Stop some reserve-interest payments

Debt-interest channel

Reform's 2024 Contract claimed GBP 35bn a year from stopping interest on QE reserves. The policy changes monetary-policy implementation, not ordinary departmental spending.

• QE reserves are paid Bank Rate.
• Reform claimed GBP 35bn annual saving.
• Financial-stability risk is material.

Core trade-offs

Debt-interest spending may fall if reserves are tiered. Banks lose income, while monetary-policy transmission, market confidence and bank taxation may change.

• Treasury may save debt-interest costs.
• Banks and depositors may bear costs.
• Monetary-policy design becomes riskier.

Illustrative fiscal impact

-GBP 25.0bn to +GBP 5.0bn. Central estimate: -GBP 10.0bn.

• Positive numbers mean public-finance pressure; negative numbers mean Exchequer savings.
• QE reserve reform is the main scale marker.
• Gross costs and receipt offsets are separated in methodology.
• Behaviour and pass-through widen the range.
• This is not an official costing.

Economic impact by 2027-28

• Jobs: Financial-sector effects likely negative at the margin; broad jobs effect uncertain.
• Wages: No direct wage effect; banks, depositors or borrowers may bear incidence.
• Prices: If policy transmission weakens, inflation-control credibility may be affected.
• GDP / productivity: Could lower borrowing on paper, but financial instability risk makes net effect uncertain.

Assessment

Reserve-interest reform could produce real fiscal savings, but it is not a normal spending cut. It changes how monetary policy is implemented and who bears QE losses. A crude stop-payment approach risks bank balance-sheet, credibility and Bank independence costs that could outweigh apparent savings.

Confidence: Low. The fiscal channel is real, but the feasible tiering design, Bank Rate path and market response are uncertain.

Main risks

• Credibility damage: Politicising reserve remuneration could weaken Bank independence and market confidence.
• Bank incidence: Costs may pass through to depositors, borrowers or credit supply.
• Offsetting receipts: Lower bank profits can reduce corporation-tax and surcharge receipts.

Safeguards

• Use Bank-led tiering design, not retrospective confiscation.
• Publish financial-stability stress tests.
• Score bank-tax and credit-supply offsets explicitly.

Academic evidence

UK government evidence

Sources

• PolicyLens illustrative scenario methodology: Stop some reserve-interest payments Internal - PolicyLens, 2026
• A brief guide to the public finances Fiscal forecast - Office for Budget Responsibility, 2026
• Our Contract with You Party policy document - Reform UK, 2024
• Central bank reserves and government's debt interest Parliamentary briefing - House of Commons Library, 2026
• The fiscal impact of quantitative easing and quantitative tightening Fiscal forecast box - Office for Budget Responsibility, 2023
• Maintaining Central-Bank Financial Stability under New-Style Central Banking Academic working paper - Hall and Reis, NBER Working Paper, 2015
• Funding Quantitative Easing to Target Inflation Academic paper - Reis, Jackson Hole Economic Policy Symposium, 2016
• Our Policies Party policy source - Reform UK, 2026

Other Reform UK policies

• Raise income-tax thresholds
• Cut household energy taxes
• Cut fuel duty by 20p
• Cut stamp duty below GBP 750,000
• Raise inheritance-tax threshold to GBP 2m
• Cut corporation tax to 15%
• Raise VAT threshold to GBP 150,000
• Abolish IR35 rules