Methodology note
Stop some reserve-interest payments: calculation note
Assumptions behind the Stop some reserve-interest payments scenario. Implementation detail is incomplete, so uncertainty is explicit.
Central fiscal result
-GBP 10.0bn - Net fiscal impact in 2027-28
Low case: -GBP 25.0bn. High case: +GBP 5.0bn. Positive numbers are fiscal costs or borrowing pressure. Negative numbers are Exchequer savings or receipts.
Scenario and baseline
- Interest on some QE-created reserves is reduced or tiered.
- The Bank Rate path is not changed mechanically.
- Bank-tax receipt offsets are included.
- A full unpaid-reserve regime is not central.
Affected population
- Affected units are banks, depositors, borrowers and the Exchequer.
- QE reserves are currently remunerated at Bank Rate.
- Bank profits and lending rates may adjust.
- Monetary-policy operations become more complex.
Gross impact
- Reform claimed about GBP 35bn annual saving.
- Central case uses GBP 15bn gross feasible saving.
- Bank-tax and credit offsets reduce this to GBP 10bn.
- High case allows market costs to exceed savings.
Fiscal build-up, central case
- Gross reserve-interest saving: -GBP 15.0bn
- Lower bank tax receipts: +GBP 2.5bn
- Higher financing and implementation risk: +GBP 2.0bn
- Administration and compensation: +GBP 0.5bn
Central net impact: -GBP 10.0bn in 2027-28.
Behaviour and pass-through
- Low case assumes carefully designed tiering and limited market reaction.
- Central case assumes partial pass-through and bank-tax offsets.
- High case assumes credibility costs raise wider financing costs.
- The saving varies strongly with Bank Rate.
Phasing
- 2026-27: -GBP 2.0bn. Preparation or partial implementation.
- 2027-28: -GBP 10.0bn. Main scenario year.
- 2028-29: -GBP 12.0bn. Behaviour and pass-through develop.
- 2029-30: -GBP 10.0bn. Steady-state uncertainty persists.
Main source groups
- S1: Reform Contract claims GBP 35bn annual saving.
- S2: Commons Library explains reserves and debt-interest channel.
- S3: OBR APF box explains QE fiscal losses.
- S4: Central-bank balance-sheet studies inform fiscal-risk and inflation-control caveats.
- S5: No Bank-endorsed Reform design was found.