Who would have thought it? George Osborne is the new, and apparently the biggest, fan of government debt. Ad the Guardian report this morning:
More than £1bn of the government's new market-leading pensioner bonds have been sold to more than 110,000 over-65s, according to George Osborne.
The chancellor said the sale had been “hugely successful” with £1,153m worth sold in the first two days.
A pot of up to £10bn has been put aside for the 65-plus bonds.
Osborne tweeted: “Latest figures this morning show that we've had biggest opening sales of a retail bond sale in modern British history.
“Our long-term economic plan involves supporting savers. Can report that our 65+ Pensioner Bond proving hugely successful.
The hypocrisy inherent in this is quite staggering.
First, Osborne has suddenly realised that there's no problem funding the deficit with debt because that's precisely the savings product people want to buy. But I am sure he will not change his austerity plan as a result.
Second, for a man who says he wants to cut the deficit he's also sending out the message that he has no chance of doing so: he's saying there's plenty more debt to come. But I am certain he will not admit that.
And third, for a man who obsesses about the cost of debt to future generations here he is selling debt at 4% when he could quite easily sell it for less than half that price elsewhere. No one has done more to burden future generations than he is as a result. But the tune will not change, I am sure.
So why is he doing this? Candidly, it's little better than gerrymandering. He's literally selling the government's silver to buy votes form the over 65s. Bribery is the nicest and politest possible term for his policy.
And it's consequence? Four things.
First, over priced debt.
Second, a burden on younger generations to transfer wealth to the elderly.
Third, a transfer from those without wealth to those with wealth (no one buys such bonds unless they already have savings).
And a distortion in the market as a result of deliberate government action.
You could not make it up.
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Will this remove money from the pension schemes investments?
If so what will the government use these funds for
Thanks for you blog i am a avid follower but no expert
Rod
Coupled with the disaster on pensions this all feels like Osborne is willing to trash the country to win
But I guessed we all new that
‘Minister, he ‘s not “literally selling the government’s silver”. He’s selling bonds.’
‘Don’t be so pedantic, Bernard.’
Sorry, Richard.
Spot on though
Sadly, it is not true and abiding love. It is but a brief flirtation that will end in the spring as the may flowers bloom. And then the may flies will bite. Might these bonds turn out to be not quite as blissful as all their lovers assume? Where’s the catch?
The catch is the rest of us are being fleeced
I think you have talked before about using pension fund holdings to support national infrastructure investment. I presume this is significantly different to Osborne’s pension bonds – could you explain how? Presumably these bonds are being marketed to (relatively wealthy) individuals instead of larger less wealthy groups?
Osborne’s merely selling standard government debt at over value
I am suggesting selling specific debt to fund specific projects e.g. new social housing
Absolutely fundamentally different
All bonds will, inevitably, be bought by those with cash
But the difference between Osborne and me is he’s flogging the silver: I want to build a future
Richard. The chancellor has always acted politically. He always will.
It is no good considering his actions in the light of economics, because politics rules his world.
I am considering the probability of Cameron being the chancellors hand puppet.
Cameron’s always been the puppet
Cameron is the PR guy for the people like Osbourne, Letwin & Maude. That is all.
Hmmmm
“The TaxPayers’ Alliance has described the bonds as a “bad idea”, however”
“Campaigns director Andy Silvester said: “They’re not only taxpayer-guaranteed investments for the already relatively well-off, but leave the government borrowing at above-market rates.
“Too often during this Parliament it has seemed as if austerity stops at 65 – it’s almost as if pensioners are more likely to vote.”
http://www.bbc.co.uk/news/uk-30862028
Obviously, someone else has got the message!
Worrying that the TPA and I agree
Many pensioners are relieved to be finally getting a small return on their hard earned savings after having received almost no return on their savings for several years. Do you have some problem with pensioners receiving this? Or are you mainly only interested in looking after your striking Socialist pals in the Trade Unions and public sector workers? Most decent people in this country would always want to first try to help our pensioners who have given so much for this country.
You ignore the fact that pensioners have already done staggering well out of the austerity agenda – the only people who have
Buy please keep to your myths
I, like my union friends and public sector workers will stick to facts
Not just austerity, Richard.
Pensioners are also the beneficiaries – at the expense of younger generations who will never be able to afford a home – of massive unearned wealth from the property bubble. Add to that a free higher education while burying the younger generations in debt.
Completely unsustainable.
Agreed
Talking of facts, I heard Osbourne ranting in Parliament about how Labour will tax and spend and create more debt if they win the election and then we get this policy from the same mouth that said of all of that!!
Osbourne is a liar – plainly and simply – a liar. He has brought his high office low indeed.
If you think that pensioners are doing “staggeringly well” these days, then why are millions of them afraid to even turn on the heating in winter because they can’t even afford to heat themselves? Are you really so blinded now by your Socialist and Trade Union agenda that you have lost all your sympathy for even the most vulnerable people in our society?
Every pensioner has done better than those on other benefits
All benefits are too low and I would argue all should be increased
But that does not change the fact that pensioners ha done better
It is you who may be ignoring everyone else
My concern is inclusive
Hmm Methinks the pensioners who can’t afford to turn on their heating, won’t be the ones buying the bonds and getting the 4%!!
…or is that too obvious?
Why is it that some people insist on perpetuating this myth. The idea that there is a uniform social group called ‘pensioners’ is so false it’s risible. Let’s be clear here. What you are talking about is wealthy pensioners. I live in an area with a proportionally high aging population. Most of my neighbours, my own parents and their friends are well beyond retirement age. And yet I cannot think of a single individual who would be in a position to make this kind of investment. Proof, were proof needed, of exactly who this is targeted at is readily available in the fact that 110,000 people participated. That is approximately 0.89% of the population at state retirement age or beyond.
Outside of this wealthy near 1% most pensioners are more concerned with the cancelling of ring and ride services, the closure of day care facilities, the collapse of social care, and, most of all, the funding of an NHS that does not leave them stranded on a trolley for four hours.
But you go ahead and peddle your rose-tinted myths. Don’t let the facts get in the way of a good fairytale.
Absolutely. This government cynically shelters their own interests behind the worthy ‘pensioner’ label.
In simple terms, the financial interests of the never-needed-to-work and the knackered-from-a-lifetime’s-work coincide.
Or to put it brutally, we are governed by people who Retired at Birth.
Read the comments section in the BBC news story.
High-interest savings, but only for those over 65. I wonder how that stacks-up with equalities legislation…
Alan
Many pensioners are scared to put the heating on because the Tories privatised many of the utilities in the first place without setting up an adequate system of consumer protection against unreasonable price rises. Price rises which are being used to create attractive returns to attract investors.
So much for markets being able to price ANYTHING properly. Dream on Alan.
“All benefits are too low and all benefits should be increased.”
Well I guess that is one of the main differences then between Conervative and Labour.
Conservatives want the best benefits for our pensioners. We don’t want the best benefits for able bodied people below the pension age, who are able to work. Labour want benefits for millions of able bodied people who are able to work. This destroys an able bodied persons incentive to work and the country is also not able to afford it.
You ignore the fact that Conservatives want people tp work on wages that are too low to live on
That is the difference: exploitation or a chance to live
Your rhetoric is one that seeks to justify the abuse and exploitation of millions
Decent political parties want to, at the least, alleviate that abuse
By better wage regulation and by restoring the freedom to organise in the workplace that provides working people with a chance to negotiate on unequal but at least less asymmetrical terms they would also seek to create decent pay which would end the need for the vast majority of benefits that are paid to people in work – a fact which your comment conveniently ignores
And how exactly do all those pensioners who are afraid to put the heating on benefit from this scheme? And why, after 5 years of Tory government are they afraid to put the heating on?
You see the problem is no matter how you try to gloss it, your Neo-liberal pseudo -economics have been exposed for the fraud they are… Nothing more than the Emperor’s New Clothes.
I have struggled to think of any arguments in favour of the scheme and all I came up with is the vague hope that it might convince some of the banks to offer slightly better interest rates on fixed term deposits for pensioners.
Richard, am I right to assume that both these new bonds, and Osborne’s preposterous new rules allowing people to plunder their pension funds are both infractions of that intergenerational co tract you have often spoken about? That they are both clearly bribes directed at the “grey” vote is so blindingly obvious, I’m surprised the Serious Fraud Office haven’t been alerted.
Andrew, you are completely right
This grey vote bribe was also built into the Bedroom Tax which magically stopped at pensionable age despite the fact the this was the very group that would have the most spare rooms -not that this ‘tax’ was even justifiable from that point of view.
The earlier plundering of personal pensions has added to the continual bubbling of housing and now this act of consummate social irresponsibility.
It’s all based on stimulating the “my corner’s alright, sorry about yours” blinkered world.
This is corruption. As a conservative, this action distorts the market by allowing those with investments to reliably obtain a high rate of return without the risk. As a socialist, this is morally repugnant, as it is in effect a transfer from the poor to the wealthy – as you have rightly said above.
I understand that this will wipe out savings made by benefit restrictions (note, as Simon say, not the benefits which go to the wealthier members of society).
Source and a much better take on it than I can muster: http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2015/01/against-pensioner-bonds.html
It would be naive to ignore the political motive and timing here but it is likely that much of the capital being invested into these 65+ bonds has come from the tax-free element of existing pension schemes.
You and I have both discussed before the fact that growth in these schemes, after City charges and commission, has only been achieved because of premium tax relief so perhaps a slightly generous interest rate on these bonds will not make much difference to the overall picture.
Those who are in the fortunate position of selling an unmortgaged home to downsize for retirement, will of course benefit from the purchase of the bonds but the Conservatives have always tended to give more help to those who are financially successful.
An opportunity could arise here for BoE to buy these bonds and relieve the taxpayer of the burden using QE and this could form the basis for your new Green QE.
That is an amusing idea…
“new bonds, and Osborne’s preposterous new rules allowing people to plunder their pension funds”
So where does he think people will put their plundered pension fund?
And then along came the new bonds…….
The bedroom tax, which isn’t a tax, only applies if benefit is being claimed (housing/council-tax).
Since the grey voters tend to own their house they would not be claiming housing benefit, and only partial council tax benefit.
And I very much doubt that the protected species/organisations, will be protected for long under Osborne II. You could even argue that the NHS has not been protected, but has suffered greatly under the zero increase regime. Putting services out to private providers only provides poor[er] service at higher cost.
In retrospect, you could argue that he [Ozzie] has set the gov up in competition to the poor pension services offered by the private mob…..but I wonder?
In fact the bribe is also a con. A pensioner friend asked me a couple of weeks ago how she could beat the anticipated rush and invest some of her pension pot into these bonds. When I pointed out that she would have to lock up her money for 3 years and invest the maximum £10,000 to get even £250 more a year than a standard notice account ISA, she was disillusioned. These bonds may be a good alternative for those who otherwise stash their capital in gilts, but they will do nothing to relieve pensioner poverty.
Interesting point Sol
The lock in makes them even more exclusive though
Actually I think this is a good move. If pensioners feel secure in their savings they will spend more. MMT economists say that a 5% rate on government bonds is optimum for the economy. See Warren Mosler or Randy Wray or Marshall Auerback for the full explanation. Richard Murphy is not often wrong but this move, whether Osborne knows or not this is a move in the right direction.
Sorry but everything about that, including the rate commentary out of context, is wrong
I agree with quite a bit of MMT analysis but I think their policy prescriptions leave something to be desired.
In my view the natural rate of return of money for the use of money is zero, and that is where the bond markets are trending now.
The cost of credit, on the other hand, and the rate of return on investment in productive assets – such as renewable energy; energy efficiency; and affordable housing – both reflect the risk taken. ie development credit risk (financing) deserves a higher return than investment in completed assets (funding).
I tend to agree with you on the proper rate of return on money
As low as possible is best
Money cannot create money
Only real investment and labour can create real returns
Will be interesting to see the final recording of this in the National Accounts and Public Sector Finances. Without looking at the details there seems a pretty strong case that the recording should incorporate an element of capital transfer between government and households, covering the difference between the rate paid on these bonds and the rate that could have been paid for regular government debt.
Treating the entire transaction as an interest payment hides the fact that there is an intended transfer of wealth going on here.
Indeed