budget is they did not propose to cut spending,” Farage said. “What we absolutely have to do is to say to people, ‘we are going to reduce welfare spending, we are going to reduce excessive government waste’. And I think if we do that, the markets will applaud it.”