Central government as a whole is not managing its cash in a way that maximises value for money, largely because it could hold more cash in the Exchequer. Money that leaves the Exchequer needs to be raised by the government at a cost that is close to the Bank of England bank rate, which ranged from five per cent to 0.5 per cent in 2008-09. In some cases this money is held in commercial bank accounts, earning interest, before it is used to make payments. However, for the bodies in our sample the average interest rate earned was 0.7 per cent below the bank rate. Using this rate, the £4 billion held in commercial bank accounts at 31 March 2008 would have cost the government £28 million in higher interest payments over the year. Although the current unusually low interest rates would reduce the potential savings, most of our sample of sponsored bodies held on average 50 per cent higher cash balances throughout 2008 09 compared to 31 March 2009. While it is not possible to extrapolate from this small sample, it suggests the £4 billion is an underestimate. There are also broader benefits from using the central expertise of the Debt Management Office to manage cash balances and the associated risk.
Some organisations are ready to move over to the Exchequer as their banking provider almost immediately. Others, especially those that have complicated banking arrangements or want to maintain their independence from government, would incur considerable one- off costs or require a significant cultural change. These factors would apply to any change of banking provider, and the costs may include changing internal processes to align with those of the new provider, adjusting computer software, and ensuring all customers know and use the new bank account details.