Notification of contingent liability

HM Treasury written statement – made on 5th September 2017.

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Photo of Philip Hammond Philip Hammond The Chancellor of the Exchequer

The Governor of the Bank of England requested on 3 August 2017 to raise the limit on purchases that may be undertaken by the Asset Purchase Facility (APF). This will ensure that the Term Funding Scheme (TFS) can continue to lend central bank reserves to banks and building societies during a defined drawdown window at rates close to Bank Rate, to ensure that the very low level of Bank Rate is passed through to households and businesses.

When the Monetary Policy Committee (MPC) first introduced the scheme in August 2016, I agreed with the Governor of the Bank of England that total TFS drawings would be determined by usage of the scheme. I have therefore authorised an increase in the total size of the APF used to finance the TFS from £100 billion to £115 billion, in line with the current profile of TFS drawings and based on a drawdown window that will close at the end of February 2018. This will bring the maximum size of the APF to £560 billion.

In line with the requirements in the MPC remit, the amendments to the APF that could affect the allocation of credit and pose risks to the Exchequer have been discussed with Treasury officials. The risk control framework previously agreed with the Treasury will remain in place.

The Government will continue to indemnify the Bank and the APF from any losses arising out of, or in connection with, the Facility. If the liability is called, provision for any payment will be sought through the normal Supply procedure.

On 3 August 2017 I wrote to the Chairs of the Public Accounts Committee and Treasury Committee and invited them to raise any objections to my decision. A full departmental Minute is laid in the House of Commons providing more detail on this contingent liability.

This statement has also been made in the House of Lords: HLWS110