Who owns our debt?

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I’ve a good friend who lives on Bryher in the Isles of Scilly. It’s beautiful. I recommend you go for a holiday.

My friend would never, I think, claim he’s an economist, but he asked a darned good question of me yesterday:

Hi Richard

As a matter of interest, all this debt that UK/USA et al have, who do we actually owe it too, is there a James Bond type Baddie that has lent us all trillions and is now wanting it back?


Amazingly it’s the question few dare ask — which is why it is just so good.

Thankfully, because the stats are a little obscure within the Office for National Statistics, the BBC has done some of the job for me in answering he question. Their data is from last September, but is good enough.

This is who owns UK government securities:


Over time the movements looked like this:

So out of gilts then in issue of about £770 billion near enough one third was owned by insurance companies and pension funds.

Of the increase in debt since 2007 almost all has, through quantitative easing, been issued to the Bank of England.

The pattern of debt increase has been as follows:


As the right hand graph shows, it was financial intervention that fuelled quite a lot of the growth in debt. The reality is that this has, in effect, been financed by printing money through quantitive easing — which we had to do or the balance sheets of our banks would have collapsed and the economy as we know it would have ceased to function.

You’ll note that overall, overseas purchasers of UK debt have increased their exposure to the UK. The trend is continuing. As the FT noted yesterday in the first quarter of this year:

In the UK, foreign investors bought a net £20.37bn in UK gilts in the quarter from January to March, a record volume since data was first recorded in 1982, according to the Bank of England.


Foreign demand for US and UK financial assets has surged amid anxiety over the turbulence in European markets.

There’s no reason to think this trend will not continue.

Given quantitative easing has ceased, at last for now, there is unlikely to be growth in the Bank of England holding.

But let’s look at what this means.

Firstly 70% of all debt, or thereabouts, is UK owned.

At least a quarter of it is owned by the Bank of England — and therefore costs us, in effect, nothing. After all, the interest paid goes back to the government.

One third of it underpins old age pensions — almost all annuities used to pay UK private sector pensions are backed by UK gilts.

Big business is cash rich right now — because it is refusing to invest in anything (which is why the government must — remember this is a private sector generated recession) and until they have the confidence that their biggest customer — yes, that’s the government — is going to spend more they’re not going to invest. So the longer Osborne cuts the more cash there will be to buy his debt — even though we’ll all be worse off as a result and he won’t cut the debt pile by a penny as a consequence of his cuts because the private sector is refusing to hire the people he’s going to sack. and whilst the Euro is weak — and it’s going to be — gilts are a good place to be.

In other words, we have a stable, manageable and saleable debt.

All of which means making cutting it the number one priority of government an act of folly when the number one priority of government is to increase growth — and only government spending can do that.

All of which makes Osborne’s deliberate attempt to unsettle the market look grossly irresponsible. And all of which makes the claim we need an emergency round of cuts seem like just what it is — political rhetoric sailing us in exactly the wrong economic direction.

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