Reform UK Proposes £40 Billion Tax Cut by Ending BoE Interest Payments to Banks

The party suggests raising the annual income tax threshold to 20,000 pounds, a significant increase from the current 12,570 pounds.

Britain’s right-wing Reform UK party, led by Brexit campaigner Nigel Farage, has proposed a substantial 40 billion-pound ($51 billion) tax cut, aiming to fund it by eliminating interest payments to banks from the Bank of England (BoE).

Currently, Reform UK is third in pre-election opinion polls, adding to the challenges faced by the ruling Conservatives.

The party suggests raising the annual income tax threshold to 20,000 pounds, a significant increase from the current 12,570 pounds.

Richard Tice, the party’s chairman, argued that this move would invigorate the economy and stop what he described as the BoE’s “gross negligence” of paying tens of billions to banks through its quantitative easing (QE) program, funded by taxpayers.

“This is real cash, your money, being used to enrich the City of London,” Tice stated at a news conference.

The BoE’s QE program involved purchasing 875 billion pounds of government bonds with fixed interest rates, financed by cash on which the BoE pays interest at its main rate, now at a 16-year peak.

Some former BoE officials have suggested that banks should earn interest on only a portion of their deposits at the BoE.

However, Governor Andrew Bailey has warned that such a measure could hinder the BoE’s ability to manage the economy through interest rate adjustments.

Additionally, Finance Minister Jeremy Hunt believes it could damage Britain’s competitiveness in financial services.

This debate remains pertinent due to the incoming government’s challenge to enhance public services without exacerbating Britain’s debt.

Both the Conservatives and the main opposition Labour Party, poised to win the July 4 election, have ruled out increasing income tax, national insurance, and value-added tax rates.

Capital Economics, a consultancy, estimates a potential annual saving of up to 40 billion pounds if the BoE ceases all interest payments on bank reserves.

However, this figure is expected to decrease to around 17 billion pounds as interest rates decline and the BoE sells more bonds bought under QE.

They suggest a partial or tiered system might be more feasible than completely ending interest payments.

“Even so, this would still be a chunky source of revenue for the government,” Capital noted in a June 5 client memo.

“As this would effectively be a tax on banks, it may marginally reduce the supply of credit.”

Reform UK is unlikely to secure many parliamentary seats, yet its proposals are intensifying the pressure on the Conservatives by further dividing Britain’s right-of-centre electorate.