When the Bank's gilt matures

Between 2009 and 2021 the Monetary Policy Committee bought gilts through the Asset Purchase Facility, a subsidiary of the Bank of England. The Bank lent the Facility the money and created reserves to do it. A dealer sold the gilt. The dealer's bank was credited with reserves, and the Bank pays Bank Rate on those reserves. The gilt moved onto the Facility's books. The government's promise to pay did not disappear. The holder changed.

The Treasury indemnifies the Facility. Coupons come in. Bank Rate goes out on the reserves. The difference is settled in cash between the Facility and the Treasury. The stock, the auctions and the two units the Bank uses for it are on QE and QT.

On the maturity date the government pays the face value, £100 for each £100 nominal, to whoever holds the gilt. When that holder is the Facility, the cash goes to the Facility. The Facility uses it to repay the Bank's loan. Repaying the loan cancels the reserves that were created to buy that gilt. The Bank does not run a sale auction for a maturity. This is the passive part of the unwind.

The government still has to find the cash. That cash is in the ordinary financing plan, with the rest of the redemptions: tax revenue, or a new gilt sold by the Debt Management Office to a private investor. The new gilt is the one on Refinancing cost. The buyer of that new gilt is who now holds a claim on the government. The old gilt is gone.

In the headline debt, the Facility's gilt was already consolidated out, and the reserves were already in. Paying the face value with a new gilt swaps one public liability for the other. It does not add the face value on top of the debt a second time. The bars on How much and when? include these gilts, because that count is gilts in market hands and the Facility's holding is inside it.

There are two gaps, and the indemnity turns both into a cheque from the Treasury.

The first is the interest gap, while the gilt is held. The Facility receives the coupon. It pays the Bank Rate on the loan that funded the purchase. While Bank Rate sat below the yield on the gilts that had been bought, the surplus was paid to the Treasury. When Bank Rate rose above that yield, the Treasury paid the Facility. In the year to 28 February 2026 the Facility's income was £12.5 billion and the interest on the Bank's loan was £24.6 billion.

The second is the price gap, and it is realised when the gilt ends. Many of these gilts were bought above par, because yields were low. Maturity pays par. The difference between what was paid and the £100 that comes back is a loss on that day. A sale at a market price below par realises a larger gap, and realises it at the sale rather than at maturity. Either way the indemnity meets it in cash.

The cash is the Treasury's. It comes from tax revenue or from new borrowing, like any other payment the Treasury makes. That borrowing is on top of the new gilt that refinances the face value. The cumulative cash paid over to the Treasury peaked at £123.9 billion at the end of September 2022. The first quarterly payment the other way was in October 2022. By the end of June 2026 the net cash still with the Treasury was £16.2 billion. Further payments from the Treasury are expected until the unwind is finished.

The argument is about who writes the cheque, and when. In Britain the cheque is the Treasury's, in the quarter the gap falls due, and it counts in the deficit. The cash that reached the Treasury in the years of low Bank Rate was in the public finances then. The payments since October 2022 are that flow running back.

A second argument is the pace. Holding to maturity realises the gap between the purchase price and par, on the maturity date, and the interest gap continues until then. Selling below par realises a larger gap on the day of the sale, and ends the interest gap on that holding sooner. More sales also mean more gilts for private investors to hold. The Committee has set the pace in purchase-proceeds terms. The letters of 17 September 2026 record an annual sales pace of £20 billion on that measure, until the gilts still held for monetary policy are unwound at the end of 2034.

Those letters also change who buys a sale. Active sales are to be made to the Debt Management Office, at market prices, and then cancelled. The Office issues a corresponding amount to the market through the financing remit. Investors still end up holding a gilt. The loss is still the gap between the original purchase price and the market price, and the indemnity is unchanged. What changes is that one public body, the Office, is the seller into the market.

£120 billion of the longest-dated gilts are no longer held for monetary policy. They stay in the Facility to back banknotes, still covered by the indemnity, and they are outside that unwind. As they mature, from 2049, the Bank intends to buy replacements in the market for the Issue Department.

The same bonds, bought when yields were low, left the same interest gap once policy rates rose. Countries differ in whose balance sheet carries it, and in whether the finance ministry sends cash now.

The British choice is the quarterly cash payment. A deferred asset, a retained profit, or a one-off injection puts the same gap on a different timetable. None of them removes the gap between bonds bought at low yields and reserves that pay the policy rate.