Quantitative easing has helped the rich get richer.
Bottom line, that was the finding of the Bank of England’s report into the distributive effects of its £375bn money-printing stimulus intended to jolt the economy back to life.
QE has boosted net household wealth by £600bn, the Bank said. Extrapolating from ONS figures on how that wealth is distributed, the richest 10pc of the population have seen a paper gain of about £129,000 per household.
To be more specific still, in terms of household financial assets, the Bank pointed out that the rich are those from the older generation pensioners and workers nearing retirement who own houses and share portfolios that account for more than half of those household assets.
In other words, as a demolition job of the angry claims by pensioner lobby groups that QE is impoverishing their members by lowering annuity rates, the report could not have been more comprehensive.
Sure, annuity rates are lower, the Bank conceded, but the other side of the same coin is that asset values are much higher. As a result, the overall effect on annuities has been “broadly neutral”.
Those who have really suffered from the Bank’s response to the financial crisis are aspirational young people looking to get on the property ladder and start saving. Record (LSE: REC.L - news) low interest rates of 0.5pc have made it harder to build up a deposit, while QE has made houses less affordable by pushing up prices.
In fact, the Bank said the only way in which QE has hurt pensions has been to increase the deficits of many final-salary schemes. But, once again, the young will be the casualties as “the burden of these deficits is likely to fall on employers and future employees, rather than those coming up for retirement now”.
Although the Bank may have silenced its grey-haired critics, the evidence of generational discrimination could throw up new problems by making more QE difficult to justify.
“By confirming that the positive wealth effects of QE are likely to have been skewed towards the better-off, the paper risks providing additional ammunition to the policy’s critics,” said Chris Crowe, UK economist at Barclays Capital.
“Apart from any distributional considerations, the fact that these consumers are [less likely] to consume … will have tended to blunt QE’s effectiveness in boosting aggregate demand.”
Numerous economic studies have shown that asset-rich individuals are less effective at boosting consumer demand than the less well-off, who are more likely to spend a windfall on the high street than on stocks and shares.
The fact the Bank has effectively chosen to favour the rich could also reignite the debate over how to operate QE. Instead of buying gilts, some economists say, the Bank should be trying to boost growth by buying other assets. As the Bank conceded, there are “distributional effects” to QE, so why not distribute them differently?
Mark Gull, co-head of asset-liability management at Pension Corporation, said: “It is time for policy to adapt and for QE to be part of the growth agenda.” He suggested using QE to encourage infrastructure investment.
The paper is unlikely to silence vocal pensioners for long. It ignored the effect QE has had on inflation, confidence and jobs. And it extrapolated the estimated gains from the first £200bn of QE linearly for the second £125bn despite strong arguments that there are diminishing returns.
The third £50bn instalment has been ignored completely. The paper may make it difficult to justify a fourth.