This is something that the IFS’s Paul Johnson has referred to as a ‘fiscal doom loop’.
The government represents the UK and its people and some of those people are sitting on a lot of money.
The FCA reckons that total UK cash savings stand at about £1.5trillion. Some of that will be much-needed rainy day pots and other short-term savings, but the FCA has also identified a large amount of it is money sitting in low-rate accounts and a good chunk of it could be invested instead.
Cash savers and pension investors in retirement tend to be pretty cautious. They want good returns, but they also prize them being reliable and from a low-risk source.
Tapping up your own nation’s savings to improve things hardly seems like a bonkers plan – and over the long-term investors are far more likely to back a country that sails out of the doldrums.
Reeves and Sir Keir Starmer squandered the optimism they were blessed with by a change of government, bizarrely opting for miserabilism instead.
It’s not a great time to be doing that from international investors, as Britain is far from the only nation with this problem, and the issue is compounded by the UK’s self-inflicted dent to business and market confidence.
However, the calamitous end to the Truss-Kwarteng gamble doesn’t mean that they were entirely wrong.
There’s a small risk that markets wouldn’t like it, but we’ve spent too long being fearful of doing what’s right for the UK’s long-term future due to worrying about that.
It would also be a potential solution to one of the problems the UK economy faces, how do we unlock the substantial wealth of Britons and put it to productive use.
He says: ‘The trouble is that with high debt, higher interest rates and low growth we risk being stuck on a treadmill, or in a “doom loop”.’
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Against that backdrop, it’s hardly surprising that the UK’s borrowing costs have risen. (Read our guide on gilt yields and why they are up.)
The rate on Back Britain Bonds could therefore be lower and so shouldn’t torpedo the annuity market but instead add extra choice for retirement savers who crave a stable, guaranteed income.
Sold in a more easy-to-access and understand way than gilts, these would be long-term, 10, 20 or 30-year bonds that paid a guaranteed rate of return with your money back at the end, or perhaps on death.
But Labour’s Gloom Twins are to blame for some of it: talking down the economy, sending confidence plummeting, and then hiking taxes on investors, businesses, employment and wealth was a daft tactic.
A plan like this would allow us to bypass fickle international investors and tap into the deep pool of very patient capital that the UK’s cash savers and retirement investors represent.
Too much was unveiled in one reckless and unfunded swoop, the moves came without OBR costings, Kwarteng overshadowed his own income tax cut for all with a tax cut for the highest earners, and they failed to take into account the ructions that could be triggered in the bond market by too-clever-for-their-own-good pension fund investments.
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It’s worth noting that this isn’t the same scenario – gilt yields have steadily climbed rather than shooting up – and that Truss and Kwasi Kwarteng’s bodged mini-Budget was definitely not a success.
Reeves and Starmer broadly agree with that; Labour’s manifesto and campaign had a similar growth-focussed sentiment.
The alternative is to borrow, but we already have a colossal debt pile and investors want higher rates to lend to us, which further hampers the UK’s finances.
Ten-year gilt yields are at 4.8 per cent, compared to 3.8 per cent a year ago. Meanwhile, the 30-year gilt yield garnering headlines in recent days is at 5.36 per cent, compared to 4.42 per cent a year ago.
