My Financial Musings...The Revival of 100 year loans.
Wednesday is Budget day and a day when we ponder the financial cost of Covid. The government unleashed close to £400bn fighting the pandemic and saving lives. No one disputes this was the correct course of action. But the question arises - who pays for this? The last financial crisis in 2008 left the tax payer picking up the bill and years of austerity for those least able to afford it.
Does the Chancellor have another way?
After the First World War, the government issued War Loan Bonds, the last of which was repaid in October 2014, almost 100 years later (1). And what’s more, this 4% Consolidated Loan, not only included debt relating to the First World War but consolidated a number of prior war loans going back as far as the Crimean and Napoleonic Wars. (2)
Interest rates are at historic lows with the UK 30 year Gilt yielding 1.4% and savers are hungry for yield with cash deposits earning nearly nothing. This leaves the Chancellor with a 1-in-50 year opportunity to issue a COVID BOND that will benefit investors and effectively ease the pressure of recent emergency spending. Inflation may pick up over the next few years but that is a risk savers can afford.
The bonds were sold to private investors in 1917 with the advertisement: “If you cannot fight, you can help your country by investing all you can in 5 per cent Exchequer Bonds.”(2)
“Replace the word war with COVID and at the very least the Chancellor has options”.
Sarah Lavers - 1st of March 2021- My Financial Voice
(1) https://www.gov.uk/government/news/chancellor-to-repay-the-nations-first-world-war-debt.
(2) https://www.theguardian.com/business/2014/oct/31/uk-first-world-war-bonds-redeemed
Picture