Hidden away in the latest ONS official figures for the debt and deficit is a revealing number. The Bank of England’s bond portfolio bought under its Quantitative Easing programmes cost £112bn more to buy than the bonds will repay on maturity. As most of the bonds will likely be held to maturity this will be the loss. If they are sold off earlier in the market that is also likely to be at a loss in a world of rising interest rates.
These losses are all carried by the Treasury and taxpayers. Right from the start of QE with Chancellor Darling the Bank said it needed a Treasury guarantee as it could not itself afford the potential losses on such a large portfolio. All Chancellors since have offered such a guarantee. It has been an agreed policy between the Labour government that first invented it, and the Lib/Con coalition and the subsequent Conservative governments that continued it.
I quote the official source:
ONS: “In February 2022, the BoE announced that it will no longer be replenishing the gilt stock of the APF. Following a £3.2 billion gilt redemption in July 2022, the APF’s gilt holdings currently stand at £731.7 billion (at redemption value).
It is important to understand that this £731.7 billion (conventional) gilt holding is not recorded directly as a component of public sector net debt. Instead, we record the £112.1 billion difference between the £843.8 billion of reserves created to purchase gilts (at market value) and the £731.7 billion redemption value of the gilts purchased.”
Quote from ONS July Public Finances
August 24, 2022
Good Morning,
But Sir J, didn’t you, at first, support the ‘creating of money’ under the QE programme? And didn’t the government KNOW that creating more money without production of more assets would result in inflation?
This is the TORY government’s folly, you own it.
Will there be more QE under Truss to pay for energy and inflation price rises (oh, does that sound circular?)
Where are Conservative Principles in the government?
August 24, 2022
Exactly. Not only has the money been printed to lend to the state to spend, its created the inflation
August 24, 2022
£2.3 trillion debt with the addition of another £2 trillion for public sector pensions. The debt doubled under the Tories. I think we can reasonably say JRs party messed up the economy!
August 24, 2022
One factory owner states that his energy bill is to rise from £900k last year to nearly £5 million by next year and that he will go bust. 70% of pubs report they will not last winter.
This is going to be carnage.
August 24, 2022
Tory = Long Live Net-Zero
August 24, 2022
Good morning.
Unlike some here (eg acorn) I am not a financial whiz and do not pretend to understand the Bonds and Gilts market. I do understand that this is a market is means by which both governments and private investors can raise monies. I assume therefore that monies raised have been done so in the name of both current and future taxpayers. The difference here is that, unlike private investors, we the people do not get a choice over this matter yet are expected to pay regardless. I for one do not consider that fair.
Since 1997 the economy seems to have been run ‘on the tick’ with one supposedly clever financial instrument (eg Public Private Partnership – PPP) after another, all designed to keep public expenditure, taxes and interest rates artificially low and make the government of the day seem ‘prudent’. There were never any dissenting voices either from the opposition parties or the media to this scam.
I want to see us return to a world of living within ones means. Where government does not try and be clever with what is not only our money (deliberate inflation, taxation and interest rates all consume OUR money leaving us with little) but the money of generations to come.
If the government and the party of the day cannot run the country, then it is time to let someone else have a go.
August 24, 2022
Yes, Mark. But who else is there to “have a go”? The same people, policies, philosophies and dogmas that have resulted in decades of government failure?
August 24, 2022
Too true – even with the two leadership candidates, they’re proscribing the same old same old, a little bit of tinkering here and there but overall the same old same old….we need someone bold to initiate real change, change in the tax book, change in the tax philosophy, change in government finance and change in government scope & size
August 24, 2022
I have said this here before.
The alternative would be a grubby coalition of Labour, The Lib Dims and the SNP.
If anyone thinks they could run the country better, the men in white coats need to be summoned.
Yes, the Conservatives need to up their game and return to more proper Conservative policies but since 2008 we have suffered three very serious shocks plus Brexit has not had time to reap rewards.
The cost of the Pandemic has got to be met but the energy crisis and the inflation it is causing are in a whole different league. Nobody has come up with a realistic way forward because the cost is far greater than anything we have seen before.
Any intervention needs to be at source, with the energy companies, so that the expected rises in gas prices do not take domestic inflation up to the predicted 18% and beyond.
August 24, 2022
Chris S
“The alternative is worse.” (How could it be worse !!!!) is the attitude that got us into this mess by voting repeatedly for the party that adopted socialism.
The Tory party will not survive 2024. I doubt we will either.
This is permanent decline. There is no coming back.
August 24, 2022
Mark B
Someone else have a go?
The so called opposition do not instill confidence.
Maybe it is time to put the national debt in all its guises onto a war footing and get together the best financial brains from all areas to try and get us back on track. It wouldn’t have any party political allegiance, only one to the country
August 24, 2022
Allegiance to the country would be a first Turbo.
August 24, 2022
Bur their allegiance is to WEF, UN and any other international organisation.
The British taxpayer comes way down the line.
Thousands crossing the channel bit absolutely no action to stop them. It’s time for some gunboat diplomacy. Stop them in the channel and turn them back. Get a private company to do it oaid by results.
August 24, 2022
Perhaps it is time to seriously consider voting for a party other than the big two wasters.
August 24, 2022
But where, oh where, IS that party?
August 24, 2022
We tried the best Canadian brain …..oh dear.
August 24, 2022
“If you look at the borrowing of the state at the moment, total borrowing, excluding the quantitative easing of 875 billion pounds, which is owed by the government to the government, so if you net that off, we under 60 per cent of GDP, I think that is a perfectly sustainable level.” (Jacob Rees-Mogg on Sky News.)
“He was trying to justify the proposed tax cuts that one of the leadership candidates has promised if she becomes the next British Prime Minister.” (Prof Bill Mitchell Blog August 3, 2022.)
The practice of issuing tradable saving Bonds / Gilts, and calling it them the “national debt”, has nothing to do with funding government spending. They are simply “risk free” savings accounts for Pension and Insurance Funds. The whole lot could be swapped into the Treasury’s own NS&I Income Bonds, with an interest rate the Treasury could change at a moments notice, to suck Pounds out; or, blow Pounds into the economy.
August 24, 2022
Situation normal then? The taxpayer will take the biggest hit and still we will have to find the money to pay for all these gold plated civil service and other government pensions.
How the hell did the country get into such financial problems? For years and years these things were talked about and no action taken to address the situation.
There has got to be some very severe burning of the midnight oil for those very few who are capable of coming up with a solution irrespective of what their political beliefs are.
This will affect governments for decades. In the words of the song ” its the same the whole world over its the poor that get the blame and the rich get the pleasure and its always been the same”
August 24, 2022
Too right Turbo and to think we are where we are due to the incompetence of the 3 main parties who have all been utterly useless when it comes to common sense. We hear nothing about illegal immigration, nothing about lawlessness – and God knows there’s enough of it out there and more to come with what landed on our shores on Monday and nothing sensible about energy supplies and costs. Bring on the Reform party. They surely couldn’t do any worse and with Farage they would certainly be better.
August 24, 2022
+ many FUS – I do wish people would stop voting for the constant failures of the LibLabCon cartel. Not one of them has left the UK in a better condition than when they were elected. Just like EU membership, the disadvantages well outweighed the advantages. They are so alike under the skin, with minor differences, and all pro ‘saving the world’ but don’t really care about saving the UK (unless forced).
August 24, 2022
FuS – well, to be fair – I read that on lawlessness, Rishi says, “the government needs to finish the Tories’ 2019 policy of recruiting 20,000 policemen.”
I don’t know how far along the Tory party are on with this because positive news is never reported. However, I don’t know how useful that will be when they seem to tell off a cricket club for having cctv evidence identifying youth vandals rather than using the evidence to catch and fine the miscreants’ families or give them local community service to keep them busy and off the street.
He is also reported to say, “suggested UK aid programmes should be cut in countries that refuse to accept deportations of “failed asylum seekers” from Britain”. I don’t understand why this can’t just be done immediately by Boris as a final fling, he seems to be rushing through things we’re not going to like.
August 24, 2022
Second that FUS.
August 24, 2022
This is the best argument for a smaller state….half the civil service and quarter the size of parliament – they’re still playing with billions, nay trillions, like we had an empire
August 24, 2022
Very easy explanation. The debts, pension debts, have been hidden off the books
August 24, 2022
The QE liquidity experiment at nominal rates was always going to lead to losses for the taxpayer when the bonds were sold or mature at rates above a min of 1% but then the interests of the private taxpayer isn’t important in a nation in which the State can act ultra vires while those on the outside are expected to behave with ever greater levels of obedience and probity
August 24, 2022
So are we being led to believe that £37 billion lost on duff PPE, test-and-trace, and “consultants” for covid19 was just loose change then?
Why the huge rending of garments and gnashing of teeth over a fraction of that on overseas aid then?
August 24, 2022
I shouldn’t think very much of that £37bn was lost. It was carefully spent on Tory mates who have squirrelled away their wealth quite nicely.
August 24, 2022
There should be gnashing of teeth about it all @child. I recall it is your ilk that often is it is just 1% of the spend or suchlike when defending spending that you like.
Every spend is sacred, spend should not inflate, if a spend is wasted, we must get irate.
August 24, 2022
It’s not just overseas aid though is it? I don’t know if you’ve noticed but at the moment we are spending millions a day looking after what feels like half the bloody world here so all the time this country’s in the sticky and smelly, no, I don’t want to spend billions on overseas aid.
August 24, 2022
The cash cow taxpayer is fed-up with government(s) spending our money around the world just because it makes them look good to the global institutions …and sadly its just a line on a spreadsheet
August 24, 2022
F U S
You are definitely not alone in your thinking.
To quote Littlejohn. “You cannot make this up”
August 24, 2022
not lost, loaded into offshore accounts for a rosy future in due course.
August 24, 2022
Does anyone in government or the civil service even care? The FCA, while under the charge of Andrew Bailey, gave us 39% one size for all personal overdraft rates. Effectively banning them for sensible people and detaching risk from pricing. If this does not show how totally unsuitable the man is for his current job what would?
August 24, 2022
Lifelogic. I remember that and agree if that was him, he should not be in his present job.
August 24, 2022
Government captured by orthodoxy. High taxes, waste and big State good, low taxes, efficient and effective small State, bad.
August 24, 2022
Indeed and endless increases in the scope of what government try (and usually fail) to do remotely competently. Driven by endless over regulation and the NHS/state schools and universities model. Tax people to death then provide “free or subsidised” (but often dire, delayed and rationed) services that the private sector struggle to compete with – this as there is no free and fair competition and the customers no longer have enough money left after taxes to pay for the “free” state “services”. We also see this in transport and social housing to a degree. What is needed is competition rules that address this grossly unfair competition from the state sector – the main cause of such unfair competition. Let people keep their own money and given them the freedom to spend it as they choose to.
August 24, 2022
”Let people keep their own money and given them the freedom to spend it as they choose to.”
Your comment should be on the front of every Tory manifesto
August 24, 2022
You’re describing the philosophy of the Labour government…but alas it also describes the current and future Tory government
Every major party is now NEW LABOUR, its just that some are more new labour than others
August 24, 2022
The ‘government’ is not running the country, the self-serving yes-prime-minister establishment is.
August 24, 2022
To the uninitiated looks like another move to bankrupting us by people we have no control over.
And in other news the Government is totally in denial about the effect of lockdown on cancer survival rates with neither they or the NHS having any plan and equally after years of denial re energy security we are told industry will be forced to reduce consumption, that will be good for an economy entering recession, umpteen police forces in special measures, seemingly more effort put in on social media abuse than traditional crime fighting and the criminal justice system close to collapse.
Your recent posts appear political as Truss’ outlier on BOE and OBR. Easy targets. Acknowledging the denials I have set out and actually sorting out some difficult stuff has far more relevance. The relatively new head of the NHS, a lifer so totally indoctrinated with seemingly few new ideas and the rest of the Executive appear more intent on protecting their own backs and bureaucracy playing the usual ‘lack of funds’ blame game. Your ideas on shaking them up would be a good start to demonstrate that you are serious.
Maybe the
August 24, 2022
As I said on Monday, the government owes about a quarter of the national debt to itself:
http://johnredwoodsdiary.com/2022/08/22/deficits-and-growth-2/#comment-1336357
and I am very concerned that some people seem to be in denial about the obvious correlation between global energy prices, inflated by the war that has been fomented in Ukraine, and our own domestic inflation which will not easily be countered by domestic monetary or fiscal action:
http://johnredwoodsdiary.com/2022/08/23/my-conservative-home-article-2/#comment-1336748
Listening to Zelensky stating his war aims yesterday:
https://www.youtube.com/watch?v=2jutxOeoCgM
it seems to me that the war will never end, because Russia will never withdraw from Crimea or the Donbass – “the contested Ukrainian territories” – and so maybe we will have to learn to live without Russian gas forever.
August 24, 2022
Incredibly complicated because you have to value the use of that money and inflation effects over time. However the very fact that this exercise is carried out by desperate governments mean that value isn’t being bought. Taxpayers’ money being thrown away as it is in so many areas. Who’d hold sterling in such circumstances?
August 24, 2022
We are fortunate that at the moment, there are still people willing to do so JoeS. I don’t think we can count on that continuing forever if we keep on the way we are. For decades now, every time there has been some form of problem, the solution has been to throw money at it – money we simply don’t have.
The value of any FIAT currency (as with crypto) depends entirely on confidence. Confidence (for example) that value is retained (or even improved). Currently Sterling is in decline against the US Dollar but it would be good to remember that the Dollar is falling against many other measures too. Mr Brown sold our gold reserves at an average of about $275/oz – and it’s now at about $1,760/oz. Think of that not as gold increasing in value but more the dollars increasing inability to purchase it…
Of course, you can get away with money printing if your economy is generating surplus – because markets can see that you have the cash flows to repay. When your economy is in deficit and you keep the presses rolling, you are not only over spending but also under earning. Simple when you think about it.
“Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery”
The apparently popular belief that Governments are somehow immune from simple household economics is deeply flawed. Once people stop believing in the value of any FIAT currency, for example Sterling, then it becomes essentailly worthless. People see inflation as being about price – but it is really about risk. If we try to print ourselves out of this problem, especially so soon after doing exactly the same with Covid, then markets may start to think that there is far too much risk involved in Sterling – and then we are in big, big trouble.
August 24, 2022
Thanks for the info John, unfortunately it is just another spending gamble (creative accounting) that has not worked, along with the many others committed by Politicians of all Parties over many decades.
At the moment it seems like every which way you turn the Government of our Country looks broken, nothing, absolutely nothing seems to be working properly, but we are paying the highest taxes in history for this utter mess and chaos.
I see we had another 1,200 plus uninvited people arrive in Dover on Monday, ready to suck on the teat of the State, no worry for them about the cost of housing or heating, just add it to the taxpayers bill !
August 24, 2022
187 yesterday and another 500+ pizzas today
Every hotel full while all our military barracks are empty….living the good life
August 25, 2022
Update – 532 pizzas on 11 boats……and with all the media attention no one saw them leave France
August 24, 2022
Indeed and endless increases in the scope of what government try (and usually fail) to do remotely competently. Driven by endless over regulation and the NHS/state schools and universities model. Tax people to death then provide “free or subsidised” (but often dire, delayed and rationed) services that the private sector struggle to compete with – this as there is no free and fair competition and the customers no longer have enough money left after taxes to pay for the “free” state “services”. We also see this in transport and social housing to a degree. What is needed is competition rules that address this grossly unfair competition from the state sector – the main cause of such unfair competition. Let people keep their own money and given them the freedom to spend it as they choose to.
August 24, 2022
Is private education divisive? On radio 4 yesterday illustrates the mindset. Fiona Millar (Alastair Campbell) partner I think. How on earth can this dope think private schools are subsidised by the state as they do not have to pay VAT! Can anyone really be that daft? You pay three times over for private schools (once in taxes for the state schools, more in taxed on income you need for the fees, then they fees – it would be four times if they added VAT too. Then she wanted Oxbridge to recruit non on ability but on state sector/private sector quota’s she even though this was “a market based solution!” In health care you already pay four times with insurance premium tax @ 12% generally best just to save and pay when needed I think as with most insurance for most people.
Fiona Millar even studied studied economics and economic history at University College London surely a bit like going to study physics but not understanding the difference between energy and power or how to compute 2^10!
August 24, 2022
No only that but putting VAT on school fees would not even raise any net tax as it would push even more students onto the state system and probably kill many good schools. Let us hope Truss unlike Theresa May actually does something about Grammar schools and into getting more real and fair competition into schools, healthcare, transport, banking, housing…
August 24, 2022
However it is dressed up it amounts to debasement of the currency. Could it be the case that the incompetents don’t know they are incompetent?
August 24, 2022
Sounds like “The Peter Principle” – “every employee to rise in the hierarchy through promotion until they reach a level of respective incompetence.” with a bit of Parkinson’s Law on the side 🙁
August 24, 2022
Or they know but just do not give a damn.
August 24, 2022
We know why this has happened. We’ve had a Socialist Government since 1945, with just a brief interregnum of Conservatism between 1979 – 1990. Socialists, whether they wear a red, yellow or blue rosette, always run out of other peoples money.
After 12 years of supposedly Conservative Government, every aspect of our governance is more left-wing than ever. And with the LibCON shower in Parliament, I can’t see that changing any time soon.
August 24, 2022
We’ve had a socialist & woke government for the past 12 years….and I don’t see it changing anytime soon
August 24, 2022
Indeed even Thatcher failed to cut the state sufficiently (it is now at least double the size it should be and it delivers very poor services indeed), kills many good Grammar Schools, buried us further into the dire socialist anti-democratic EU, appointed the extremely dim John Major as Chancellor and even let him join the predictable disaster that was the ERM! So duly burying the Party for 3 plus terms. Something I am sure Sunak would also do with his tax to death, currency debase and endless waste, I know better than the electorate agenda – not that he will win surely?
August 24, 2022
Left wing ought to be improving the lot of the lower paid, working class!
Someone has lost direction.
August 24, 2022
The Tories are the new left-wing but fail to understand their new position, while Labour the old left-wing are now the new Marxist-Green and completely fail to understand their new position – We now have, in effect, a one party celebrate system
August 25, 2022
I read that as celibate, and thought no! it can’t be, went back and got it!
August 24, 2022
Over the long term how much interest are we paying ourselves for holding those bonds? I assume it will be more than the £112 billion over the life of the £812 billion in bonds.
£812,000,000,000 of printed money – nearly one year of government revenue through tax take. Is it any wonder that there is too much demand in our economy?
August 24, 2022
and we’re still spending billions on HS2 and immigration, and borrowing to give money away free to the world…..what ever happen to cutting your cloth accordingly
I’d support a law saying that it was unlawful for national and local government to borrow money
August 24, 2022
The interest payments are credited to the Treasury every quarter after allowing for the interest on the loan to the BEAPFF from the Bank, charged at Base Rate, and the small amount of costs in operating the fund. There is no reserve against realisation of capital losses, which have to be funded by the Treasury when they occur under their guarantee.
As Base Rate rises the interest on the BoE loan will become a much more important sum relative to coupon income, and indeed it could exceed the portfolio yield, resulting in net payment to the fund from the Treasury to cover the operational loss on net payments of interest, as well as any payments to cover capital loss on redemption.
In terms of cash impact on the PSBR, borrowing must be increased by any net payment from the Treasury to the fund on interest and redemption losses, plus the nominal amount of gilts redeemed without being replaced by further purchases by the fund.
While the stock of QE was either steady or being increased and Base Rate was low the net coupon income was sufficient to cover any redemption losses, and so resulted in a reduction in the borrowing requirement since there was no net liquidation of holdings either.
Redemptions in the early life of the fund were necessarily short maturity gilts, so the purchase price premium to par was mostly small except for high coupon gilts issued during high inflation but nearing maturity. As we move forward in time redemptions will be of gilts that were longer dated at purchase, having a much higher premium to par.
August 24, 2022
Thanks Mark
August 24, 2022
It used to be possible to calculate the sums to the penny when the BoE published a complete spreadsheet record of all their purchases that anyone could download and analyse. I’ve done it myself and reported the calculations here. But such data transparency is now non existent as far as I can see.
Moreover, up to date gilts closing prices and their history were provided by the DMO until 5 years ago, which made for easy mark to market valuation of the portfolio. Now if you want current data you must reveal your email, name, company, phone number and country of residence to an outfit called Tradeweb for an online access account. Supposedly at least the current data are “free”. Not sure about the historical record though – doubtless there would be lots of attempts to upsell, and who knows where they pass on your data. Perhaps the FT still publish a list of closing prices as an alternative, but I’m not sure that it is comprehensive.
August 24, 2022
Blatant currency debasement by Rishi Sunak, more back door taxation in effect, this on top of all his vast, manifesto ratting, front door taxation.
August 24, 2022
What interest is the BoE earning on the bonds?
August 24, 2022
The BoE earns Base Rate on the loan to the fund that purchased the bonds. That is offset against coupon payments on the bonds, with any surplus paid to the Treasury.
August 24, 2022
What is the average maturity of the bonds issued since 2008? Ten, twenty, thirty years, longer? Without this information isn’t today’s blog missing a good deal of its relevance?
See obr.uk ‘Debt maturity, quantitative easing and interest rate sensitivity’ , March 2021
August 24, 2022
An unrelated question about domestic energy bills. What is the legal basis for adding costs to my gas and electricity bill to cover the costs of the Bulb administration?
My contract is with eOn. I never had any dealings with Bulb or any of the other failed suppliers. So how can I be invoiced for the their costs?
As a follow up I understand that now Bulb is in Government ownership they are not allowed to forward buy energy. This is clearly a failure on the part of the Government as I am sure the rules were never intended to cover these circumstances. We have ministers berating companies for not having sufficient forward purchase arrangements in place who take over administration of the companies and then are only able to buy on the spot market thus making things much worse.
August 24, 2022
As soon as governments had any dealings with energy in this country it became a total mess and remains so due to their incompetence. They know what needs to happen but are still in awe of Greta.
August 24, 2022
Also why are we still paying ‘standing charges’ on energy bills…it’s a government scam
August 25, 2022
In addition to the SOLR costs that I explained elsewhere the standing charge is now covering almost all the fast rising costs of the grid and distribution infrastructure, much of which was spread on a per kWh basis previously. Those on prepayment meters find that the standing charge is deducted first before anything can be used towards actual supply, so the Grid gets first dibs on the money. These charges are only going to get a lot bigger. Consider the East Anglia Green project that Sunak has chosen to raise as a local issue. NG say:
The existing network in East Anglia currently carries around 3,200 megawatts (MW) of electricity generation. Over the next decade we expect more than 15,000 MW of new generation and 4,500 MW of new interconnection to connect in the region.
Not yet clear whether Sunak thinks the cables should be buried at ten times the cost, or whether they should be cancelled along with NG’s Net Infinity plans for Net Zero.
August 25, 2022
Good Update
August 24, 2022
A sensible government would have let Bulb go bust. But I suppose there were ‘certain interests’, of which one can only speculate, to consider.
August 24, 2022
John E
Exactly the point I made a few weeks ago, all of these so called energy companies were private companies, so why are not the founders/shareholders and suppliers not footing the bill for failure, did the taxpayers or competitor companies customers get any of their past profits. ?
Likewise smart meters, we are all paying even if we do not want one ourselves, its added to our bills.
Likewise Green levies, if the product is so good why does it want a subsidy/charge added to everyones bills.
August 24, 2022
Spot On Berkshire Alan
August 24, 2022
Probably no more legal basis than there was for using taxpayers’ money to bail out the PRIVATE SECTOR banks. Privatise the profits; socialise the losses.
But that didn’t matter to the Socialist Establishment….. and neither does socialising the losses of Bulb.
August 24, 2022
OFGEM’s sleight of hand on this is that Supplier of Last Resort costs are in fact incurred by the new supplier who is therefore entitled to recover them as part of its costs of business.
When you examine what costs they are allowed to claim for they include the credit balance a customer may have had with their previous supplier. When I paid a deposit on refurbishing my bathroom and the company went bust I ranked with other creditors and didn’t see a penny. I see no reason to treat energy customers differently: caveat emptor. Understand that loaning money comes with risk, and exercise rights to pay only for energy consumed and billed. Over 20 years ago I complained to the regulators about the practice of inflated estimated readings as being fraudulent recording of revenue for goods not supplied.
Another major element arises because the new supplier is expected to provide energy at capped prices that were calculated based on prices months previously, whereas they have to buy in extra energy at current prices to meet the supply, on which they will make a massive loss. Of course, the bankrupt supplier almost certainly held inadequate or even no forward hedges, which had allowed them to undercut mainstream suppliers when prices were falling (as they did particularly through 2020). Any hedges are not available to be transferred to the new supplier, because they are assets of the bankruptcy. This aspect goes to show that the cap is a bad way of operating the market. Insurance is normally a market that requires strong capitalisation by regulators. That applies equally to price insurance in energy markets in my view.
It would make much more sense to separate out price insurance and ensure that it was properly capitalised and also properly costed by experts, instead of the assumption that losses will not be borne by the bankrupt company because they will be socialised. I consider that former customers should absorb a good share of the pain, since they are the ones who previously benefited from under-pricing by companies who cut corners on hedging costs. Also, cancel all OFGEM bonuses for failure to regulate properly.
A further element arises because many of the bankrupt companies failed to pay the sums due on Renewables Obligations. The law states that such shortfalls should be mutualised and paid by customers. Especially in current market conditions I think that the pain should fall on ROC funded generators, who really have no need of the subsidies on top of record market prices.
August 25, 2022
I cancelled my direct debit and now pay quarterly. My supplier keeps sending me emails asking me to go on direct debit again and offering me money off to do it. I won’t. I just don’t trust them with my bank account, they could sink my budget any time they like. I am not worried about bankruptsy of the firm but of the inflated amounts they want to take to fund their business. I’m not having it. I suggest ignoring the direct debit discount which is now minimal in the scheme of things and pay as you go. You can always lob in some money each month if you want and I may even do that.
August 24, 2022
On the issue of energy, the solution is actually easier and cheaper than our brain-dead politicians seem to realise. The government just needs to change the gas extraction licences and contracts so that those extracting gas from UK waters, or supplying renewable energy (eg. wind), are obliged to sell to the UK market at a fixed price: production costs + 7% (say) profit margin. There is NO logical reason why we should pay the global spot price for energy produced within the UK. Sure, we’ll have to continue paying the market price for our imports, but we only import 50% of our gas, so the impact of the price increase should be much more limited than it currently is.
August 24, 2022
CORRECT……SO WHY ISN’T OUR GOVERNMENT DOING THIS TO HELP THE PEOPLE OF THE UK ???
August 24, 2022
Totally (probably) not about the bonds in the article. However it never once occurred to me that the BoE has a hand in the woke greenery.
Apparently it issues bonds to companies (to help them?) and makes green requirements of said companies.
From Bank of England website.
“We want firms whose debt we might hold to change their behaviours in meaningful and lasting ways that support orderly transition to net zero by 2050 – not simply to minimise the current climate footprint of our portfolio. Exclusions or divestments will be part of the toolkit, but only where they incentivise that transition;”
August 24, 2022
All the banks are now doing this. It won’t be long before one won’t be allowed to buy an organic, grass fed, local lamb chop for one husband’s dinner. “No meat Monday: transaction denied” will be the answer, and no cash will be available. Next it will be no lamb at all.
August 24, 2022
+1
August 24, 2022
At present the Bank should be mandated to support the financing of development of gas resources at home and abroad instead of trying to prevent it.
August 24, 2022
+1
August 24, 2022
Apparently the taxpayer is also funding (at this time of financial horror) a truly appalling flower dis arrangement of blue and yellow weedy things trailing horribly over the doorway of number 10.
To celebrate Ukraine Day or some such.
August 24, 2022
Really? What’s to celebrate? Just misery for millions including people that aren’t Ukrainians.
August 24, 2022
But it’s a good day for that florist, who has probably got the promise of skyrocketing energy bills and business rates whether they make money or not to worry about.
August 24, 2022
I’m not entirely certain that particular display makes a very good advert.
The blue and yellow theme has been generally overplayed.
To the point of psychological mind games.
August 25, 2022
You made me go and look; the sunflowers are gorgeous, they scrimped with the hydrangeas, but if my garden hydrangeas are anything to go by, the sunshine and lack of rain this summer did for those flowers this year. Those flower arches are all in fashion now, around shop doors, perfume shops, posh cafes and restaurants to attract paying clients and used in weddings – all that free advertising they’ve got I’d have done the job cost only for that level of exposure.
August 24, 2022
Before he is cast into the political wilderness and as his dying swansong Boris Johnson visits Ukraine – in the words of Theresa May ” the country I love”.
August 24, 2022
Or in the words of Mary Tudor..
“Carved on my heart”.
I wonder if she showered Calais with gifts and cash extorted by her tax gatherers?
August 25, 2022
Indeed. Government and public sector institutions are never short of money to waste. This is what has to change. I think every public sector organisation should have a ‘lay member’ – a volunteer member of the public- to review and sanction spending. If spending is deemed wasteful or frivolous, the public sector management to redeem that spending out of their own pockets. That would focus minds.
August 24, 2022
PS. My solution for the NHS is to split some of it up into different sections. Cut the top off the management. So one section for cancer, one section for GPs etc. Call them the “National Cancer Service”, “National GP Service”. Allow private health care to compete for patients. Then learn the lessons from the railways by keeping the common infra structure and standards in other Gov departments.
August 24, 2022
General hospitals proved to be focal points for Covid infections… everyone ill converged on one site and infected each other.
Cottage hospitals would have mitigated this.
August 24, 2022
Transparent and open responsibility and accountability is long overdue and creative accounting made illegal in the Public finances. Appalling under the counter smoke and mirrors on a mega scale.
August 24, 2022
“Neither a borrower nor a lender be; for loan doth oft lose both itself and friend, and borrowing dulls the edge of husbandry” Hamlet.
I’m sure Shakespeare would today include the printing of money
August 24, 2022
If I were to run my household budget like this I would have been out on the street a long time ago.. looking at the home grown scene everywhere I look I can see only incompetence and waste
It is clear we cannot leave things to politicians and bankers anymore – so time to own up and bring in the technocrats – foreigners – people who have no vested interest in this country – people who can make the unpopular hard decisions to get us back on track – it is so obvious now we are not able to do this by ourselves – and where does if say that we have to have a politician as head of Treasury or even as PM.
August 25, 2022
Quite Mike, but it does give people the sense they have some sovereignty over their taxes and the country’s finances when it is just a mirage.
August 24, 2022
£112 billion is indeed a very large figure but it pales into insignificance compared to the public sector pension liabilities of £2 trillion and to the deliberately un-costed project to net zero our 1% contribution to global CO2 emissions whilst making us reliant on China for our wind turbines, solar panels and batteries.
All of which will be made worse by the uncontrolled immigration of economic, but not necessarily cultural, migrants.
August 24, 2022
The story of 50 years of poor government in the UK can be illustrated by looking at the GBP – CHF exchange rate over that period of 50 years.
See:
https://tradingeconomics.com/gbpchf:cur
Swiss inflation is about 3.4 % at present.
Can someone tell me how I might remove myself to Swizerland. They don’t hand out 4 star comfort to all who just turn up there, unlike here.
August 24, 2022
You didn’t mention the banking shares and the money the gov lose on them. £3 trillion in debt is coming, I see on GB news that government pension debt for civil servant has reached 2.6 trillion pounds which includes john pension, on top of the 2.4 trillion and PPP private debt and not forgetting the railways debt with the rest, the gov has no intentions of paying any debt off, ever, so one must ask oneself what is the end game and are you now in the end game of debt, look for another con job coming with the IMF and company. How your war going, have you won yet because it jjust cost the public the shirt off their backs along with net zero.
August 24, 2022
Am I the only one who finds this all unintelligible? £844 billion of ‘reserves’ was created to buy bonds that are worth £732 billion at redemption. The £112 billion difference is apparently real debt. But who is it owed to? If I could ‘create reserves’ and bought a car for £20k and sold it a year later for £18k, who would I owe the money to? And what about the interest on the bonds between now and redemption? Why were the bonds bought in the first place?
August 25, 2022
Just remember fiat currency is inherently worthless and the financial economy is an illusion.
August 24, 2022
Mr. Redwood – would it be impolite to enquire what your government is actually doing about energy cost and energy security? From what I can see, your government is doing absolutely nothing.
That’s fine, of course, if your aim is to move gracelessly into opposition and enjoy a quiet life for a couple of terms. I have to say that it is difficult to come up with any other explanation. Labour only have to say ‘we will freeze energy prices’ and they will win a landslide that will dwarf 1997. It might even wipe out your party.
August 24, 2022
Was this a case of a right “Charlie is my Darling”?
August 24, 2022
Apologies for some lengthy though hopefully informative replies to some of the comments.
August 24, 2022
Really informative, thanks Mark.
August 25, 2022
private fight – or can anyone join in?
August 24, 2022
“…the Bank said it needed a Treasury guarantee as it could not itself afford the potential losses…” – and it was right! Hurrah.
So now all that is needed is for the issuer (HM Treasury) and holder (stooge of HM Treasury) to agree a variation to the terms of the subject gilts such that the interest rates they pay to maturity are a little more than current market. That done, the entire portfolio can be flogged off for an accounting profit.
August 24, 2022
I do not pretend to understand these things Sir John.
All that seems obvious to me is that –
By high taxation on Business and Working people, Government and Banks are stifling Production of Useful Things.
August 24, 2022
How much money will mugs lose you, the lot and more besides, they have had what they wanted out of it.
August 24, 2022
Sir John discloses this horror – another example of the country’s bankruptcy, brought to bear particularly under the insane and incompetency of Boris. He has destroyed the economy and our social and moral base.
He has no principles, nothing mattered above his fame and popularity. Our society is consequently collapsing because millions copy the view that lying and bullying is acceptable. Crime and deceit is acceptable.
His successor will need enormous courage and determination and support to fight the evils he has left us with, assuming it is understood.
August 24, 2022
The problem is, they don’t know anything about money apart from what good for themselves, and for indicator’s they use to guage the economy are 90% usless. That’s the way they like it.
August 24, 2022
Another 500+ illegal immigrants reported today
That’s the size of a full strength battle ready British Army Regiment
Are the Tories trying to throw the next election?
August 25, 2022
The election is the least of it. They seem to be throwing the country to the dogs on instructions from WEF. Once the stock market crashes the foreigners will be in like flies round a (you know what) taking over anything and everything. Remember, you will own nothing and you will be happy. Looks like we’re well down that road now.
August 25, 2022
graham 1946: That road, well, our PM, I think, has in effect this week said we have to grin and bear it and basically tough it out and similarly, France 24 stating the words of the French President that …… the world faced the end of easy abundance of goods and resources and ” of a certain carefreeness” …..
August 24, 2022
Dear Sir John Redwood
I do not think The Right Hon. Lady Liz Truss, our (likely) new Prime Minister knows the scale of the Economic Tsunami likely to hit her in the next few months: We have soaring Inflation (mainly fuel and food), Recession, an NHS Meltdown, increased poverty and soaring crime in our cities- all of which require urgent attention. There will be a need for more money to be spent but Inflation will need to be reduced: How?
Only three big necessary policies will help deal with all these issues. First, Sterling must be tied to Gold as it was in the past using existing Gold in the Bank of England and new Gold bought up from the proceeds of selling the QE bonds on the market. This will arrest the slide in Sterling and deal with a lot of the inflation.
Secondly, Foreign Aid and Quangoes all need to be hacked back to free up the funds to pay for Social Care- to relieve pressure off the NHS and to pay £50,000 for one million people on waiting lists for urgent treatment to get Private Medical Care (abroad if need be). The Army need to be drafted in to help hospitals, as during the Pandemic. The Army should also be drafted into crime-ridden cities, like Liverpool where three murders have happened over the last week, in order to help restore order and prevent violent crime and more resources must be given to the Police.
Thirdly, remaining stakes in part nationalised banks should be sold off over the next 12 months to raise another £25 billion to help pay for measures to alleivate poverty and some (not too much given the high National Debt) increased borrowing should be allowed to cut Income Tax, reverse the rise in National Insurance and cut fuel duty heavily. It will also be necessary to cancel the rise in the cap to fuel prices in October, part funded by £15 billion borrowing and telling Energy Suppliers to find savings.
More than £40 billion extra borrowing over the next year risks causing a major Gilts Strike and a run on Sterling. That would be like another Black Wednesday moment that the Conservative Party should strive to avoid. Liz Truss ought to consider selling the entire rail network to the Private Sector to raise over £100 billion (to forestall this risk).
If the Right Hon. Lady Liz Truss thinks Tax Cuts are the cure-all, massive Electoral Defeat on the scale of 1997 awaits the Conservative Party in 2024.
August 24, 2022
Why would central Government care? It’s not their money. In case you haven’t noticed, it has no money.
August 24, 2022
After Ukraine Ind Day – showing gratitude would they offer to take all the illegals from us for compulsory rebuilding their country – after sending the Ruskies home battered?
August 24, 2022
You couldn’t make it up! A phrase we hear a lot of thanks to Littlejohn. We’ll John, I’ve just listened to Farage and to be honest you couldn’t make it up. If we were listening to a satire comedy we’d all be saying ohhh, well that would never happen. Well I’ve got news for you, it is bloody well happening.
August 24, 2022
Farage reported that the Greeks are physically pushing 1,500 illegal immigrants back to Turkey – the big question is why can’t we !
August 24, 2022
My wife is screaming at the TV screen as Farage asks the question “Who is running the country at the moment”
####ING NOBODY YOU #######
I am sure she is well supported in her thinking and total frustration of the current events. What a state we find ourselves in at the moment.
Paul Connew ex Sunday Mirror came out with a lot of common sense thinking.
Maybe that what our politicians have got to revert to using common sense but take away about 50 and then your going to really struggle.
August 24, 2022
I also despair
August 24, 2022
Just because Ministers aren’t prancing around on your screen doesn’t mean they aren’t doing anything. It looks to me as if the Home Secretary and the Chancellor of the Duchy of Lancaster are working particularly hard.
August 25, 2022
rose, maybe but nobody is told what they have achieved or are achieving. All we’re hearing is Boris is on holiday the whole top table is on holiday, I don’t believe that but the none political watchers do.
August 25, 2022
You can work hard digging holes and filling them in again to no result. . Not much evidence of any result from this ‘hard work’ Problem is they don’t believe in doing what needs to be done, especially where immigration is concerned. Everything in this country seems moribund and takes too long. Thank God MP’s don’t run freight companies or supermarkets or we’d all starve. They have no concept of urgency.
August 25, 2022
The 1951 Convention on Refugees is being abused; so is the ECHR; added to those are Blair’s Human Rights Act and Harriet Harman’s Equality Act. How do you propose the Home Secretary gets the recklessly irresponsible Parliamentarian majority to revoke these? They won’t. They won’t even take back Northern Ireland or properly curtail foreign aid. She, the Foreign Secretary, and the Lord Chancellor have all been working on this, thanklessly, but they need a responsible majority in Parliament to get anything through. That is why it all gets watered down. They are not the foe.
August 24, 2022
+10000…Spot on Ian. My concern is why your suggestion has not been done before, it’s not rocket science. The Government is creating a bigger problem for itself allowing this to continue. How is it sustainable??