Picking winners and losers behind closed doors
The Bank of England will apply bigger penalties to the debt of fossil fuel companies from October, under a new rule that has slipped out with little public debate.
Market Notice 11, titled ‘Changes to collateral eligibility in the Sterling Monetary Framework’, was published on 11 June 2026. It sets out a system of larger ‘haircuts’ on the debt of oil, gas, and coal firms when that debt is used as collateral to borrow money from the Bank. The size of the penalty depends on where a company sits on what the Bank calls the ‘green-to-brown spectrum’. The rules were flagged in a regulatory summary by law firm Paul Hastings.
If a bank or trader wants to swap a fossil fuel company bond for cash at the Bank of England, they will get less cash for it than before. That makes lending to those companies more expensive and less attractive.
David Owen, founder of Saltmarsh Economics and a former Bank of England economist, said the change matters more than it looks. ‘The implications are pretty serious. They won’t be able to repo their paper so easily’, he said. Lenders will also have to build climate risk into their stress tests and set aside more capital when lending to some fossil firms.
The European Central Bank is moving in the same direction. It is using supervisory rules to push banks to hold more capital against loans to high polluters, running mandatory stress tests for a ‘fossil debt shock’, selling down its own holdings of high-carbon corporate bonds, and considering extra capital charges on banks with heavy fossil exposure. The ECB set out the approach in a May 2026 supervisory review.
Around 40 central banks and supervisors now publish carbon intensity scores of their bond and currency holdings, and are pressing pension funds and insurers to do the same.
None of this is a neutral market process. The Bank of England is not a neutral referee. It is the same institution that held interest rates near zero for over a decade, created hundreds of billions of pounds out of nothing, and pumped up house prices and stock prices to levels working families cannot touch. Now it is using its position at the centre of the money system to decide which companies get cheap funding and which do not. Whatever a reader thinks of the policy, this is central planning by another name.
The Bank is now openly picking sectoral winners and losers using tools designed for monetary policy and ordinary savers and pension holders will carry the cost through the pricing of gilts and corporate debt they hold.
Money is still flowing into both sides of the energy trade. The International Energy Agency reports global clean energy investment hit $2.2 trillion in 2025, twice the $1.1 trillion spent on oil, gas, and coal, according to its World Energy Investment 2025 report. Analysts at Ember, a think tank funded by climate philanthropies including the European Climate Foundation, say solar and battery costs have fallen far enough that half the world’s population can now generate power at under £60 per megawatt hour, and four fifths at around £75.
The push comes as Europe deals with the fallout from a brutal late June heatwave. The Met Office issued a red extreme heat warning covering 22 to 26 June. In France, more than 1,000 excess deaths were recorded, most of them people over 65, many dying at home in poorly insulated flats. Paris hospitals saw activity surge by 36%. Schools shut and rail services buckled.
The Bank of Canada, Sweden’s Riksbank, and Norway’s Norges Bank have signalled similar collateral changes. The direction of travel is clear. Whether it is the right one, and whether British savers should be paying for it, is a question Parliament has barely been asked.
