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When never-ending debt could spell happier headlines

When most of us read headlines bellowing “billions in borrowings”, it tends to have less impact than perhaps anticipated by the newsrooms which churn them out.

That’s the reason why newspapers often strive to report government debt in ways their readers can relate to as very few will find it easy to picture what a mountain of money looks like.

One established method is to share the total between each household in the UK; “equivalent to xx thousands per family” or some-such, to try to “bring home” the enormity of the sums involved.

So the government’s overall £350bn rescue package to cover the impact of coronavirus may well be getting this treatment now and into the future.

A sense of scale

Having worked in institutional pensions for the last 40 years, we’re a bit more used to seeing big numbers bandied about and don’t need them to be treated in a more digestible way.

Indeed, we’ve worked hard at making sure pension scheme trustees and, ultimately, members understand what these totals mean for them and their income in the years after work.

(Thinking about it, you could argue that there is a certain symmetry to this, although I’m not sure journalists and actuaries would see themselves as compatriots).

But rather than the headlines now, it’s what will be reported as a curiosity in many years to come that’s on my mind.

Borrowed billions

Much has been made of the scale of what the government has been forced to borrow. But little has been reported on how - and when - it will be paid back.

Even in the pensions world, what we are dealing with are significant figures - but what we also recognise from our experience is how time will be a major factor on how this debt is managed.

For now, the Bank of England is lending to the government but, in time, what it owes will be parcelled into bonds and sold to investors to be repaid over decades or even longer.

To adopt an approach from our friends in the Fourth Estate, the present situation can be likened to a small business needing a loan. Let’s say the bank recognises the urgent need of the present situation and lends. It then sells on this debt to an investment bank.

In this way, at least, everyone carries on, rather than grinds to a halt. Everyone has a stake and everything can keep functioning - so long as no-one calls in the debt.

A financial legacy

I think that’s the balance of where we are now, a point where the system is engineering a way to keep functioning while we’re in the grip of this alarming pandemic.

And when what we are going through is being taught in every classroom, its financial legacy will still be with us. It was only five years ago that bonds issued by Winston Churchill in 1927 to pay for WW1 were paid off.

Not only that but wrapped up in the so-called “consols” (short for consolidated stock) were 18th century debts for the South Sea bubble; the Napoleonic and Crimean wars and the Slavery Abolition Act. These were originally perpetual bonds, designed to pay interest but with no date at which they would be settled in full.

And so it was for the best part of 300 years but with refinancing and favourably low interest rates, these were bundled up and paid off in 2015.

Forgive me if this is familiar territory for some of you but, for others, it helps to illustrate that in these times of daily death tolls and 24-hour rolling, breaking news on this global emergency, there is some validity and, yes, even respite, in taking the long-term view.

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It was only five years ago that bonds issued by Winston Churchill in 1927 to pay for WW1 were paid off.

Valuation Commentary: Q1 2020


Key messages for investors from Tom Becket, CIO, Punter Southall Wealth


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After 40 years of experience in the pensions world, I'm sharing my insights.