Questions for you financial gurus...

TRUSt_NO_1_2

When the government borrows money:

1. Does it borrow it from the Bank of England ?

2. Does it pay interest on those borrowings ?

3. Who owns the assets of the Bank of England ?

Thanks in anticipation...

jon3001

I think, at least in part, they sell gilts to investors (private, institutional, etc).

TRUSt_NO_1_2

jon3001 wrote: »

I think, at least in part, they sell gilts to investors (private, institutional, etc).

I looked up gilts and found this on the DMO website

3 The DMO’s business plan therefore includes the following key themes for 2008-09:
• The delivery of the debt and cash management remits – which, because of the
special factors relating to the repayment of both the Bank of England’s loans to
Northern Rock and the Ways and Means advance, will require £80bn of gilts to
be sold through 41 auctions.

This seems to say the answer to Q1 ( Does the government borrow from the Bank of England ?) .....is ..... YES

Just Q2 and Q3 to go now

opinions4u

Government borrows from the people via National Savings and via the issue of various bonds, gilts and other securities by the Bank of England.

Interest is payable on these and bonds, gilts, etc can usually be traded.

The Bank of England is not technically owned by the Government, but this is effectively a technicality as it is a key instrument of fiscal policy in the UK.

purch

The Bank of England is not technically owned by the Government

http://www.bankofengland.co.uk/about/parliament/index.htm

"As a public organisation, wholly-owned by Government, and with a significant public policy role, the Bank is accountable to Parliament"

HM Government maintains two Bank accounts with the BOE. The Consolidated Fund is the 'Current Account' and National Loan Fund is the account for borrowings and lendings. The Ways and Means Advance was money borrowed from the Bank of England by the National Loan Fund to balance the account in the short term. (an averdraft facility) This amount was at least £13 billion 10 years ago, but has now been paid off as the result of a £6 billion repayment in January 2008 and a further £7 billion in April 2008 made by the Debt Management Office.

The Bank holds about £2.5 billion in Gilts and £1 billion in other Supranational Bonds that the UK has a small part in guaranteeing. Technically this makes the Bank a lender to HM Gov, as are all holders of Gilts.

Northern Rock has outstanding loans from the Bank of at least £25 billion, and as it is currently owned by HM Gov then again technically the Bank has lent these funds to HM Gov.

Anyway................thats not the answer Truss is looking for..

According to the website he gets all his info from, the answers are;

1. Yes
2. No
3. The Rothschilds

:T :T :T

TRUSt_NO_1_2

purch wrote: »

http://www.bankofengland.co.uk/about/parliament/index.htm

"As a public organisation, wholly-owned by Government, and with a significant public policy role, the Bank is accountable to Parliament"

HM Government maintains two Bank accounts with the BOE. The Consolidated Fund is the 'Current Account' and National Loan Fund is the account for borrowings and lendings. The Ways and Means Advance was money borrowed from the Bank of England by the National Loan Fund to balance the account in the short term. (an averdraft facility) This amount was at least £13 billion 10 years ago, but has now been paid off as the result of a £6 billion repayment in January 2008 and a further £7 billion in April 2008 made by the Debt Management Office.

The Bank holds about £2.5 billion in Gilts and £1 billion in other Supranational Bonds that the UK has a small part in guaranteeing. Technically this makes the Bank a lender to HM Gov, as are all holders of Gilts.

Northern Rock has outstanding loans from the Bank of at least £25 billion, and as it is currently owned by HM Gov then again technically the Bank has lent these funds to HM Gov.

Anyway................thats not the answer Truss is looking for..

According to the website he gets all his info from, the answers are;

1. Yes
2. No
3. The Rothschilds

:T :T :T

Hey purch..thanks..some info .

However I am confused by the fact that the government appears to borrow money from itself.
The government owns the B of E (correct me if I'm wrong,as I too saw the website you referenced above) and therefore the B of E is in effect a government department ...I was going to call it the Treasurer,but they already have one of those.

The Bank of England still possesses the right to 'print' money,so in effect the government could create £25 billion and lend it to Northern Rock ?
So why does the government have debt if it can 'print' (electronically) money at will ?
I know the B of E was Nationalised in 1946,but 'in May 1997 The Governor and Company of the Bank of England regained their independence from Nationalisation and operate within the United Kingdom with autonomy from Government but under charter to it'
so ,forgetting question 2 for now.....

Are all the B of E assets owned outright by the government or by private individuals ?

esbo

Hmmm I think the government borrows from the treasury via the DMO debt managment office, it used to borrow from the BOE but that changed, however they are all really just government departmants so you can call them what you like eg the BFFMD big !!!!!!! financal mess dept.

Basically the gov borrow from any fooker who daft enough to lend to it and does it pay interest? Well would you lend to it if I didn't? I don't think you would.

TRUSt_NO_1_2

TRUSt_NO_1 wrote: »

Are all the B of E assets owned outright by the government or by private individuals ?

Reason for still asking despite the fact that the government 'wholly owns' the B of E....

If the B of E at the drop of a hat can dump £30 billion into the money markets over-night of what is tax payers money, as they are 'wholly owned ' by the government, (20 % of annual income tax revenues) surely someone in government would be saying ...would you mind running it past parliament first ?

It does not 'stack up'.

Can anyone provide links to the terms of the bill in 1946 when the bank was nationalised...that is assuming there was a bill and not a behind doors 'agreement' ?

The Federal Reserve in the US is a private bank,owned NOT by the US government but private individuals.
It was modelled on the Bank of England.

purch

An Act to bring the capital stock of the Bank of England into public ownership and bring the
Bank under public control, to make provision with respect to the relations between the
Treasury, the Bank of England and other banks and for purposes connected with the matters

aforesaid. [14 February 1946]

http://www.bankofengland.co.uk/about/legislation/1946act.pdf

the B of E is in effect a government department

In think you might be confusing the functions of the Central Bank, and the fact that it is a Nationalised institution.

Nationalised Institutions run themselves autonomously of the Government that owns them, and the Bank is not different.

The Charter under which the Bank of England operates clearly states the functions of the Bank, and the 1998 Charter, plus the act of Parliament that went alongside clearly states the Independance of the bank in Monetary policy.

The Bank does not need to run it's day to day Monetary functions passed Parliament, because it's Charter and the supporting Act say's it doesn't have to.

The N.H.S. is not managed on a day to day basis by Parliament, so why should the Bank be ?

The Federal Reserve in the US is a private bank,owned NOT by the US government but private individuals.
It was modelled on the Bank of England

Yes.......but the Bank of England of 100 years ago is very different to the Bank of England of today.

In my opinion the Fed is a dinosaur from a different age......the way that Banking has evolved in the U.S. makes the whole Federal Reserve system redundant. Hopefully this latest situation will make the US Government update their Central Bank into one fit for the 21st century !!!!

wheredoesallthetimego

The government also borrows against the future - a favourite ploy of the current incumbants.

PFI is a very expensive way of constructing but the immediate cost is low against a high future cost. It's supposedly cost effective due to a factor included to decrease the estimated cost of PFI projects. The main benefit is that it doesn't appear on the books as a liability as yet - a scam that is going to be stopped when the EU changes the accounting procdures, this was deayed about the same time as the UK ageed the non-constitution - no connection surely.

Another one is taking money out of pension funds due to overfunding by estimated growth. The fund is then guaranteed by the government which brings in a future liability if the growth isn't as expected. Problem is that if you rely on everage growth rates but take money out when growth is high it can't possibly meet the average.

Understating pension liability is another one. Keeps ministers and civil service happy as they get increased pensions but at some point the extra funds need to be materialised.

A lot of centrally funded expenses has moved to local funding - means that the income tax can be reduced at the expense of council tax. In addition under estimate the local population so that payment to local councils can be reduced and you get a situation where local projects cannot be funded - this will probably have to be rectified at higher cost in the future.

There are a lot of dubious accounting practices that the government has employed which a company shouldn't get away with - a lot are very Enron-like. I would expect the books to look very different in 5-10 years and wonder what the tax revenue will need to be to cope with it.

TRUSt_NO_1_2

purch wrote: »

An Act to bring the capital stock of the Bank of England into public ownership and bring the

Bank under public control, to make provision with respect to the relations between the
Treasury, the Bank of England and other banks and for purposes connected with the matters

aforesaid. [14 February 1946]

http://www.bankofengland.co.uk/about/legislation/1946act.pdf


....

The 1946 acts states...

1 Transfer of Bank stock to the Treasury
(1) On the appointed day –
(a) the whole of the existing capital stock of the Bank (hereinafter referred to as “Bank stock”) shall, by virtue of this section, be transferred, free of all trusts, liabilities and incumbrances, to such person as the Treasury may by order nominate,(3) to be held by that person on behalf of the Treasury;

(b) the Treasury shall issue, to the person who immediately before the appointed day is registered in the books of the Bank as the holder of any Bank stock, the equivalent amount of stock created by the Treasury for the purpose (hereinafter referred to as the “Government stock”).
(2) The Government stock shall bear interest at the rate of three per cent. per annum; and the equivalent amount of Government stock shall, in relation to any person, be taken to be such that the sum payable annually by way of interest thereon is equal to the average annual gross dividend declared during the period of twenty years immediately preceding the thirty-first day of March, nineteen hundred and forty-five, upon the amount of Bank stock of
which that person was the registered holder immediately before the appointed day.
(3) The Government stock may be redeemed at par by the Treasury on or at any time after the fifth day of April, nineteen hundred and sixty-six, after giving not less than three months’
notice in the London Gazette of their intention to do so.
(4) After the appointed day, no dividends on Bank stock shall be declared but in lieu of any such dividends the Bank shall pay to the Treasury, on every fifth day of April and of October,[a sum equal to 25 per cent of the Bank’s net profits for its previous financial year, or such other sum as the Treasury and the Bank may agree.]

My interpetation
1 and 2) The B of E shareholders were given government stock yielding annually 3% as compensation,that would equate to the average gross profit for previous 25 years..fair do's...compensate the shareholders.

4) No future dividends...but still NET profit...of which only 50% is passed onto the Treasury.

Where does the other 50% go ?

Which also makes me refer back to Q2 of original post...does HM Government pay interest on money borrowed from B of E ?

Addendum:
Interestingly section 14 of 1946 Act....
14. [Any sum paid by the Bank to the Treasury in lieu of dividends shall be allowed as a deduction in assessing the Bank to corporation tax for the accounting period by reference to which the payment is calculated.]

Why would they pay corportion tax ?

Addendum 2 :
I'm sorry purch,but I still 'smell a rat' here.
This bill was passed not long after World War II had ended.Every member of the public was far too busy 'making babies' to take much notice of what was going on in parliament.The politicians could probably get away with anything at the time.

Addendum 3
Spooky...talking of 'making babies' ' .....just checked the date of the Act.....it was on Valentine's Day.....!!!!!!!!!!!!!!!!! ....a good day to pass a bill !!!!!
Everybody in Britain was getting laid (screwed)