A hundred year bond

It is fitting that the English word for a government loan, a bond, also has an alternative meaning as a kind of enslavement.

If the government does borrow money for a hundred years at say a 3.5% interest rate, it brings home the slavery of a nation in debt. For every £1000 million borrowed, taxpayers will over the years have to pay £3500 million in interest, before finally stumping up the £1000 million of capital for repayment.

Rational people save up their money before entering a major spending commitment, or seek to bring their spending into line with their income. If governments were prepared to get their accounts into balance it would spare taxpayers this growing mountain of debt, and the huge interest bill that goes with it.

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98 Comments

  1. Nick
    Posted March 14, 2012 at 8:55 am | Permalink

    Since the government doesn’t even admit to owing people their accrued state pensions, state second pension, civil service pensions, PFI, … what hope.

    You made a promise before the election and the only number published has been the civil service pension debt, massaged to make it lower. 1,150 billion on top of the borrowing.

    Reply: they have also published the PFI/PPP figures and state holdings in banks.

    • Disaffected
      Posted March 15, 2012 at 8:41 am | Permalink

      Gold-plated MP pensions are preserved despite wrecking everyone elses.

  2. Nick
    Posted March 14, 2012 at 8:59 am | Permalink

    The other point. Look at it from the investors point of view.

    As interest rates go up, bond prices fall. The longer the term, the bigger the fall.

    Interest rates at a historical low. When they rise to control inflation, then these bonds will be in free fall.

  3. stopcpdotcom
    Posted March 14, 2012 at 9:07 am | Permalink

    Why can’t the government issue its own debt-free money so it does not have to pay interest to the BoE?

    • norman
      Posted March 14, 2012 at 9:55 am | Permalink

      I agree, why can’t we just print more of the stuff, why stop at £350bn? Surely these bond issues are all stuff and nonsense when it’s so easy to create free money. Let’s go to £500bn, £750bn, heck, let’s push the boat out and try and hit a cool trillion in the next 5 years.

      People accuse this government of lack of vision and ambition, let’s show ’em!

      Pity we can’t create wealth as easily, that’s left up to us slogging away every day in the private sector and paying, under duress and threat of imprisonment, punitive taxes.

    • Denis Cooper
      Posted March 14, 2012 at 10:01 am | Permalink

      As the Bank is wholly owned by the Treasury, which is therefore entitled to all the profits of the Bank, interest paid by the Treasury to the Bank will eventually be recycled to the Treasury as part of those profits.

      Contrary to the myth which has been spread in recent years, there are no secret owners or other beneficiaries syphoning off money from the Bank.

      On other hand, money paid by the Treasury to private investors is not recycled to the Treasury except to the extent that the interest adds to their taxable profits.

      • forthurst
        Posted March 14, 2012 at 11:51 am | Permalink

        These rumours seem mainly to emanate from the USA where there maybe an assumption that the BoE is entirely equivalent to the bankster owned Fed. Of course, it was in order to divest themselves of the shackles of the (then) bankster owned BoE in order to issue their owned debt-free money that the English colonists fought a civil war against us and won.

        • zorro
          Posted March 14, 2012 at 8:56 pm | Permalink

          We need an Andrew Jackson to kill those banks! Once a bankster always a bankster….

          zorro

      • zorro
        Posted March 14, 2012 at 4:33 pm | Permalink

        If that is the case, there’s no point in charging any interest in the first place then is there? If it is ‘eventually recycled go to the Treasury as part of those profits’, why bother with the money-go-round?

        Why not print debt free money in the first place instead of waiting for an eventual recycling…? Who would object…?….surely not our totally and utterly transparent ‘Treasury owned’ (no hint of private banking ownership) BoE arrangement?

        Yes, cut out the bureaucracy, and print money as needed….oh, you could cut spending as well to keep in budget if you preferred…

        Confronted by perpetual taxes to pay endless loans or having a debt free money system, I know which one I would prefer.

        zorro

        • Denis Cooper
          Posted March 14, 2012 at 6:52 pm | Permalink

          The Treasury ownership of the Bank is transparent to those who can be bothered to look on the Bank’s website and check the legislation, and who then don’t decide to invent reasons why it can’t be right because they’ve seen some video from the US rattling on about the Fed being privately owned – which videos always seem to talk about the Bank of England as it was prior to nationalisation in 1946, and then suddenly lose all interest in it.

          However as I’ve mentioned before, last year I emailed the Office of the Treasury Solicitor to ask whether they still held all the shares in the Bank of England on behalf of the Treasury, and the answer was “yes”.

          (But of course they would say that, wouldn’t they! To conceal the identities of the real, secret owners! Who, according to the most usual version of the myth, adhere to a certain faith.)

          As to the point of the Treasury paying interest to the Bank on its holdings of gilts, and that money adding to the profits of the Bank which eventually get recycled to the Treasury, apart from anything else it’s probably simpler to just pay the interest due on all holdings of a particular issue of gilts, knowing that if the Bank holds any of that issue then the interest will eventually be recovered, than make an exception for the holdings of the Bank whenever interest falls due on an issue it holds.

          • zorro
            Posted March 15, 2012 at 6:38 pm | Permalink

            Thanks Dennis, sorry to disappoint you but I’m not David Icke!

            I have read the BoE website and have some knowledge of the workings of the Bank and the Treasury.

            Anyway, why not print debt free money and use that to stimulate the economy through public works/infrastructure? As I said, who would object….?

            zorro

        • sm
          Posted March 14, 2012 at 10:54 pm | Permalink

          But why the secrecy and lack of transparency concerning (BOEN) Bank fo England Nominees .

          Why was the BOEN formed in 1977, if we managed without BOEN before then why have it now?

          One could easily be forgiven for postulating about the accountability to parliament(weak as it is) and the control of the bank of england and the regulation of other banks.

          http://www.parliament.uk/business/committees/committees-a-z/commons-select/treasury-committee/news/lees-letters/

          Dont we need more transparency not less?

          • Denis Cooper
            Posted March 15, 2012 at 9:53 am | Permalink

            To be clear, there is nothing in your reference which has any bearing on BOEN.

            The nature and purpose of BOEN was explained by the Bank two years ago, in this reply to a FOI request:

            http://www.whatdotheyknow.com/request/28738/response/74019/attach/2/D.pdf

            “BOEN acts as a nominee company to hold securities on behalf of certain customers. It is a private limited company, incorporated in England and Wales in 1977, and is a wholly-owned subsidiary of the Bank. The shareholders are the Bank and John Footman, who holds his share as nominee on behalf of the Bank.”

            NB that BOEN “is a wholly-owned subsidiary of the Bank”, not the other way round.

            I realise that despite this very clear statement some people will persist in the false belief that nonetheless somehow, secretly, mysteriously, the Bank must really be owned by BOEN and in its turn BOEN must be owned by X, Y or Z, because people will often insist on believing what they want to believe even in the face of the evidence.

            BOEN is now dormant, as explained last April in Written Answers to Lord Myners at Columns WA11 and WA12 here:

            http://www.publications.parliament.uk/pa/ld201011/ldhansrd/text/110426w0001.htm#1104267001464

            Finally, as in the previous comment which JR has not yet published, I have here a letter from the Office of the Treasury Solicitor confirming that he still holds all of the shares in the Bank of England on behalf of the Treasury.

          • sm
            Posted March 16, 2012 at 8:27 pm | Permalink

            Thankyou Denis,

            The link was to show how difficult it is to get information even if you are the treasury committee.

            I appreciate the evidence provided but i have another question- just inquisitive?

            Have the shares continuously been owned by the bank and John Footman on behalf of the bank since 1977? and have they ever been lent or pledged in any way?

            I believe dormancy does not preclude activity as a nominee shareholder?

            Taken from HMRC website.

            Nominee services
            Nominee services are used to keep the true ownership or control of a company confidential. Nominee directors and secretaries may do little to manage or administer the company. Or they may play an active role – but acting on the instructions of others.

            Nominee shareholders are the registered holders of the shares in a company but they hold them on behalf of others.

    • Ken Hall
      Posted March 14, 2012 at 10:52 am | Permalink

      Whenever a world leader dares to implement that idea, they find that they get assassinated.

    • sm
      Posted March 14, 2012 at 12:36 pm | Permalink

      Bad news if it used to sustain the deathgrip of the current broken banking model based on rentier profits to socialize private losses whilst the gains are privatised. Indeed the linkages between banks,wealth and government should be alarming for anyone remotely interested in democracy.

      Lets move to positive money (full reserve banking),mutual banks, and allow these tbtf banks to wither on the vine.

      http://www.positivemoney.org.uk/wp-content/uploads/2010/11/NEF-Southampton-Positive-Money-ICB-Submission.pdf

      Will the government be able to direct the spend on infrastructure to generate growth in excess of the 3.5%, in areas we have mentioned as needing it. Roads,bridges,grid upgrades,resovoirs, pumped hydro.

      Better still if it was used to fund state banks on the lines of the Bank of North Dakota and other mutuals.

    • Ralph Musgrave
      Posted March 15, 2012 at 6:00 am | Permalink

      The debt free money idea was advocated by Milton Friedman and Keynes. For Friedman, see paragraph starting “Under the proposal….” (p.250) here:

      http://nb.vse.cz/~BARTONP/mae911/friedman.pdf

      For Keynes, see 2nd half of 5th paragraph here:

      http://www.scribd.com/doc/33886843/Keynes-NYT-Dec-31-1933

  4. Bill
    Posted March 14, 2012 at 9:09 am | Permalink

    For goodness sake. What are these people up to? Why should our grandchildren have to pay for the mistakes of this generation?

    Other generations paid for wars. Wealthy people paid ‘supertax’ after 1945 to cover World War 2. The National Trust took over properties on which inheritance tax was unaffordable. A war is a national and usually (except in the case of Blair’s escapade in Iraq) an unavoidable calamity. But why should future generations pay for the prodigal and ineffectual policies of this Chancellor?

    • Timaction
      Posted March 14, 2012 at 10:33 am | Permalink

      The simple answer is to spend less. How about leaving the EU and stop foreign aid. That’s £21 billion saving annually. It will also allow us to repatriate our fishing industry, create jobs for our young people as Eastern Europeans and others can go home and we can comtrol our borders. If we then left the EUHR Court we could deport known terrorists. We could save billions outside the CAP and trade with whoever we liked without foreign interference. We can still continue our £50 billion trade deficit with the EU but just be their friends NOT their cashcow!

      • Pericles
        Posted March 14, 2012 at 10:51 am | Permalink

        You’re right, Timaction, but you omitted another drain on the kingdom’s resources: the anthropogenic-global-warming fraud.

        ΠΞ

        • lifelogic
          Posted March 14, 2012 at 12:16 pm | Permalink

          Anthropogenic-global-warming (the huge exaggeration of) fraud is indeed a huge and pointless drain on everyone and a destroyer (or mover overseas) of countless real jobs.

          Why are Clegg and Cameron so wedded to it (other than when Cameron flies with Obama on Air Force One just to see a college sports game of course)

    • Ken Hall
      Posted March 14, 2012 at 10:54 am | Permalink

      To be fair and accurate, it is not just this chancellor, but the mistakes of the previous two chancellors which we are all paying for.

      • lifelogic
        Posted March 14, 2012 at 11:19 am | Permalink

        Indeed but Osbourne is not even pulling on the rudder yet let alone turning the boat round. We shall see what the budget holds.

    • peter davies
      Posted March 14, 2012 at 2:10 pm | Permalink

      Totally agree. the 50s and 60s generation paid for a war, fair enough

      We are now asking our grandchildren and great grandchildren to pay for 13 years of a useless labour government with an incompetent psychotic chancellor (suposedly an economist) who decided to meddle with bank regulation, go on a spending splurge then when the banks went bust to place the blame squarely on the banks – nothing to do with the boundaries they were given and the fact that Brown used to go round Europe lecturing other countries on how easy it was to raise money by allowing banks invest in risky transactions.

      We need to simply get our house in order on a level footing so the economy is sustainable.

      Newsnight talked about future predictions last night of the unsustainability of the economy going forward due to falling oil revenue, people living longer etc so radical action does need to start happening now and gives a good snapshot of why the govt is trying to modify the NHS.

      The NHS changes made if they are to be believed will only slow the tide so this is no where near enough

      I have always though that the NHS should be directly funded by compulsory insurance if yr in work, gov’t subsidised insurance if yr out of work and topped up by the state, it works in other countries though I dare say this is a hot potato and many people would shoot me for this!

      Apart from that if their figures are right the state needs to shrink in a big way so privatising the delivery mechanisms of any public service that can’t be done away with needs to be high on the gov’t agenda for 2 reasons:

      – 1st you have the pensions issue,
      – Secondly good commercial organisations tend to be more productive thus deliver more for each £ spent and slim down when they need to – plus the govt gets a % of corporation tax back from profits made.

      There are many ideas on this blog that people have come up with that could make a huge difference

      Heres a start:

      Privatise all services that dont need to be done by the public sector (and probably better and cheaper) thats 70-80% – that would take a huge chunk off the public sector pensions bill plus it would help businesses grow. It works in Defence, if a private contractor can look after our nuclear deterent, I’m sure there are companies quite capable of looking after all roads and public buildings. For this to work councils need good commercial managers.

      The only people left in the public sector should be your established professionals in healthcare, police, fire, teachers, social workers, prison officers, soldiers etc – but all their buildings, HR, bbusiack office, vehicle fleets and equipment sourcing should be outsourced.

      These dont need to be PFI/PPP arrangements which are too expensive, 10 year contracts to tender out business to companies who can put in the best contractual bids, and by law they have to take on current state employees under TUPE – so need not mean laying people off but companies do trim their feathers when they need to.

      The motorways idea by JR could be another.

      Grabbing back anything for the EU that hinders business and UK Sovereignety including fishing rights would be another – asking for any previous treaties to be scrapped in return for being part of a free trade agreement only with the threat of holding their EU money if needed, Germany wont want to stop selling VWs and Mercs to us so Im sure with the will backed up by a UK Referendum first this could be done – Cameron show some backbone!

    • zorro
      Posted March 14, 2012 at 4:40 pm | Permalink

      But Bill, think how grateful we will all be for these huge loans and the taxes we have to pay to cover the interest. All needed for essential spending on ‘lifer’ benefit support, telling people how to live their lives in foreign countries, and not forgetting the endless ‘War on Terror’ ™. I will feel safe sleeping on my straw mattress by then.

      zorro

    • Electro-Kevin
      Posted March 15, 2012 at 12:01 am | Permalink

      Another issue is the problem of increasing longevity.

      We recently had a debate here about the ‘iniquity’ of some people only reaching the age of 70 and others 85.

      For goodness sakes ! Not only will kids have to pay for the mistakes of this generation but they are going to be expected to wipe their bottoms for a pittance and for decades.

      Let people smoke again. This will raise tax revenues and decrease longevity thus killing two old birds with one stone.

      I forsee baby boomers being smothered in their beds.

  5. Brian A
    Posted March 14, 2012 at 9:27 am | Permalink

    Spot on. Not content with saddling our grandchildren with massive debts, the Government now thinks billing our great great grandchildren for our inability to control our finances is a good idea. This addiction to debt is not going to end well.

  6. lifelogic
    Posted March 14, 2012 at 9:31 am | Permalink

    I agree that government should get their expenditure and waste under control. But sensible people do borrow especially where they can borrow at almost negative interest rates in real terms. What matters is what you do with borrowed funds. If you waste it on buying votes, giving it to the pigis, and green tosh, and giving to the feckless it is clearly mad. If you borrow at 2% and invest with a 10% return in something sensible great.

    At the moment there are sound businesses, with good security, that are unable to borrow at 10% and are thus not creating jobs as a result. It is destroying confidence even more than Cameron and his tax/borrow/
    waste or over regulate and green tosh.

    On a related issue it is clearly insane for people to borrow from pay day lenders at 1000%+ APRs. On tv this morning someone from Citizen’s advice was saying use them only if you are sure you can repay quickly. Surely the advice should be never use them ever , indeed rates above say 40% should perhaps be banned by statute. They just create more misery in the already desperate.

    Some sensible regulation is often good. Perhaps a rule that insists airlines etc. can not refuse to transport “animal for research”. As I see the animal right groups are picking off transport organisations and making this difficult.

    Reply: People borrow to buy assets for future use. Much of the government’s borrowing pays for current spending.

    • lifelogic
      Posted March 14, 2012 at 10:00 am | Permalink

      Indeed I agree to reply – government should only borrow for sensible “real” investments, not green tosh, HS2, the Olympics the PIGIS and the like. They are usually incapable of this I agree.

      The best real investments available at the moment are to get some sensible banking for UK SMEs going again, this combined with deregulation and lower business taxes particularly employers NI.

      Long term debt to finance a cut in small employers NI might well make a lot of sense and get many people back to work.

      • BobE
        Posted March 14, 2012 at 8:57 pm | Permalink

        HS2 should be scrapped and the 32 billion be invested in canals to create a country wide water grid. It would create jobs,it would create lesure industries and it would let us store water to be moved around the country as required. Actually its halfway done, just needs pumping stations and some more canals.
        Simple and effective but will it happen? Nope, just higher water bills and hand wringing.
        (Expert = X for unknown and a spurt is a drip under pressure.)

    • StevenL
      Posted March 14, 2012 at 11:00 am | Permalink

      “Surely the advice should be never use them ever…”

      In my experience this applies to a lot of things. Selling unwanted gold to people who aren’t proper bullion dealers and joining holiday clubs or buying timeshares at snazzy sales presentations for a start. The official advice has never been ‘just don’t’.

      But these aren’t the real scandal waiting to happen. This award goes to the proliferation of firms that want you to transfer your old occupational pensions into a SIPP, then buy worthless plots of greenbelt or into some whacky carbon credit or bamboo farming collective investment scheme.

      Interestingly here, the official advice is to ask some searching questions of the IFA involved. What if it’s a scam and he’s in on it???

    • Robert K
      Posted March 14, 2012 at 11:16 am | Permalink

      The state cannot invest – it simply misallocates capital that it is able to levy forcibly through taxation, borrowing and monetary inflation. If there was a rational economic argument to build, say, a high-speed rail link then private sector capital would be available.

    • lifelogic
      Posted March 14, 2012 at 1:40 pm | Permalink

      I see the Queen has given two new towns and some tiny Welsh village “City Status”. Needless to say one in Wales, one in Scotland and One in the England. Might it not be rather fairer with proportions relating to populations so perhaps one in Wales, two in Scotland and say thirty or so in the UK? Or perhaps related to the tax base which would give England even more?

      Is this yet another example of the anti English slanting of government? Still doubtless England will soon be no more and will have just EU regions soon. They might get one for each of them next time perhaps.

      • lojolondon
        Posted March 14, 2012 at 5:06 pm | Permalink

        Yes it is another example of political correctness gone mad – a ‘city’ with 3,000 inhabitants? Most trains arriving in Reading have that many people on them!!

        • BobE
          Posted March 14, 2012 at 9:00 pm | Permalink

          Doesn’t a City require a Cathedral?

          • APL
            Posted March 15, 2012 at 10:29 am | Permalink

            BoE”: “Doesn’t a City require a Cathedral?”

            Once upon a time yes, but that prerequisite was abolished a long time ago.

          • John Fitzgerald
            Posted March 15, 2012 at 10:32 am | Permalink

            Yes, unfortunately this small Welsh village does have a Cathedral!

      • Electro-Kevin
        Posted March 15, 2012 at 12:09 am | Permalink

        We’d better start sucking up to Scotland and Wales as we’ll be needing their water by the looks of it.

        • APL
          Posted March 15, 2012 at 10:39 am | Permalink

          Electro-Kevin: “We’d better start sucking up to Scotland and Wales as we’ll be needing their water by the looks of it.”

          Not necessary. Although Alex Salmond was recently talking about selling water to ‘the English’.

          From a technological point of view, just build three dozen thorium nuclear reactors, England could spare a couple of hundred Megawatts to power a dozen water purification plants.

          Then reduce immigration to zero, and bingo – a stable or slightly declining population.

  7. Andy Man
    Posted March 14, 2012 at 9:38 am | Permalink

    Absolutely right. It is a sign of increasing concern about future financing of the enormous deficit and should be avoided by any right thinking investor as it is a loosing proposition in every possible way.

  8. Antisthenes
    Posted March 14, 2012 at 9:40 am | Permalink

    Debt is increasing and if you include commitments for things like pensions and PSI then the amount is enormous and already well above sustainability levels. Government revenues are not increasing at any appreciable rate and not looking to do so any time soon. Bond/gilt rates are being kept artificially low by central banks and will eventually have to rise. The EU, national and green policies and practice are all reducing competitiveness even more, many banks are having liquidity problems and many are close to bankruptcy. Oil prices are high and rising, world wide economies are slowing. To me that appears to be a financial Armageddon waiting to happen no other interpretation is possible unless someone can point to something that is being done that will avert it.

    • A Different Simon
      Posted March 14, 2012 at 8:50 pm | Permalink

      Antisthenes ,

      Why are oil prices high and rising though ?

      It does not seem to have anything at all to do with the relationship between supply and demand .

      The current perceived and actual problems with Iran are being used as an opportunity by to bump prices up .

      Bear in mind also that the difference between the price of natural gas and price of oil has never been greater .

      What is going on when the price of a commodity like oil can be manipulated to this extent ?

      If it’s not oil thats being manipulated it’s staple food prices and the people at the bottom of the foodchain can’t even make ends meet , never mind put anything away for old age .

      • APL
        Posted March 15, 2012 at 10:55 am | Permalink

        A Different Simon: “Why are oil prices high and rising though ?”

        Oil price is denominated in dollars, dollars have been debased by the Federal Reserve in the US as a result of QE1 & 2.

        As a result you pay more dollars for your 40gallon drum of oil.

  9. Mike Stallard
    Posted March 14, 2012 at 9:56 am | Permalink

    I have a precious book from the 1930s on Spanish. In it, we read of Centimos. Things cost just one Peseta. When I lived in Spain, just before the change to the Euro, we were dealing in tens of thousands of pesetas. I personally (junior teacher) was a millionaire six times over.
    Our children and grandchildren in GB are facing this sort of inflation. My savings will be virtually worthless when I hand them on.

    So what puzzles me is this: why?

    The government say they are working on this problem flat out. It is the very reason, we are often told, for the coalition. Nevertheless you yourself conclusively prove that both borrowing and expenditure are actually rising. QE is still relentlessly going on and the dear old pound is tottering. Meanwhile there is virtually no discussion about real cut-backs, just cosmetics like the 50% tax and bankers’ (never BBC announcers’) salaries.

    I am puzzled. What is actually going on?

    • StevenL
      Posted March 14, 2012 at 8:57 pm | Permalink

      why?

      It’s the only way left to make house prices go up of course.

  10. Bill
    Posted March 14, 2012 at 10:16 am | Permalink

    If we go on like this the Conservatives will lose the next election. The Labour Party will get in and say that, in order to support the growing elderly population, we need a large taxable work force. The only way to summon this into existence is by increasing immigration. We then move to a population of 70 million. England (because by then we will have lost Scotland) will change in character but will seek to become solvent. We will have MPs who are the sons and daughters of hardworking immigrants and perhaps they will show the financial acuteness of our Victorian statesmen. Or maybe the new arrivals will all claim benefits and the whole country will sink to levels of incompetence more usually found in the Third World?

    • Mike Stallard
      Posted March 14, 2012 at 1:33 pm | Permalink

      And the entire character of the country will change radically into something completely different – maybe better, maybe worse, maybe mixed up.

      • zorro
        Posted March 14, 2012 at 4:46 pm | Permalink

        What odds will you give on the country being worse as a result. Only asking as I have some money to invest and am always looking for a good return/sure fire winner….

        Cheers
        zorro

    • uanime5
      Posted March 14, 2012 at 8:02 pm | Permalink

      Why do you want more people in the UK when there are nearly 3 million unemployed people? What we need is more jobs, not more people.

    • A Different Simon
      Posted March 14, 2012 at 8:57 pm | Permalink

      Given that the population was about 56m when I went to school 30 years ago I’m not sure I believe the official population figure of 63 million .

      We might even pass 70 million temporarily for a few weeks later this year when the Olympics takes place .

      • sm
        Posted March 15, 2012 at 1:11 pm | Permalink
        • lifelogic
          Posted March 15, 2012 at 9:39 pm | Permalink

          I tend to agree with this 80M figure – just judging by the proportions I see that have clearly not been in the UK for very long everywhere I go.

      • zorro
        Posted March 15, 2012 at 6:44 pm | Permalink

        In 2007, Tesco reckoned that the UK population was already 77 million based on food staples consumption, and er….increase in waste disposal. I suspect that the census figures grossly underestimate the true figures.

        zorro

  11. English Pensioner
    Posted March 14, 2012 at 10:18 am | Permalink

    I thought that the Tories were going to cut expenditure and pay off loans – so far, in financial terms there seems no difference between them and Labour. No real cuts have been made anywhere, and they are still borrowing. I’m glad that I won’t be around when it all comes to a head and the English say enough is enough, but I fear for my children and grandchildren.

    • zorro
      Posted March 14, 2012 at 4:48 pm | Permalink

      There is a difference, the Tories are borrowing/QEing more and growth is less than under the previous government.

      zorro

  12. Damien
    Posted March 14, 2012 at 10:36 am | Permalink

    I suppose then the equivalent instrument of slavery in Ireland is the ‘promissory note’ where the ‘troika’ demand 8.2% on €31 billion owed to IBRC. That amounts to €1.8 billion interest on the remaining 8 year term. The present Irish government will honour the agreement entered into by the previous discredited government and Monti will be happy. However this harsh repayment regime is hitting the states finances further. This in turn partly explains why Lloyds and RBS have each capitalised their Irish operations to the tune of £20 billion to date. As the Irish state squeeze the taxpayer so the banking losses will increase.

    Every cloud has a silver lining and the Irish will have a referendum on the latest EU treaty.Monti may not be so merry when he finds out the result.

    • Damien
      Posted March 14, 2012 at 10:38 am | Permalink

      Typo

      €16.8 billion interest on the remaining 8 year term

    • Denis Cooper
      Posted March 14, 2012 at 11:16 am | Permalink

      It seems unlikely that the Irish will vote against the “fiscal compact”.

      Not least because the government intends to commit Ireland to the ESM, the European Stability Mechanism, BEFORE the people vote on the “fiscal compact”, and if they then vote “no” to the “fiscal compact” Ireland will still have to pay into the ESM but will not be eligible to ever receive any assistance from it.

      http://www.independent.ie/opinion/columnists/gene-kerrigan/gene-kerrigan-we-are-voting-with-a-gun-to-our-heads-3046247.html

      In principle it would be open to the UK government to intervene on this, by saying that because of these abuses it no longer intended to proceed with ratification of the EU treaty change which is legally necessary before the eurozone states can go ahead with the ESM treaty.

      Incidentally, the “fiscal compact” is NOT an EU treaty, but a treaty between some but not all EU member states which is outside the EU treaties albeit linked to them.

  13. oldtimer
    Posted March 14, 2012 at 10:46 am | Permalink

    When I first heard this I asked myself who is going to be daft enough to subscribe for this bond if it only pays 3.5%?

  14. waramess
    Posted March 14, 2012 at 10:49 am | Permalink

    Whichever way one cares to look at it Osborne is stealing in order to avoid his obligations.Whether it is from future generations or from pension funds and banks, theft is theft.

    Osborne should focus on the job in hand of cutting the size of government and stop this nonsense of finding ways to avoid it.

    This is classically Gordon Brown stuff and serves to underscore how similar the two parties are now.

    • JimF
      Posted March 14, 2012 at 11:59 am | Permalink

      Agreed. Brown would have come up with this kind of tosh even more quickly than Camerosborne.

      It just reminds us that hard though it might be in every way, UKIP success is more important to us now than ever. Better that than a Fronte Nationale situation when people find out just how they’ve been royally screwed by Labour Liberals and Conservatives these past few years.

    • Mike Stallard
      Posted March 14, 2012 at 1:36 pm | Permalink

      Our MP is delighted.
      There is a good chance that the local failing Comprehensive which has recently been gifted with £25,000,000 at least for BSF is now about to get even more money “to bring it up to the national average”.

  15. Denis Cooper
    Posted March 14, 2012 at 10:53 am | Permalink

    I’m not overly concerned about the government taking advantage of the present unusually low long term interest rates to issue 100 year bonds, but preferably retaining the right to redeem the bonds early.

    It was once commonplace for the British government to issue undated or perpetual bonds, and in fact there are still some around:

    http://en.wikipedia.org/wiki/Consol_(bond)

    In Pride and Prejudice the oleaginous Mr Collins tries to tempt Elizabeth Bennet with the prospect of greater financial security than she would have from just the “one thousand pounds in the four percents” she stood to inherit from her mother, so he must have been assuming that the bonds had been bought below par.

    http://www.economist.com/node/5323633

    “Personal finance in Jane Austen

    Percents and sensibility

    What did early 19th-century literary characters live on?”

    “In 1751 Henry Pelham’s Whig government pulled together the lessons learnt on bonds to create the security of the century: the 3% consol. This took its name from the fact that it paid 3% on a £100 par value and consolidated the terms of a variety of previous issues. The consols had no maturity; in theory they would keep paying £3 a year forever.
    Between 1751, when the funded national debt was only a tad over £70m, and 1801, when it climbed over £450m, the government issued £315m of consols. Lord North particularly liked them because they carried a low nominal interest rate. He argued that lower rates were better because “it was the interest that the people were burdened with the paying of and not the capital.” That said, Lord North issued new consols at £60 or so, to create a 5% interest rate. Why he thought a discounted 3% bond was better value than a 5% bond sold at par is unclear.”

    Reply: I love Percents and Sensibility – it captures that privileged life beautifully. The 100 year bonds could of course be bought in and cancelled by the government anytime they had some spare money.

    • Bickers
      Posted March 14, 2012 at 12:02 pm | Permalink

      At the rate Government is spending, they’ll never be any ‘spare money’. It seems to me that the Coalition doesn’t have the back bone to make the necessary cuts to public spending. If Canada could cut back by 20% why can’t the UK.

      I’d like to see a law that restricts the % of GDP Government is allowed to tax: 35% within five years and 25% within ten. Unless we become massively competitive and innovative over the next ten years we’ll be swamped by the BRICS. The EU (Germany excepted) is in economic free fall.

      • Ted Greenhalgh
        Posted March 14, 2012 at 8:16 pm | Permalink

        This comment may be out of context but …

        a) No government should touch peoples pensions unless it does the same for its own members. Balls robbed our schemes. Brown distorted the rules.

        b) If only the money spent on the olympics could have been invested in building a modern competitive industrial base.

        c) Inflation destroys the future for those of us on fixed pensions.

    • zorro
      Posted March 14, 2012 at 4:54 pm | Permalink

      Yes, but what was inflation then, and growth rates…..an ever so slightly different economic scenario.

      zorro

  16. Atlas
    Posted March 14, 2012 at 11:00 am | Permalink

    Do these bonds even initially sell for face value?

  17. Pericles
    Posted March 14, 2012 at 11:07 am | Permalink

    In a similar vein: another word for government bonds has an interesting and pertinent homophone:

    “ … for the gilt of France – O guilt indeed! …”

    ΠΞ

  18. Neil Craig
    Posted March 14, 2012 at 11:19 am | Permalink

    Among the constitutional limitations on government power that we need is a balanced budget amendment and a limitation on the lenght of time government may commit future government borrowing to. I woyuld suggest that 10 years should be the maximum (ie 2 Parliaments) except in cases where both government and opposition parties support it. Anything less simply allows temporary government to not only grab the national assets but allow them to take future earninghs as well. There is a major commercial bankruptcy taking [place which hinges on such activity and should not be encouraged in government.

    PFI is, of course, merely a way of kiting such cheques, at a particularly high interest rate & without adding it to official debt figures.

  19. roger
    Posted March 14, 2012 at 12:00 pm | Permalink

    I inherited some War Bonds – the annual cheque is less than the cost of posting it to me.
    So count me out!

  20. Lindsay McDougall
    Posted March 14, 2012 at 12:37 pm | Permalink

    You don’t need a fancy bond, Mr Osborne.

    Just STOP SPENDING MONEY THAT YOU DON’T HAVE.

  21. David John Wilson
    Posted March 14, 2012 at 12:43 pm | Permalink

    Surely some of this money could be raised by allowing NS&I to give a similar interest rate to savers. Only a month or so ago NS&I had to withdraw one of its saving schemes that gave a reasonable rate of interest because of an arbitrary limit on the amount it was allowed to raise.
    If the banks are unwilling to offer savers reasonable interest rates surely NS&I should be allowed to take a lead particularly if it allows the government to raise money at a cheaper rate than it can get on bonds issued to the market.
    We owe it to our pensioners who rely on the interest on their savings to put them first in line when the government wants to raise money.

  22. Bob
    Posted March 14, 2012 at 1:29 pm | Permalink

    If the unemployed are to be able to afford smart phones and designer footwear, the money has to come from somewhere!

    Perhaps this bond issue will also provide sufficient funds to allow further increases in our foreign aid budget?

    • zorro
      Posted March 14, 2012 at 4:57 pm | Permalink

      Let’s hope so…there are many millions of Indians who we need to feed, because their authorities are far too busy building space rockets and maintaining nuclear arsenals. We need to stop being selfish…..maybe we should support everyone in the world and print more money to do so. People might love us!

      zorro

  23. Ben Kelly
    Posted March 14, 2012 at 1:49 pm | Permalink

    I wish the government would stop borrowing money and paying interest and just print it themselves. (I’d prefer if they stop spending it but in the absence of that).

    They should not use printed money to pay off banks who then spend the repayments on inflationary assets but use it instead of borrowing to fund the deficit. The money is already going in to the supply so it will not generate further inflationary pressures. It will if given to banks.

    The markets should remain confident in our plan to reduce the deficit so our currency is protected. If not and they only support our plans where the money is borrowed from them it puts a lie to the whole system.

    Wind up those presses to pay the excess bills.

  24. Atlas
    Posted March 14, 2012 at 2:35 pm | Permalink

    My my, if I had known in 1912 what was going to happen in the next 100 years then I don’t think I would have paid par for a 3.5 % Interest rate 100 year bond then.

  25. outsider
    Posted March 14, 2012 at 2:43 pm | Permalink

    Dear Mr Redwood,
    You make an unanswerable case against borrowing permanently to finance current deficits. But on current plans, let alone performance, we are going to do that for the foreseeable future.

    Given that, 100 year bonds would shift the interest burden from future generations to the present. The Treasury can currently borrow at little more than 2 per cent for 10 years (or zero via the Bank of England). So paying 3-3.5 per cent now would raise the current interest rate burden. The burden in 100 years time would probably be negligible if we continue to have any sort of long-term growth and inflation.

    In 1912-14, shortly before War Loan was issued, the gross national product was just £2.3 billion, about one 500th of today. In 1962, fifty years ago, it was just £25.4 billion. If we have 2 per cent long-term growth and 2 per cent long-term inflation, the burden of capital and interest to GNP in the distant future would be similarly shrunk.

    Of course the future will not be like the past. In 1912 we had the biggest empire the world had ever seen, UK per capita GDP was the same as America’s and three times Japan’s. But the best guess is that growth will continue and prices will rise.

    Heaven help those who invest in such bonds, however, especially those who depend on pension funds and annuity providers. In the past, pensions have been built up on real returns of 4.5 per cent. These bonds would only deliver 1-1.5 per cent even if the Bank of England did its job properly. Future pensioners are likely to lose far more on their income than they gain from a diminishing tax burden.

  26. rose
    Posted March 14, 2012 at 3:03 pm | Permalink

    This is short termism writ large, very large.

    When are we going to do something about the interest rates? HMG shouldn’t go on robbing people of their savings in this way, and rewarding debt. But they go on because it pays them, as inflation does.

    • zorro
      Posted March 14, 2012 at 5:05 pm | Permalink

      Anyone for quick wins? Hey, Dave and George might get elected again with their Grand Coalition. Then, of course, without any doubt, we will have their ‘cast titanium’ guarantee that they will cut spending and taxes, and all the present unpleasantness will be forgotten……’You may say that I’m a dreamer….’

      John, you should invite the PM to comment on this blog (unless he already does) and get him to address your online virtual constituency and seamlessly dispel their worries.

      zorro

      zorro

      • Bob
        Posted March 14, 2012 at 9:06 pm | Permalink

        Have you ever seen uanime5 and David Cameron in the same room together?

        I rest my case!

  27. Richard
    Posted March 14, 2012 at 4:24 pm | Permalink

    Was it Einstien who said compound interest is the eight wonder of the world?

    Certainly the effects of compound interest can be seen in the debt problems affecting Greece and others as ever larger proportions of their repayments go to paying just the interest on their outstanding loans.
    I am assuming here that they are making repayments….
    My first experience of the effects of compound interest was many years ago, when I asked my building society if I could keep my monthly mortgage payment at the old high level after interest rates had fallen and found the outstanding term would fall as a result from 25 years to just 11 years.
    The other example is with credit cards where if you pay just the stated minimum monthly payment you can end up with a slowly increasing debt that will never pay off.

    Despite much anger over “cuts” we really have to get to a balanced budget as a matter of priority.
    Either by increasing tax revenues or by reducing spending or by economic growth or all three.
    The longer we leave it the worse it is going to be.

  28. Barbara Stevens
    Posted March 14, 2012 at 5:36 pm | Permalink

    Banks have become not a success story for this country but a nightmare. Yes, they produce for the City, but the way things are going most big companies will move out, example the ‘Pru’ who are undecided what to do. What will become of the city then? Debt is terrible for any nation, and how we repay it concerns us all, but while we spend on foreign aid, which is not our responsiblity it is a disgrace. The EU alone costs us far to much. The IMF is asking for far to much as well, it is not keeping to it’s remit by helping currancies and not nations. Yet the MPs we have elected refuse to stop this foolishness and keep telling us its needed. Well there are institutions here like the NHS that need our money, which we willingly pay for that need it. The police is another. I think its time elected MPs from all sides of the house realised who and what they should spend the money on, this country, not others.

    • uanime5
      Posted March 14, 2012 at 8:08 pm | Permalink

      Most big companies won’t leave the UK, there’s nowhere else where they can avoid paying so much tax.

      • Richard
        Posted March 15, 2012 at 8:30 pm | Permalink

        Check out some competitive tax rates for big businesses in USA, Canada, New Zealand, Monaco, Channel Islands, Cayman Islands, China, Malaysia, Singapore, Hong Kong and many other countries who are only too happy to do a deal with big PLC’s in return for some tax revenues.
        Recruiting as we blog.
        We will loose big multinationals if we do not remain competitive and friendly towards them.

  29. mart
    Posted March 14, 2012 at 6:13 pm | Permalink

    Our public debt is precisely the extent to which we (actually our politicians) wanted to build things quicker than our productive output would allow.

    Our private debt is precisely the extent to which we (personally) wanted to do the same, and were supported in this wish by banks.

    It just so happens that our debts are denominated in a currency that can be devalued, by the simple expedient of printing more of it.

    That’s not exactly honourable, unless of course the Quantitative Easing can be reversed at some later time. I remember it being said (2008/9?) that it would indeed be reversed. Is that really going to happen? I do wonder.

    But the problem originates – in the very first place – in my first two sentences.

  30. Brian Tomkinson
    Posted March 14, 2012 at 7:06 pm | Permalink

    When I first heard about this I had to check if it was 1 April. Who in their right minds would want to buy these bonds? I almost wish that Osborne would go ahead and find that there were no takers but he may have some vicious plan to somehow force pension funds to play his game. these last few weeks all we have heard is how to tax people even more and how to borrow even more. When are Conservative MPs going to do something to stop this perpetual public spending and increasing debt? There is no point in us voting Conservative if we want a smaller state and fiscal competence.

    • Brian Tomkinson
      Posted March 15, 2012 at 10:11 am | Permalink

      May I ask why is my comment still “awaiting moderation”?

  31. sym
    Posted March 14, 2012 at 7:12 pm | Permalink

    A 100-year bond with a negative interest rate is a value-destroying proposition.

    I have a nagging feeling that private pension funds are going to be forced to buy them.

    Combined with the incoming mandatory private pension payments and deductions, both for employers and employees, it sounds like government found yet another way to increase taxes by a nifty percentage without looking like they have their hands in our pockets.

    It is very sad that the UK has effectively no sane political alternative.

  32. teilhard
    Posted March 14, 2012 at 7:58 pm | Permalink

    It’s clear that Osborne has come out as a Keynsian …. ‘In the long run, we are all dead …’ so why care?

  33. Caterpillar
    Posted March 14, 2012 at 8:45 pm | Permalink

    Ringfence and greenwash the bonds to justify a Stern-like social discount rate. Investors might get some cachet, and there might be some consistency between green policy lifetime-Stern review assumptions and ‘ethical’ investment.

  34. Javelin
    Posted March 14, 2012 at 9:02 pm | Permalink

    Did you know when a daughter grows in a mothers womb then her ovaries form that will produce a grandchild. Seems a long way off ?

    Well do does a hundred year bond. Politicians don’t care.

    It’s a slap in the face of our great grandchildren.

  35. davidb
    Posted March 14, 2012 at 9:59 pm | Permalink

    Of course, in 100 years time it will cost you £3500m for a litre of diesel….

  36. Mark
    Posted March 14, 2012 at 10:13 pm | Permalink

    The obvious home for these bonds is the next round of QE.

    Has anyone worked out at what share of the gilts in issue QE becomes an unsustainable joke that leads to hyperinflation?

  37. Bazman
    Posted March 15, 2012 at 8:57 pm | Permalink

    Hundred years mortages are quite common in Bavaria and many clocks are still there from the middle ages.

  38. sm
    Posted March 17, 2012 at 9:10 pm | Permalink

    Why not allow individuals to access private pensions early? This would allow extra consumption now, its probably fairer than letting them be devoured by a thousand cuts by others.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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