The new Finance for the Future report ‚ÄòGreen quantitative easing’ argues for a very different form of quantitative easing to be used in future to that used to date.
It does, however, accept that there is one form of debt that does still need to be repurchaswed by the Bank of England as part of any future quantitative easing programme. as it says:
That current low cost of borrowing does, however, bring us to final issue we believe Green QE2 should address.
The first round of quantitative easing bought up debt already in issue in the market place. £199 billion of the £200 billion spent was used to buy government debt, or gilts.
As is obvious from our analysis, we have reservations about continuing buying gilts, but there is one type of debt that we do believe should be repurchased as part of the Green QE2 programme – and that is the debt issued under the Public Finance Initiative (PFI) programme.
According to data from HM Treasury reproduced by the Guardian newspaper some £56 billion of projects have now been financed by PFI at a total eventual cost of £252 billion. The ratio of cost to benefit is sufficient evidence in itself of the appallingly poor value for money inherent in these projects, many of which are now owned by banks. If cash has to be injected into the economy to provide liquidity then there can be no doubt that one of the best way to do so for the future benefit of the UK would be to buy out all PFI schemes now, at considerably less costs than QE1, but in the process reduce ongoing costs to the UK taxpayer over the next thirty years or more. The around £200 billion ‚Äòsaved’ could then at least in part be allocated instead to continue to finance Green New Deal initiatives over the decades to come. That is why we believe that this is a part of Green QE2. If new legislation to empower such arrangements is required we would argue that is a necessary price to pay to achieve this important social and financial goal for the UK as a whole.
Of course this is radical, and will require legislation to establish a formula for cancelling this debt, but the time is right. Let’s get on and do it.