Stop some reserve-interest payments: calculation note

Central fiscal result

-£10.0bn - Net fiscal impact in 2027-28

Low case: -£25.0bn. High case: +£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 £35bn annual saving.
• Central case uses £15bn gross feasible saving.
• Bank-tax and credit offsets reduce this to £10bn.
• High case allows market costs to exceed savings.

Fiscal build-up, central case

• Gross reserve-interest saving: -£15.0bn
• Lower bank tax receipts: +£2.5bn
• Higher financing and implementation risk: +£2.0bn
• Administration and compensation: +£0.5bn

Central net impact: -£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: -£2.0bn. Preparation or partial implementation.
• 2027-28: -£10.0bn. Main scenario year.
• 2028-29: -£12.0bn. Behaviour and pass-through develop.
• 2029-30: -£10.0bn. Steady-state uncertainty persists.

Main source groups

• Office for Budget Responsibility, "A brief guide to the public finances" (2026): The OBR expects public receipts of about £1,235bn in 2025-26; scale check for large packages.
• Reform UK, "Our Contract with You" (2024): The Contract claims large savings from departments, QE reserves, aid, welfare and net zero; defines scenarios but needs caution.
• House of Commons Library, "Central bank reserves and government's debt interest" (2026): Used to size the affected population, baseline economic quantities and sectoral exposure.
• Office for Budget Responsibility, "The fiscal impact of quantitative easing and quantitative tightening" (2023): Used for the macro-fiscal baseline, receipts and spending context, and relevant behavioural assumptions.
• Hall and Reis, "Maintaining Central-Bank Financial Stability under New-Style Central Banking" (NBER Working Paper, 2015): Interest-paying reserves and central-bank assets create fiscal and solvency risks under new-style central banking; relevant to reserve-interest payments and Treasury indemnity risks.
• Reis, "Funding Quantitative Easing to Target Inflation" (Jackson Hole Economic Policy Symposium, 2016): QE funding through central-bank liabilities matters for inflation control and balance-sheet transmission; warns against treating reserve-interest reform as a free fiscal saving.
• Reform UK, "Our Policies" (2026): Used to define the pledge wording, policy scope and implementation scenario being modelled.