Quote:
Originally Posted by heero_yuy
According to R4 this morning El Gov will borrow some at very low interest rates in order to lever money from pension funds. At the moment these funds are finding good returns on their normal investments hard to find and are increasingly turning to infrastructure projects where returns are better than the stock markets or bonds.
Let's hope this isn't another PFI scheme that will cost us dear in the next decade or two.
This borrowing does not add to the structural deficit that has to be reduced by cuts or more taxes.
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This wont affect Osborne but a successor in the future. As per:
https://www.gov.uk/government/upload...rt_2014-15.pdf
Quote:
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Originally Posted by HM Treasury
Over the same period the average modified duration of the stock of conventional gilts is projected to fall from 9.2 years to 8.9 years.
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While of course a simplification, it means that the average bond sold to investors will mature in 8.9 years. So, given the fact these bonds will likely be sold again, the trick is to hope we have an improved economy that can pay higher interest rates, or that the rates we pay stay at these low levels.
As the yield on 10yr bonds is currently around 1.5% (see here:
http://www.bloomberg.com/markets/rat...nment-bonds/uk ), it pays for the govenment to borrow at this time as they actually pay less than the current rate economic growth less inflation in the country at present. Again, a gross oversimplication and I can already hear economists wanting to kill me, but basically if you sell a bond at 2%, and grow an economy (And thus, tax returns etc) by 3%, you win.
So while the UK still has a pretty large (5% wasn't it at the last count?) defecit, it isn't as bad as it could be, although not ideal. Frankly cutting spending isn't the only weapon in the arsenal though, some taxes need to be raised. It wont happen, because that'll go down faster than a lead balloon on Venus but we have actually see massive tax giveaways due to the consistent raising of tax thresholds and the impact of the living wage cannot come soon enough for the treasury.
Until then? I wonder if Osborne is brave enough to chuck a bit on fuel duty. Petrol prices while not exactly cheap, are lower adjusted for inflation for over 5 years so maybe, just maybe he could get a billion or two by a hike. If I was him, I'd put a "brake" on it though, that would cancel the rise if prices (And thus VAT receipts) go high enough to recoup the currently lost revenues.