§ Lord Spens
asked Her Majesty's Government:
Whether, in the report and accounts of the Bank of England 1993 there is any direct or indirect relationship between the increase in the Government's public deposits (increase of £1,966,818,000 or 526 per cent.) and the increase in advances to customers and banks (increase of £2,604,094,000 or 103 per cent.);
What were the underlying reasons for the increase of 532 per cent. in the Government's public deposits with the Bank of England for the year ended 28th February 1993;
Whether the increase in their public deposits with the Bank of England is an appropriate method of financing the activities of the Bank of England;
What are the terms and conditions, in general, for their deposits with the Bank of England;
What were the underlying reasons for the increase of 103 per cent. in advances to customers and banks in the accounts of the Bank of England to 28th February 1993, and whether these advances are currently running at the same level, or increasing.
The Minister of State, Department of Transport (The Earl of Caithness)
The Government use their accounts at the Bank of England to receive sterling 7WA payments of various kinds—taxes, market borrowings, receipts from the sale of foreign exchange; and from them they make their payments for accruing public expenditure, the repayment of debt and the purchase of foreign exchange. Over time, total receipts and total payments are kept in broad balance, through the operation of the full fund policy. But, in the shorter term, there can be substantial timing differences in the respective flows, requiring the Government either to draw on other sources of finance, or to find ways of absorbing a cash surplus.
Balancing the cash position of the banking system is an objective of the Bank of England's operations almost every day in the money market. In the course of those operations, the Bank acquires a stock of money market assets (such as bills and advances), which rises when the Government have a net inflow of cash, and falls when there is a net outflow.
Normally, the Government's cash position is such that they need to take some short-term financing from the Bank of England in the form of Ways and Means Advances from the Issue Department. But at times of strong sterling inflow to the Government, they may have enough cash to pay off all outstanding Ways and Means Advances, and to build up a balance in the form of a deposit by the National Loans Fund with the Banking Department of the Bank of England. The rate of interest applicable to such balances is identical with that applied to Ways and Means Advances, and is closely related to the rate of return on the assets acquired in the Bank's money market operations.
On 28th February 1993—in contrast with a year earlier—the Government's cash position was sufficiently positive for there to be the increase of some £ billion in public deposits with the Bank, to which the noble Lord has referred. The strong cash position of the Government was necessarily reflected in a higher stock of holdings by the Bank of the assets acquired in the course of money market operations.
None of the assets referred to was in any way related to support operations.