It’s called the Ways and Means Facility and it resides at the Bank of England.
Ordinarily, the government would finance its borrowings either by selling gilts – UK government IOUs – or by raising money from savers via National Savings & Investments.
Anyone who buys a premium bond is, effectively, loaning money to the government.
However, there are times when the government needs to bypass the sterling money markets or gilt markets, as is the case at present.
Advertisement
Accordingly, the Treasury and the Bank of England announced today that if necessary, the facility would be extended.
Typically, the facility stands at £370m, as it has since April 2009.
It can, though, be increased rapidly should the government need cash urgently on a short-term basis to meet its outgoings.
At the height of the financial crisis, from the end of December 2008 to February 2009, it shot up to £19.9bn.
Disclosure today that the facility could be extended, if necessary, has raised eyebrows because the Bank of England is owned by the government.
It will raise concerns that the Bank of England is engaging in so-called ‘debt monetisation’ or ‘monetary financing’, in other words, effectively printing money to pay the government’s debts.
