Halt interest payments on QE reserves
Reform UK · what the evidence says
An independent, source-checked look at Reform UK’s policy “Halt interest payments on QE reserves” — what it would actually do across the things that affect your life. Every claim below quotes the source behind it. How this works.
Affordable housing — Little effect
minor · low confidence
This policy is primarily about central bank finances, not housing supply or affordability directly. Any fiscal savings could theoretically be redirected to housing investment, but the policy itself says nothing about this, and the actual savings are heavily disputed.
The evidence
- The policy would stop the Bank of England paying interest on QE reserves, projected to save around £35 billion per year. — reformparty.uk (manifesto) — “Reform UK will stop the Bank of England from paying interest to commercial banks on Quantitative Easing (QE) reserves, which they project would save around £35 billion per year.”
- The IFS states the policy would raise well less than £35 billion per year. — pa.media (media) — “whether a good idea or not, it would raise a lot less than £35 billion per year”
- If banks lose interest income on reserves, they may pass costs to customers through higher lending rates or lower deposit rates. — lyddonconsulting.com (media) — “if banks no longer receive interest on reserves, they would likely pass these losses on to customers through higher lending rates, lower deposit rates, or increased banking fees”
- Removing interest payments could undermine the Bank of England's ability to control interest rates. — commonslibrary.parliament.uk (government) — “stopping interest payments would severely weaken the BoE's ability to control interest rates and implement monetary policy”
Biggest unknown: Whether any fiscal savings would be directed toward affordable housing, and whether the policy's risks to monetary stability and bank lending rates would raise mortgage costs and offset any benefit.
Our reading: This policy operates at the level of central bank reserve accounting — it has no direct mechanism affecting housing supply, social housing stock, rents, or house prices. To score as 'improves' on O1, one would need to trace a chain: savings → government spending on housing → more affordable homes. That chain is entirely absent from the policy text. Meanwhile, the downside risk to O1 is real but indirect: if banks pass on lost reserve income through higher lending rates, mortgage costs could rise, worsening affordability. The monetary policy disruption risk compounds this. The IFS confirms actual savings would be well below the stated £35bn, reducing even the theoretical fiscal headroom. On balance, the policy has no stated or evident direct effect on affordable housing, a speculative positive channel with no committed link, and a credible (if uncertain) negative channel via mortgage rates. The verdict is negligible to minor negative — but confidence is low because the transmission to housing outcomes runs through several unresolved steps.
Public finances & the next generation — Mixed picture
moderate · low confidence
Stopping interest payments on QE reserves could save some money for the public finances, but independent estimates are far below the £35bn claimed and the policy risks undermining the Bank of England's monetary tools — which could push up inflation and borrowing costs, potentially costing more than it saves.
The evidence
- The policy projects annual savings of around £35 billion by stopping interest payments on QE reserves. — reformparty.uk (manifesto) — “they project would save around £35 billion per year”
- Central bank reserves stood at approximately £654 billion as of early November 2025. — commonslibrary.parliament.uk (government) — “central bank reserves stood at approximately £654 billion”
- The Treasury is already committed to indemnifying the Bank of England for losses on QE operations as Bank Rate has risen. — neweconomics.org (media) — “as Bank Rate has risen, these operations have resulted in losses, which the Treasury is committed to indemnifying”
- The IFS says the policy would raise 'a lot less than £35 billion per year', disputing the headline figure. — pa.media (media) — “whether a good idea or not, it would raise a lot less than £35 billion per year”
- An IFS report highlighted that potential savings were highly sensitive to the future path of Bank Rate. — ifs.org.uk (institutional) — “this figure was highly sensitive to the future path of Bank Rate”
- The Resolution Foundation projected a tiered-reserves system would save only £4–5 billion by 2029-30, with benefits diminishing as QT proceeds. — resolutionfoundation.org (institutional) — “a tiered reserves system could save the government £4 billion to £5 billion by 2029-30, noting that the fiscal benefits would diminish as the BoE reduces its gilt holdings through quantitative tightening”
- The House of Commons Library noted that current Bank Rate and reserve size have decreased since the initial estimate, implying lower potential savings now. — researchbriefings.files.parliament.uk (government) — “current Bank Rate and the size of reserves have decreased since Reform's initial estimate, implying lower potential savings now”
- Stopping interest payments could force the Treasury to issue new gilts to fund the Bank of England, converting a 'shadow debt' into 'real debt' and increasing the national debt. — lyddonconsulting.com (media) — “This could force the Treasury to issue new gilts to fund the BoE, effectively converting a "shadow debt" into a "real debt" and increasing the national debt”
- Undermining the Bank of England's operational independence could jeopardise fiscal credibility, potentially leading to instability and higher inflation. — capx.co (media) — “Politicising interest rate decisions and undermining the BoE's operational independence could jeopardise the UK's fiscal credibility, potentially leading to instability and higher inflation”
- Paying Bank Rate on reserves is fundamental to anchoring short-term market rates and transmitting monetary policy changes through the economy. — investmentweek.co.uk (media) — “Paying Bank Rate on reserves is fundamental to anchoring short-term market rates and ensuring that policy changes transmit effectively through the economy”
Biggest unknown: Whether the monetary-policy transmission mechanism would genuinely break down, and by how much — that determines whether the fiscal gain is net positive or net negative.
Our reading: The policy's stated saving of £35bn/year is disputed by every independent body that has assessed it. The IFS explicitly says the real figure is 'a lot less', and the Resolution Foundation's estimate for a tiered approach — closer to what international precedent supports — is only £4–5bn by 2029-30, declining further as quantitative tightening reduces the stock of reserves. The headline figure was also calculated using a Bank Rate and reserve stock that have since fallen, making it even less accurate now. On the upside for O12: there is a genuine fiscal saving available in principle — interest payments on QE reserves are a real and large cost, and the underlying mechanism of redirecting some of that to the Exchequer is real. A tiered-reserves approach, as used by the ECB and Switzerland, shows this can be done without fully wrecking monetary policy. On the downside: the policy as stated is not a tiered system — it is a full cessation. This creates serious risks. First, monetary policy could be undermined, potentially raising inflation and long-term borrowing costs, which would worsen the debt path more than the interest saving improves it. Second, there is a credible risk the Treasury would have to issue new gilts to recapitalise the Bank, converting implicit QE losses into explicit national debt — a fiscal cost that would offset savings. Third, the £240bn in OBR-projected cumulative QE losses remain regardless: this policy does not change the underlying liability. The verdict is 'mixed': there is a real (if smaller than claimed) near-term fiscal upside from reduced interest payments, but credible downside risks to monetary stability and fiscal credibility that could more than offset the gain. Confidence is low because the net fiscal effect depends critically on whether monetary transmission genuinely breaks — a parameter no cited source quantifies cleanly.
Prosperity & living standards — Hurts
moderate · low confidence
Stopping interest payments on QE reserves could save some public money, but experts warn it would likely damage the Bank of England's ability to control interest rates, push up borrowing costs for businesses and households, and threaten financial stability — all of which would harm prosperity. The fiscal saving is also much smaller than claimed.
The evidence
- The policy would stop interest payments on QE reserves and is projected to save around £35 billion per year. — reformparty.uk (manifesto) — “Reform UK will stop the Bank of England from paying interest to commercial banks on Quantitative Easing (QE) reserves, which they project would save around £35 billion per year.”
- Central bank reserves stood at approximately £654 billion as of early November 2025. — commonslibrary.parliament.uk (government) — “central bank reserves stood at approximately £654 billion”
- The IFS judges the policy would raise substantially less than the claimed £35 billion per year. — pa.media (media) — “whether a good idea or not, it would raise a lot less than £35 billion per year”
- The Resolution Foundation projected a tiered reserves system would save only £4–5 billion by 2029-30, with benefits diminishing as QT proceeds. — resolutionfoundation.org (institutional) — “a tiered reserves system could save the government £4 billion to £5 billion by 2029-30, noting that the fiscal benefits would diminish as the BoE reduces its gilt holdings through quantitative tightening”
- Paying Bank Rate on reserves is fundamental to anchoring short-term market rates and transmitting monetary policy through the economy. — investmentweek.co.uk (media) — “Paying Bank Rate on reserves is fundamental to anchoring short-term market rates and ensuring that policy changes transmit effectively through the economy”
- Experts including the Bank of England Governor warn the policy would severely weaken the BoE's ability to control interest rates and implement monetary policy. — commonslibrary.parliament.uk (government) — “stopping interest payments would severely weaken the BoE's ability to control interest rates and implement monetary policy”
- Commercial banks would likely pass the loss of reserve income to customers through higher lending rates, lower deposit rates, or increased fees. — lyddonconsulting.com (media) — “if banks no longer receive interest on reserves, they would likely pass these losses on to customers through higher lending rates, lower deposit rates, or increased banking fees”
- Removing reserve remuneration could reduce banks' incentive to hold reserves, potentially destabilising the financial system. — researchbriefings.files.parliament.uk (government) — “Removing interest payments could reduce banks' incentive to hold these reserves, potentially destabilising the financial system”
- Politicising BoE interest rate decisions could jeopardise the UK's fiscal credibility, potentially leading to instability and higher inflation. — capx.co (media) — “Politicising interest rate decisions and undermining the BoE's operational independence could jeopardise the UK's fiscal credibility, potentially leading to instability and higher inflation”
- The ECB's comparable tiered policy — seen as a safer alternative — saved only around £5.2 billion. — researchbriefings.files.parliament.uk (government) — “the European Central Bank (ECB), which stopped paying interest on minimum reserves, saving around £5.2 billion (or €6 billion)”
Biggest unknown: Whether the BoE could maintain effective monetary policy control and stable lending conditions if reserve remuneration were removed, and whether the net fiscal saving would be large enough to offset the economic damage.
Our reading: The policy's stated fiscal saving of £35 billion is disputed by independent analysts. The IFS says the true figure would be much lower; the Resolution Foundation puts a tiered variant at only £4–5 billion over several years; and the ECB's real-world comparable yielded about £5.2 billion. Even if some fiscal saving were realised, the dominant channel for O13 runs in the opposite direction. Paying Bank Rate on reserves is how the BoE anchors short-term market interest rates and transmits policy changes to the wider economy. Withdrawing remuneration would likely break this transmission mechanism: the BoE's rate decisions would no longer reliably flow through to credit markets, making monetary conditions harder to calibrate and raising the risk of inflation or recession. For O13, the key pathway is via business investment and borrowing costs: if lending rates rise (because banks pass reserve income losses to customers) and monetary policy becomes less effective, the cost of credit to firms rises, investment falls, productivity stagnates, and real living standards suffer. Financial stability risks compound this — reserves underpin banks' liquidity management, and reduced incentives to hold them could trigger systemic stress that directly destroys economic opportunity and mobility. Confidence is low because the precise magnitude of monetary disruption is genuinely uncertain; some economists favour variants of this policy (tiered reserves), and a well-designed partial reform might avoid the worst transmission damage. But the full cessation proposed, without a tiered safeguard, carries serious documented risks to exactly the investment conditions and lending environment on which O13 depends. The fiscal upside is too contested and too small relative to these risks to tilt the balance.
Cost of living — Genuinely contested
n/a · low confidence
This policy claims to save £35 billion a year by stopping interest payments on Bank of England reserves, but experts say the real saving is likely far lower — and the side-effects could push up borrowing costs and prices for ordinary households. Whether it helps or hurts people's cost of living depends on contested economic questions no one can resolve with confidence.
The evidence
- The policy would stop the Bank of England paying interest on QE reserves, saving around £35 billion per year. — reformparty.uk (manifesto) — “Reform UK will stop the Bank of England from paying interest to commercial banks on Quantitative Easing (QE) reserves, which they project would save around £35 billion per year.”
- Central bank reserves stood at approximately £654 billion as of early November 2025, down from around £697.6 billion in June 2024. — commonslibrary.parliament.uk (government) — “central bank reserves stood at approximately £654 billion”
- The IFS says the policy would raise 'a lot less than £35 billion per year', meaning the headline saving is overstated. — pa.media (media) — “whether a good idea or not, it would raise a lot less than £35 billion per year”
- The Resolution Foundation estimated a tiered reserves system would save only £4–5 billion by 2029-30, with benefits diminishing as QE unwinds. — resolutionfoundation.org (institutional) — “a tiered reserves system could save the government £4 billion to £5 billion by 2029-30, noting that the fiscal benefits would diminish as the BoE reduces its gilt holdings through quantitative tightening (QT)”
- The House of Commons Library noted that reserves and Bank Rate have fallen since Reform's estimate was made, implying lower potential savings now. — researchbriefings.files.parliament.uk (government) — “current Bank Rate and the size of reserves have decreased since Reform's initial estimate, implying lower potential savings now”
- If banks no longer receive interest on reserves, they would likely pass losses to customers through higher lending rates, lower deposit rates, or increased fees. — lyddonconsulting.com (media) — “if banks no longer receive interest on reserves, they would likely pass these losses on to customers through higher lending rates, lower deposit rates, or increased banking fees”
- Stopping interest payments could undermine the Bank of England's ability to control interest rates and transmit monetary policy through the economy. — commonslibrary.parliament.uk (government) — “stopping interest payments would severely weaken the BoE's ability to control interest rates and implement monetary policy”
- Loss of monetary policy transmission could lead to higher inflation, directly harming cost of living. — capx.co (media) — “Politicising interest rate decisions and undermining the BoE's operational independence could jeopardise the UK's fiscal credibility, potentially leading to instability and higher inflation”
Biggest unknown: Whether banks would pass lost reserve income onto customers through higher lending rates or lower deposit rates — which would directly raise household borrowing costs and worsen cost of living.
Our reading: The policy's stated rationale — freeing up £35 billion a year — is the mechanism by which it might improve cost of living, either by enabling tax cuts or public spending. But the IFS and Resolution Foundation both project the actual saving is far smaller, and the House of Commons Library notes the headline figure is already outdated. This deflates the potential upside materially. On the downside, the more serious risk to O2 is the projected pass-through: if commercial banks lose interest income on reserves, the evidence suggests they would recover it by raising lending rates or cutting deposit rates, directly increasing household borrowing costs and reducing returns on savings. This is a concrete cost-of-living mechanism working in the wrong direction for ordinary households. Beyond that, disruption to the Bank of England's monetary policy transmission — flagged by the Bank's own Governor and multiple analysts — could weaken inflation control, which is the single biggest driver of cost-of-living pressure. These two projected harms are credible and structurally grounded, but their magnitude depends on how banks respond and whether policy disruption is short-lived or sustained. Both the upside (fiscal saving recycled to households) and the downside (higher borrowing costs, inflation risk) are plausible but unresolved by the evidence. No credible source provides a net household-level cost-of-living estimate. The verdict is genuinely too uncertain — not a hedge, but a reflection that the crux parameters span ranges that honest analysis cannot resolve.