The Bank of England’s balance sheet is split into the Issue and Banking Departments under the 1844 Bank Charter Act, a legal fiction separating note issuance from banking functions. The Issue Department holds only banknotes as liability and backs them with assets, while the Banking Department manages reserves and repo operations. Historically, the Issue Department relied on small deposits with the Banking Department, but since 2009, this has grown from £29bn to nearly £100bn—now backing 99% of notes in circulation.

This growth stems from the Asset Purchase Facility (APF) loan being unwound via gilt sales and maturities. Interest earned on these assets funds note production and distribution, with net seigniorage paid to HM Treasury via the National Loans Fund. In its latest report, the BoE stated £3.8bn net seigniorage income came from £3.9bn in income, less £61mn expenses and an £8mn buffer.

The Issue Department’s interest income has risen alongside its growing balance, reinforcing the Treasury’s claim on central bank profits. Though an accounting construct, it now plays a material role in how the BoE manages its balance sheet during quantitative tightening.