The supposed need for increased UK defence spending - although on what no one seems to know - and the claim by Keir Starmer that borrowing must not be used to fund it - although, no doubt, he has no logic to back that claim - is giving rise to discussion on whether Andy Burnham might revive the 1940s idea of War Bonds.
This does, of course, create a wide range of issues for those who understand that borrowing cannot fund government spending, because that is always funded by money created by the Bank of England on the government's instruction, within the limits of an approved budget. However, it is important to note the distinction between spending and investment. Capital spending is not the same as revenue spending, and, in fact, it can be funded with savings.
That is not just an economically correct statement; it is, given the gross misuse of most savings at present, either as dormant funds in bank accounts, or for the purposes of financial speculation of no benefit (and potential harm) to society, a redirection of funds towards social purpose that any government should be promoting is, it would seem to me, to be a matter of political and social priority. The issue of government-backed bonds for this purpose does, in that case, make economic and social sense.
As a result, our imaginations can be freed. Instead of asking how government can persuade financial institutions to lend it money, we can ask a much more interesting question: what government-facilitated public purposes might real people choose to support with their savings?
I think we should be broad-minded about this. The need for investment in our society is so strong that a very wide range of purposes come to mind. In my opinion, all of them should be on the agenda of any government with a social purpose and the goal of releasing potential at its heart. Included in that number are all of the following.
Defence bonds
If the government really believes the UK faces an existential threat, it should let people choose to save in support of national defence.
Unlike taxation, this creates engagement. People could literally say, “Part of my savings is helping protect the country.” That is a choice people should be allowed to make.
NHS bonds
People should be allowed to place savings with the government knowing they were associated with long-term investment in:
- hospitals;
- medical equipment;
- digital systems to support healthcare;
- medical research; and
- staff training.
That is not because the NHS needs the money before it can spend, but because people want a safe place to save while expressing a social value.
Care bonds
Britain desperately needs social care reform. Care bonds could support investment in:
- care homes;
- community care;
- disabled services; and
- support for unpaid carers.
Many older people, in particular, might welcome the symbolism.
Housing bonds
Housing bonds could be linked to investment in:
- affordable homes;
- housing renovation;
- energy efficiency, and
- community regeneration.
Again, this is not because the government needs the money to spend, but because many savers would rather know their savings were supporting decent housing than speculative property bubbles.
Climate bonds
Climate bonds could become a mainstream savings product, associated with investment in:
- flood defences;
- insulation;
- renewable energy;
- electricity grids;
- rewilding; and
- coastal protection.
This is exactly the sort of intergenerational investment many pension savers might welcome.
Children's future bonds
Parents and grandparents might find these bonds particularly attractive if they support investment in:
- schools;
- universities;
- apprenticeships;
- early years provision;
- libraries; and
- youth services.
Saving, in this case, becomes a statement of hope and of intergenerational solidarity.
Community bonds
Suppose local authorities could issue national government-guaranteed bonds. They could support investment in:
- swimming pools;
- theatres;
- libraries;
- parks;
- sports centres; and
- local transport.
People would know exactly which place they want to benefit. That could transform local democracy.
Infrastructure bonds
These might not be glamorous, but they could be absolutely essential by supporting investment in:
- water;
- sewerage systems;
- railways;
- tramways;
- electricity generation, storage and transmission; and
- digital infrastructure.
These are the backbone of the economy. This is what pensions should fund.
Science and innovation bonds
Britain has extraordinary research capacity, but it does not deliver on that potential. These bonds could support:
- universities;
- research institutes;
- advanced manufacturing;
- artificial intelligence;
- biotechnology;
- pharmaceuticals; and
- quantum computing.
Many people might willingly save to strengthen these.
Resilience bonds
These would be designed to prepare Britain for future shocks through investment in:
- emergency food systems;
- pandemic preparation;
- strategic manufacturing;
- energy security;
- cybersecurity; and
- water resilience.
Instead of responding to crises after they happen, people could save towards preventing them.
Nature bonds
Few people might mention bonds of this sort, but I think they might be especially important and popular in a country that takes conservation and the environment very seriously. These bonds would support the restoration and maintenance of:
- rivers;
- peatlands;
- forests;
- national parks;
- other wildlife habitats;
- biodiversity; and
- soils.
These are investments whose return is measured in resilience rather than immediate financial gain.
Cultural bonds
These bonds would support investment in:
- museums;
- the arts;
- music;
- theatre and other performance spaces;
- minority languages and culture;
- film; and
- historic buildings.
Britain consistently underinvests in its cultural capital despite it being one of its greatest strengths.
Skills bonds
These bonds would support lifelong education and investment in
- retraining;
- adult education;
- vocational skills;
- professional development; and
- lifelong learning.
Every technological revolution requires continuous investment in people's skills.
Regional development bonds
Each English region, as well as Scotland, Wales and Northern Ireland, could have its own bond issuing programme supporting investment in:
- local infrastructure;
- business development;
- housing;
- transport;
- education; and
- community facilities.
People often identify with the country or region where they live long before they identify with Whitehall. Why not let them save accordingly?
Intergenerational bonds
These bonds might, perhaps, create the most imaginative possibilities. They would have very long maturities, of perhaps forty or fifty years. They could be bought by grandparents and be redeemed when their grandchildren reach adulthood, or even later. Inheritance tax incentives could be attached to them. They would be invested to represent:
- long-term stewardship;
- intergenerational responsibility; and
- confidence in Britain's future.
The funds might be bid for by localities.
In themselves they might be a financial expression of stewardship.
The biggest idea
Suggesting these bonds require imagination. So, too will their use. So, instead of naming bonds after sectors, why not name them after social purposes, such as:
- Health Bonds;
- Education Bonds;
- Future Generations Bonds;
- Security Bonds;
- Nature Bonds;
- Community Bonds; and
- Housing Bonds.
Each might be identical financially, meaning they would have:
- the same maturity;
- the same interest rate;
- the same government guarantee, and
- the ability to wrap the bond in an ISA or pension wrapper, as I have explained many times before, including in the Taxing Wealth Report, chapters 25 and 26.
The difference would be:
- the public purpose to which funds were applied;
- the reporting supplied;
- the saver's preference for the use of their savings, and
- tax relief for saving would now deliver public as well as private benefit
That matters because economics is about relationships. Saving would cease to be merely the accumulation of wealth. They would, instead, become an exercise in building participation in creating a better society for everyone to share.
The final step
The next obvious step would be to cease calling these government-backed bonds debt, precisely because they are not debt in the ordinary sense. They are voluntary savings deposited with the state. They might then be called:
- National Savings;
- Public Investment Accounts;
- National Future Accounts;
- Public Purpose Savings;
- Citizen Investment Accounts; or
- National Partnership Accounts.
Those with a marketing bent could probably do better than any of those; my point is that naming them properly to reflect what they really are would matter.
The accounting would be unchanged as a result. The economics would be unchanged, except that the quantum of funds available to the government might increase and expectations surrounding them might change, but most importantly, the politics would be transformed.
People would stop asking, “How much does the government owe?”
Instead they would ask, “What have we chosen to save for together?”
That is a different conversation. Government bonds are not a financing necessity for a currency-issuing government. They are safe savings instruments, useful tools of monetary management where appropriate and, perhaps most importantly, a way of creating a relationship between private wealth and public purpose. Once we recognise that, there is no reason for them to be generic. They can become expressions of the kind of society people wish to help build.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
Brilliant! Thank you.
Defence investment plan? What is the return on this so-called investment? It is in fact just an increased defence spending plan.
The total defence spending will go up from £68 billion in 2026/27 to £79 billion in 2029/30. No idea if that is the correct amount, but total government spending is about £1,300 billion so this is a tiny fraction of the overall public sector budget. Over four years, an extra 1%, so about £4 billion – about 0.25% – per year. Almost a rounding error.
And the press this morning are getting their knickers in a twist about “unfunded” spending of £5 billion. Over four years. About 0.1% each year. No budget ever comes that close to the plans. The government has no idea what its budget will look like in 2029/30. It is all forecasts written in water.
A great deal to agree with
And what’s worse is that the ‘investment’ plan then demands a reduction in investment in infrastructure, in roads and energy and elsewhere. All while padding the pockets of private defence vendors.
Now, if there was investment in universities and shared research, into creating new technologies which may be used for spending, then THAT might be investment. I see little to expect that to be the direction of this.
This is a great idea but if these bonds came into existence, would there be a danger of them being traded as bonds are currently.
No. They are savings, not tradable, instruments. They may have fixed terms, but that is common with savings now.
So in short:
From the government’s perspective they are a more expensive form of borrowing than existing government bonds.
From the public’s perspective, they are a less flexible form of saving than existing government bonds, locking you in for the long term.
What are the advantages for either the borrower or the lender?
What?
They will be at about BoE base rate
Good for both then
They will also be all that will be available in ISAs
And they will be about as inflexible as an NS&I account
What are you talking about?
Or do you always make shit up?
Tom Watkins makes the mistake of purely looking at the numbers when often it’s the intangibles which make all the difference.
“That matters because economics is about relationships. Saving would cease to be merely the accumulation of wealth. They would, instead, become an exercise in building participation in creating a better society for everyone to share.”
Richard
You are starting to sound a bit like Mercury Provident / Triodos Bank – even though as the ‘in house’ bank of the Steiner Movement obviously I wont have anything to do with them.
You have lost me with this one.
Basically they gave/give depositors the opportunity to target their deposits this included the opportunity to take a lower or nil interest rate which would be passed on to the borrower.
BUT the Steiner movement of which they are a part has some decidedly interesting racial views and its very ‘Top Down’
Of course, we could roll all these special purpose bonds into one big pot and call them “gilts”…. but that is what we have already!
However, I do accept that this hypothecation might change the narrative on “Government Debt”….. and we do need to do that.
The politics really matters.
As does the accountability.
A 5-star piece. On Facebook it would get a Wow! Important and new. Is it only a government that can set these up, or could municipalties and charities?+
I am suggesting devolved and local governments should be able to do so, too.
Thanks for these ideas
I like “Public Purpose Savings”
Perhaps they should be the only thing allowed in an ISA?
There’s lot’s of scope for Mr Burnham to find as much money as he needs, if he only has some imagination
That is what I think
May I think out loud, even if it’s somewhat inchoate? What if the Bondholders had representation on the supervisory bodies for the projects? What if the representatives could contribute to the formulation of Alliancing/Partnering Charters, helping to ensure that social goals are given the right prominence? What if the returns on the Bonds were linked to performance via contractual gainshare/painshare arrangements? What if bondholders could elect to have some, or all, of their gains to be reinvested in improving social outcomes? Am I dreaming?
I like representation.
But financially these things have to be simple and guaranteed.
One thought – what about using such bonds for funding socially progressive (and accountable, regulated) experiments – on the edges of mainstream – in supported housing, in penal reform, in childcare and fostering, in social care – and then, if they are successful, they can receive more direct government support?
I think that is revenue based risk
That’s very good Richard. Typical you – to take an idea and really push it for all it is worth, and explore the many possible implications<p>
Its just the sort of thing BBC presenters will censor – if Starmer says ‘oh no – that’s borrowing and increases debt’ – so obviously it can’t be questioned or probed.<p>
And at least the ‘bonds’ idea suggests Burnham might be prepared to look beyond the neoliberal orthodoxy. But not holding my breath
Thanks
Brilliant.
Why does the bleeding obvious seem so difficult in the UK?
Its about time the UK started thinking seriously about Treasury reform . The dead hand exerts too much power.
There are plenty of ideas around. I just asked Claude
https://claude.ai/share/e7fa0f7b-43b4-46e9-866f-8ade196c46c5
Your post has a positive vibe from which I infer you are through the worst of your interaction with a stone. As a fellow traveller on these things I trust you are.
I was wondering myself just what single re-positioning of economic thinking could unlock a more expansive and socially focussed approach to the economic a/the new PM must answer. Which single beat of a butterfly wing could create the shift we need from an obsession on neolib Treasury rules? I think hearing that Andy Burnham will/has appointed Andy Haldane, ex Bank of England chief economist as his economic advisor prompted the reflection.
Your train of thought that starts with ‘what do we want to achieve for people?’ ie what does good like for the majority rather than ‘how much money is in the till?’ is the best way to start. Anything that starts about a conversation about money usually ends up benefitting the financial system rather than society and the planet. What you focus on expands.
And the neat side step is that you don’t have to engage in – and win – a theoretical debate about MMT, Neolib value extraction ………. You create an appealing direction for travel that addresses the needs of people. Something that’s refreshing in a world dominated by political and media chatter about the insurmountable problems Burnham will face rather than being curious about options and solutions.
All th ebest
Thank you
Congratulations on providing an easy to understand description of a potentially revolutionary change for the better. Written down like this it’s obvious.
Thanks
What a breathtakingly brilliant refraiming Richard, just totally brilliant.
Thanks. Written whilst watching tennis last night, annoyed with the news.
Multi-tasking whilst dealing with a kidney stone… I’m speechless!
I love this, it is a way of voting with our savings for things that will last longer than a PM’s term of office. As people have commented, it side-steps a lot of things people argue about or don’t fully understand.
Those with grandchildren can start the ball rolling, jobs will be created, younger people then get more of a chance. 40 or 50 years seems too long to me, why would there not be 5, 10, 15, 20 year bonds?
Thank you
Brilliant idea.
But the money raised must be spent on eg the NHS and not go into general spending budgets, And no way should the financial services industry have any involvement whatsoever with the money raised.
Agreed
An unpleasant day has just received a big cheer-up, bolstered by therapeutic chocolate. Thank you.
Thanks
In the US we have “Infrastructure bonds“.
They are called “municipal bonds” and are issued by local governments (State, County and City) and School Systems to support local projects such as bridge building, road improvements, new school buildings-building improvements and conversion to solar energy of older public buildings.
Interest and/or returns on “municipal bonds” is exempt from federal and state income taxation in most instances.
And they work as a result.
Thatcher destroyed this market here, deliberately.
Great ideas Richard. Another issue with the current system that needs to be addressed is that currently it’s too difficult for small savers to buy new issue guilts, and that they often have to pay high fees to the broker that runs their pensions or isa. These new bonds need to available on National Savings and Investments. Furthermore nsai currently offers a green growth bond, but its interest rate is lower than its standard savings so it’s not an appealing product. These new bonds need to have a good interest rate, which at a minimum is not any lower than the standard nsai offering.
I share this article about Hartcliffe, S Bristol (one of the poorest wards in the country – next door to my own Knowle West neighbourhood) not because they are getting it all right – but as an example of some of the questions and principles that need to be part of the allocation of any spending programme.
https://www.bristolpost.co.uk/news/bristol-news/race-spend-20m-hartcliffe-local-11033310
Paul Smith is the right man for the job – and he is raising all the right caveats – as well as knuckling down to getting some practical solutions in place.
Points he makes:
Ask local people, involve local people, benefit local people
The money musn’t leave at 5pm each day, but stay in the area (local jobs for local people)
Not much money (£2m/yr for 10 years), not much time so don’t waste it
Use the money primarily to attract MORE money
Don’t spend it on things the government should be doing anyway
Don’t let the grant be used as an excuse for authority to avoid responsibilities
The basic problems arise from poverty – so relieving poverty is a priority.
Don’t waste money on expensive consultants to tell you things you already know (I have personal experience of being forced to do that very thing by one local authority)
As for first point – Ask local people, involve local people, benefit local people
Thank you
Interesting to see that the French spend significantly less than we do on defence BUT it buys a lot more.
Also they are able to keep their fleet at sea for a much larger percentage of the time than we can
What an inspirational idea. It really is. I want to invest already!
🙂
A great idea to link the country’s savings to its future prosperity and to do it much more directly than bond markets do.
At the same time, the public become aware that the government can do the investing directlywithout involving brokers and chisellers.
People would soon realise that the National Debt is actually a good thing because it is their savings and not money owed to invisible lenders.
Agreed
Sounds like a great idea for several reasons but I’m still a little confused about the detail.
The government doesn’t actually need to issue these bonds, the money is available anyway. So am I right in thinking….
1) The aim of the bonds is to attract savings that might otherwise go into private speculation into government bank accounts that are ringfenced.
2) Savings placed in specific bonds can only be used for the investment in that area.
Does this mean that if NHS bonds are way more popular than housing bonds we can all expect caviar for lunch in hospital but still too much homelessness, or will the reality be a single wad of money which is spent across the board and the real distinction is ‘which pretty picture would you like on your savings bond?’ Does, or indeed, should the amount of government spending on these areas depend purely on the amount of savings bonds issued?
I’m not trying to decry the idea, I want to understand how this works in practice in a country which can issue as much currency as it deems appropriate. I fully appreciate the emotional engagement that goes with issuing these bonds, but how much of that is real and how much of it is marketing?
Paying the interest to people in the community rather than a foreign bank is obviously a very positive step of it’s own.
I might write a blog response to this.
[…] comment was posted by regular commentator Kit W-N overnight on yesterday's proposal to issue bonds to reconnect public savings with public […]
Pension bonds
Slightly different. I tried to push this a few years ago, but got nowhere.
Pension bonds could increase annually by inflation + 1%. When the time came to retire, the exact type of pension would be chosen. e.g. Individual pension, joint pension, Individual + dependant. The value would be actuarially determined, depending on ages and the type of pension. Pensions would just increase by inflation, giving a slight advantage to delaying retirement.