The Bank of England has agreed to provide the Treasury with an unlimited Ways & Means overdraft to temporarily extend the government’s overdraft facility to help with cashflow caused by emergency funding requirements
The Treasury and the Bank of England have agreed that the long standing Ways and Means (W&M) facility will be extended as a short-term source of additional liquidity to smooth cashflow as the government implements its 'unprecedented' financial support package to businesses, charities and individuals.
In a statement, the Treasury said: ‘The W&M facility is the government’s pre-existing overdraft at the Bank.
‘Any drawings will be repaid as soon as possible before the end of the year. HM Treasury, the Debt Management Office and the Bank will continue to cooperate closely to support the orderly functioning of the gilt and sterling money markets.’
Ordinarily, the W&M balance stands at around £370m; during the financial crash in 2008 the figure reached £19.9bn.
As recently as 18 March, two days before Chancellor Rishi Sunak's announcement of a £330bn support package for business, Bank of England governor Andrew Bailey described the W&M facility as an ‘historical feature’ and suggested that it was not a ‘frontline tool’.
The unprecedented Covid-19 package of financial grants and loans from the Covid Corporate Financing Facility (CCFF) and Coronavirus Business Interrruption Loan Scheme (CBILS) to the 80% furlough rules under the Coronavirus Job Retention Scheme (JRS) announced by the government in just over three weeks since 20 March to tackle the covid-19 pandemic is already estimated to be valued at around £500bn.
This rough figure of potential Exchequer 'outgoings' does not take into account the rising cost of welfare benefits with rising unemployment and a tenfold spike in weekly universal credit claimants.
Up to the year 2000, the W&M account played a daily role in the government’s cash management, executed by the Bank of England.
When the Debt Management Office took on responsibility for the government’s cash management in 2000, the need for daily use of W&M fell away. However, the facility remains available and has been used on a number of occasions since 2000, most notably in 2008.
The Bank of England will publish the outstanding ways and means balance every Monday.
By Philip Smith