GJMarshy
TS Member
Not the BoE (Bank of England) per-se, but the politics around it. For most CapEx (Capital Expenditure) projects, e.g. HS2, power plants etc, the funding ultimately comes from government borrowing via gilts (basically IOUs govt "sells" to markets + interest), with the BoE influencing conditions in the background by setting the cost of that borrowing and by choosing how many gilts it’s willing to hold itself. In practice this means a large part of the government’s “borrowing” ends up being from its own central bank anyway, even if that isn’t how it’s presented publicly.
As an example of wilful deception by politicians we only need look at the cancellation of HS2, which however you feel about it was cancelled under the premise of "That money will be freed up to be spent elsewhere" which is fundamentally untrue. So those are the kind of politics we're dealing with. Whatever's the most convenient public sell, which happens to be the "Household budget" analogy. Why? Because it's what the vast majority of people can actually relate to.
Right now a significant share of government debt is held by the BoE as a result of recent QE programmes, with the rest being made up of gilts bought by the financial markets. Typically government have viewed selling gilts (their debt) to the markets as positive, as it gives markets a place to grow their money (pension funds etc) with minimal risk. A mutually beneficial arrangement if you like!
More recently though, especially during/following the pandemic, the government effectively had around £450 billion of its debt purchased by the BoE. Surprisingly (to quite a few economists), it didn't result in mass inflation on its own OR hit the bond markets hard. If anything, it helped them by stabilising the economy they rely on to stay profitable.
So it's not a case of "We should borrow everything from the BoE" but that we should be more willing to use the fact that a sovereign currency-issuing government can, in effect, borrow from itself to invest — and then use tax to manage inflation and ensure things stay balanced.
The major sticking point with this isn't that it's not possible, but that no government wants to risk doing it, have one major project flop (which could be to do with a vast variety of reasons), and then be blamed for "fiscal irresponsibility", even if that wasn't the cause.
Essentially it requires government to take more ownership (in both senses!) of our economy's finances, rather than relying solely on markets, which makes the optics of "difficult choices" easier to sell to the public. No one wants to think their pension is being risked because a government ignored the markets.
So is it a tough sell? Yes. Is it doable? Totally.
Many other countries do it. They understand and take ownership of the fortunate position they hold. We should too!
*Edit: I realised I didn't answer your question on paying the deficit: No. We don't pay off the deficit. We just continue to borrow enough to fill the gap between spending and tax. The vast majority of talk around "Deficit" is simply to help with political optics. So yes, maybe some gloves over some eyeballs (and ears).
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