Bank of England makes record £1bn annual profit

The Bank of England has bucked the trend and turned a £995m pre-tax profit for 2008, its biggest since it was founded in 1694. The five-fold surge in earnings from £197m in 2007 came as a result of its increased lending, as high street banks struggled for funds.

A spokesman for the Bank said that the boost to profits was a by-product of its rescue of the financial system rather than an eye for the bottom line, adding "It is entirely right that it charges fees to set the right incentives for financial institutions to use its facilities, and protect itself and taxpayers from potential credit risk."

After tax half the Bank’s earnings go to the Treasury in two parts twice a year, while the other half goes into its own reserves.

However the bank's earnings are likely to cause controversy as some feel that the terms attached to the fund injections are draconian.

According to figures provided by the Bank, it earned £7m from the rescue of Bradford & Bingley and £4m from its Northern Rock support measures. It has also earned  big sum from the Special Liquidity Scheme, booking £664m in related profits for the year, and holds £287bn of illiquid assets as a result of its asset swaps.

Some will also feel that the size of governor Mervyn King's pension fund, at £5.4m, needs to bejustified. It increased by more than 10 per cent last year and will pay him just under £200,000 a year. His salary increased by 2.5 per cent to £298,000, giving him a very generous pension payent of two-thirds of salary.

Overall the Bank increased bonus and 'special' payments during the period to 8.1 per cent of salaries.

WHAT THEY ARE SAYING
Colin Ellis, economist at Daiwa Securities SMBC Europe, quoted on Bloomberg.com: "Clearly the bank is under a lot of pressure at the moment. You may not agree with all the policy decisions they’ve taken but I have no question in my mind that the bank staff work incredibly hard, so I’m not sure that you can begrudge them their bonuses. They surely deserve it."

Lait Khalaf, pension expert at Hargreaves Lansdown, in the Daily Telegraph: "The governor's pension is very valuable. These figures demonstrate that the pension funds of the public sector, particularly in senior roles, can actually dwarf their already substantial salary. The cost of these schemes is born by the taxpayer, and although Mr King may deserve his benefits it is only right that we should have an independent commission to review and oversee the fairness and affordability of public sector pensions." ·