Hm... Perhaps a bit off topic, but burning a million pounds is sort of a reverse-inflation move, right? Relatively speaking, it makes everyone else's pound that much more valuable?
Right, but the Bank of England has a mandate to keep inflation at a particular level. So they'll just print money to cancel you out (or pull some other lever with the same net effect). The BoE's profits go to the government, so in the end you're just paying the government.
(expanding on what other posters have already said)
Cash is a liability of the central bank, yep. Destroying it removes a liability from the bank's balance sheet, increasing their equity. As others have noted, destroying cash is equivalent to returning money to an arm of government.
As you say, if people destroyed cash on a regular basis, it would be deflationary: the central bank would respond by lowering interest rates. When the increased equity was eventually booked as profit, it would go back to the government, who would (presumably) spend it.
Both the lower rates and the increased spending are inflationary, so in the long run we might expect that the system would balance itself out.
There's another book where the KLF discuss burning the money, and that's one of the things mentioned.
A lot of people seem angry at them for burning the money instead of giving it to charity.
No one would be angry at them for spending it all on something dumb (e.g. a boat), and this way everyone else's money gets worth very slightly more.
Of course, they can just print a million pounds immediately upon learning someone destroyed a million pounds. So unfortunately that argument didn't actually work.
Also, the argument ignores the potential velocity of money - as a million pounds moves through the economy it creates economic activity that otherwise may not happen, even if they just buy a boat.
