Is this the beginning of a final reckoning for the policy of quantitative easing (QE)? That was the question hanging over a debate that has already come with a £6.4 billion price tag for the UK banking sector. A thinktank report has forced a painful public conversation about the true, long-term costs of the post-crisis rescue plan.
For over a decade, the costs of QE were low and its benefits widely assumed. But the IPPR report has changed that, highlighting a £22 billion annual loss to the public purse that can no longer be ignored. Their proposal of a windfall tax on banks is the first salvo in what is likely to be a long and painful reckoning.
The market’s immediate reaction was to price in the cost of this new, uncertain future. The £6.4 billion wiped from the value of NatWest, Lloyds, and others represents the initial down payment on this long-overdue debate.
This reckoning will force policymakers to confront difficult questions. Was QE a success? Who should pay for its unintended consequences? And what replaces it? The answers will shape the UK’s economic landscape for years to come, and as Friday’s turmoil showed, the process of finding them will not be smooth.