Premium Bond cuts: How financial repression is battering NS&I It's the combination of these factors that means nearly £46bn now sits in Premium Bonds. But the simple fact is that holding these bonds loses you money. In the last year, consumer prices have risen by 2.9pc, according to official figures. So those who have held £10,000 in Premium Bonds paying 1.5pc for a year have effectively seen the real value of their money shrink by £90 to to £9,910, even with the winnings or returns included. This is due to the "financial repression" policy being adopted across the Western world - the taking of money from citizens via monetary policy. Interest rates are kept artificially low, with a low Bank Rate and by printing money, while consumer prices are allowed to rise, which erodes the size of debts. Initially this was done by the Bank of England electronically printing money and using the proceeds to buy gilts, which pushes down the yield. It pushes down the borrowing rate for the Government and wider borrowing rates. QE has been off the cards for a while but the Bank continues to hold on to those bonds, keeping yields low. The latest tool in this blunt armoury has been the Funding for Lending Scheme, under which the Bank of England doles out loans to banks and building societies at rates as low as 0.25pc on the condition they lend more money on mortgages and loans to small businesses. The success of this scheme, launched last summer, caught everyone by surprise. Mortgage rates plunged - and savings rates followed. Banks lost interest in depositors given they can access dirt-cheap money from the Bank of England. These falling rates also, it seems, caught out NS&I. As rates fell elsewhere, the money has poured into NS&I - around £1.7bn, in fact, in the past three months. This is dangerous for it. Rivals accuse it of abusing its position - its state-backed guarantee - if its rates are too high and it attracts too much money. So it has been forced into slashing rates of interest across its range. Cuts were announced last month for its Direct Isa and Income Bonds, effective from September. But this wasn't enough. It was followed today by cutting the average rate and the number of prizes available on Premium Bonds. The story doesn't end there. NS&I's main purpose is to raise money cheaply for the Government - to do it at a lower cost than issuing government bonds, known as gilts. But the Government and the Bank of England have been hell-bent on reducing gilt yields, to reduce borrowing costs for the Treasury and wider consumer rates. So now, for the first time since the crisis began in 2008, N&SI is no longer doing what it was designed to do. Its results today show that for the last year it has been a marginally more expensive way for the Government to raise money. What it's doing is effectively costing the taxpayer money when attracting new savings. It can do this because the Government gave it special permission to do so last autumn (a small mercy for savers of which there should be more). But the fact remains that the Government's policy of financial repression is driving two key reasons for NS&I to cut rates.