The COVID-19 pandemic has precipitated the worst crisis we have faced as a nation since the Second World War, decimating the global economy and plunging us into a deep recession. Such desperate times call for radical, revolutionary solutions to help us bounce back from economic turmoil.
Many would be surprised to discover a simple instrument, which would help us both deal with Britain’s growing debt and make great strides in the levelling up agenda, has always been in our back pocket: perpetual bonds.
They do not have a name that grabs headlines and may not sound like the cannon in our arsenal for recovery, but perpetual bonds have been deployed at various times of national crisis over the past three hundred years.
Perpetual bonds in Britain date back to the end of the South Sea Bubble in the 18th century and the Napoleonic Wars in the early 19th century, issued under various names including ‘consols’ and war bonds. In light of this, no country is better placed than Britain to bring back the perpetual bond, and given that the UK has not used them since the end of the First World War our current economic depression presents us with the perfect opportunity to do so.
Quite simply, these are bonds for which the issuer never has to repay the principal sum – instead only the annual interest is owed without a fixed end. Perpetual bonds, linked to investment in Red Wall areas, either on a specific project basis or for particular regions, could help us lead the charge in our recovery from the coronavirus crisis.
Issuing perpetual bonds will further diversify our government debt portfolio and will mean that the cost of servicing it remains low. The result is that the taxpayer will have lower debt interest repayments for decades in the future.
Interest rates are at rock bottom, making it the perfect time to introduce perpetual bonds. It means we will lock in the current interest rates of about 0.7% to 1%. Should inflation rise, the value of the perpetual bond would fall quite meaningfully, providing a considerable gain to the taxpayer. Crucially, over time we would be inflating the debt away.
Last month, Sir Keir Starmer proposed a British Recovery Bond. The idea lacks the ingenuity required to help us climb out of this economic crisis. If interest rates are at historic lows, his plan to borrow by paying above market rates makes zero sense – this is needlessly expensive
and simply transfers money to the rich, proving that Labour is not serious about serving left behind communities.
Starmer’s proposed bond simply mimics existing government measures such as gilts. In order for their bond to be an innovative financial tool, the investment should be linked to particular goals. No such specific aim or objective has been outlined by Labour.
Unlike perpetual bonds, it seems Labour’s proposal takes a conventional approach, meaning we would be committing to paying back the face value of the bond by a certain date, costing the taxpayer a considerable sum sooner rather than later.
Red Wall perpetual bonds are the most responsible way of financing Britain’s budget deficit. During a time of immense economic difficulty for British families, the issuance of perpetual bonds reduces the need for burdensome and damaging taxes rises which would heap greater pressure on those already struggling. There is huge demand for long duration bonds – it would be wasteful of us to eschew this opportunity.
Perpetual bonds will benefit the North and the Midlands, like my own seat of Rother Valley, as the issuance of the bonds would allow the Government to deliver on its promise of levelling up through the funding of infrastructure projects and recovery funds.
Austerity and punitive tax rises will only make it harder for these areas to fulfil their potential. For too long, meaningful change for left behind communities has been blown off course by economic crises and fiscal cuts.
The budget may be behind us, but that was not the last opportunity to change how we deal with Britain’s debt. The strategy must include a plan for the future prosperity of our country, of which perpetual bonds are an important component.