Bank of England admits its strategy is best for the rich

THE richest five per cent of households have benefited most by the Bank of England’s efforts to boost the economy by printing money, it admits.

A report into the effects of quantitative easing (QE) – pumping cash into the economy by buying government bonds – concluded that troubled final-salary pension schemes have suffered the most.

But the Bank claimed most people would have been worse off without its intervention.

Total UK household wealth has been boosted by about £600 billion as a result of its measures, the Bank said, “equivalent to around £10,000 per person if assets were evenly distributed across the population”.

While the Bank said asset purchases have boosted the value of Britons’ wealth held outside pension funds, it admitted the benefits were “heavily skewed with the top 5 per cent of households holding 40 per cent of these assets”.

Research carried out for the Bank showed the average household only has around £1,500 of gross assets, while the top 5 per cent hold an average of £175,000.

The Bank’s report, published in response to a request from the Treasury select committee for more details about the effects of its £375 billion QE programme, said: “Without the Bank’s asset purchases, most people in the UK would have been worse off.

“Economic growth would have been lower. Unemployment would have been higher. Many more companies would have gone out of business. This would have had a significant detrimental impact on savers and pensioners along with every other group in our society.”

The Bank’s strategy has hit savers hard, as they have missed out on £70bn in interest while base rates have been kept at a record low of 0.5 per cent since 2009. But it said this had been more than offset by the lower interest rates paid on loans, mortgages and credit cards.

QE has also come under fire for reducing the annuity rates paid out on private pensions, a fact acknowledged by the Bank yesterday, although it said the value of bonds and shares held in pension pots had risen.

But its claim that those who were already drawing a pension before the asset purchase programme began in 2009 had not been affected was criticised by pensions expert Ros Altmann.

Dr Altmann, who is director-general of Saga, said QE was causing “significant economic damage” and the Bank was wrong to suggest that pensioners were no worse off. She added: “It is not true that those who had already bought their annuity before QE started are unaffected.

“Given that QE, even on the Bank’s own estimates, has pushed up inflation significantly, the impact on real incomes and spending power of retirees has been damaged. The Bank seems oblivious to this effect.”

However, the Bank admitted final-salary pensions that were already running at a deficit are likely to have suffered under QE, and those that have the largest shortfalls will have seen the biggest negative impact, because “the assets and liabilities of a pension scheme rise by similar proportionate amounts”.

Many UK pension funds are in deficit, with an average shortfall of 33 per cent of assets in 2011, the Bank said. It added: “The burden of these deficits is likely to fall on employers and future employees, rather than those coming up for retirement now.”