The Problem: UK government debt now stands at over £2 trillion and servicing costs are rising.
The Solution: A new scheme to encourage UK citizens to buy government debt.
Government borrowing in response to the outbreak of Covid-19 pushed UK government debt over the £2 trillion mark, and as interest rates start to rise, the costs of servicing that debt is increasing.
At the same time, households are struggling with high prices and low interest rates making it hard for savings to grow in value.
I therefore propose a new mechanism to encourage UK citizens to buy UK government debt and hold it for the long term, accruing interest from government servicing payments and an extra opportunity to win cash prizes like with NS&I bonds.
Both government and UK citizens benefit.
For the government, even if interest rates increase, the payments will go to British Citizens and therefore some will be recovered through taxation, reducing net costs to the government purse. The cash prizes would not be that large, in size or volume, so would add little to overall cost of servicing debt, but would help encourage people to purchase the debt.
For citizens, they receive reliable interest payments on savings, as well as the chance to win more significant cash prizes for a long as they hold the debt.
Debt would be purchased in 5-year bonds, with the option to repurchase more debt at the end of the five-year term (this is to try to prevent inflation eroding the value of the bond over the long-term), and guaranteed interest, slightly above the Bank of England Base Rate, would be paid out.
Parents could buy some debt for their children, to be held in a savings account to accrue interest, and adults could hold part of their savings in government debt, gaining some interest on savings rather than simply sitting in cash in a bank and losing value. The debt would also be a safer option than shares and other assets that could significantly decline in value.
Government would have to put in place measures to prevent people keeping too much of their savings in government debt and make sure that the debt option didn’t lead to a mass exodus of cash from banks, preventing loans from being issued, but all such risks are manageable.
There are around 70 million people in the UK. Assuming, on average, people purchased £7,500 of debt (some would buy much more, some much less), that would equate to just over a quarter of current government debt, helping reduce the burden of servicing that debt for government while also benefiting the British Public.
This approach has precedent, such as the World War II War Bonds sold to British citizens. It’s time to dust those old ideas off and update them for the 21st Century.
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