Economy: Debt

House of Lords written question – answered on 3rd July 2012.

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Photo of Lord Stevens of Ludgate Lord Stevens of Ludgate Conservative Independent

To ask Her Majesty's Government whether they have considered cancelling the Government debt held by the Bank of England; and if so, what is their assessment of what the consequences would be.

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury

The independent Monetary Policy Committee of the Bank of England (MPC) has operational responsibility for monetary policy. The MPC makes decisions on its policy tools, including quantitative easing (QE), in order to meet the 2% inflation target in the medium term. Under QE, the Bank of England purchases assets such as gilts from the private sector, financing this by the creation of central bank reserves.

The separation of fiscal and monetary policy is a key feature of the UK's economic policy framework. To use monetary policy tools to meet fiscal objectives, such as financing government borrowing, could conflict with the MPC's objective of price stability and undermine confidence in the UK's monetary policy framework. Additionally, Government borrowing from the central bank is illegal under Article 123 of the Treaty on the Functioning of the European Union.

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