PolicyLens

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.

View main policy page: Stop some reserve-interest payments

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.