This is just stupid.

If the Gilts held by the BOE are sold – yes, sold at a loss.

If they are held – no loss, they will mature at par.

The Bank of England still holds about 30% of outstanding UK debt. It is an asset on the Bank’s book, but a liability on the UK’s Treasury. On the national account it is a matching asset/liability book entry! Doh!

The issue could be resolved by giving the Bank a coin – a Zonk. It would have a picture of the King on one side, and a face value of the outstanding gilts held by the Bank. The coin could then be an exhibit in the Bank’s excellent museum.

Debt to GDP would immediately fall to a sustainable 70%.

Why is it not happening?

Because… .

1. The Bank and Treasury are Agencies of State set to ensure things are done proper like.. They are not there to propose accounting subterfuges and slights of hand.. even though there is no reason it could not work.
2. The Labour Party and Conservatives are terrified of the consequences of Econarsonist Liz Truss. The Trussterf*ck destabilised the UK’s previous virtuous sovereign trinity – nearly destroying the Gilts market when Liability Driven Investment trades broke.
3. Notice how the discussion around new policy is not about whether they will work, but are they funded! Both parties are hamstrung and terrified of another market instability event – which anything new may trigger.

Zonk theory should work. It will not be inflationary as the money is already in system. No other investors will be hurt – they will still get 100% back at maturity. If they complain the Bank has been treated unfairly, then offer them the same – Zonks, which will be a wholly illiquid, perpetual, zero-coupon asset.