Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what assessment he has made of the (a) potential merits of the issuance of a 50 year coronavirus recovery bond to cover the debt generated by Government borrowing in the last 12 months and (b) size of the attached interest coupon that would be required to make that product attractive to institutional and retail investors; and if he will a make a statement.

Throughout the past year, the Government had announced an extensive package of measures in order to provide the critical support needed by individuals, families, and businesses facing disruption caused by COVID-19. This has significantly increased the Government’s financing requirement in the near term and, as previously announced by the Chancellor, this additional financing will be fully funded via additional borrowing through the Government’s normal debt management operations.

Our core gilt financing programme is the most stable and cost-effective way of raising finance to fund the day-to-day activities of the Government. This includes the significant funding increase required specifically to address the period of economic disruption arising from COVID-19 and the Government’s policy response. The gilt market is deep and liquid, with a good track record in responding smoothly to increases in gilt supply.

At present, the UK Government does not have any plans to introduce coronavirus recovery bonds to help fund the response to COVID-19. The Government remains open to the introduction of new debt instruments but would need to be satisfied that any new instrument would meet value-for-money criteria, enjoy strong and sustained demand in the long term, and be consistent with wider fiscal objectives. The Government recently announced its intention to issue a first sovereign Green Bond in 2021, for example. We keep the introduction of new debt financing instruments under regular review.

The UK already has comfortably the longest average duration to maturity in its debt stock across the G7, at around 15 years. This compares to around 8 years for our closest G7 peer and helps to reduce refinancing risk in the UK. The conventional and index-linked yield curves stretch out to 2071 and 2068, respectively. When setting gilt issuance plans – including on the average duration of issuance – for the year ahead in the spring, HM Treasury and the Debt Management Office (DMO) seek to minimise, over the long term, the costs of meeting the Government’s financing needs, taking into account risk.

Regarding interest rates, the Government is ultimately a price-taker, with the price of government debt determined by the market. The Treasury and DMO do not have target levels for the yields at which debt is issued. When new instruments are issued, the coupon rate is set with reference to prevailing market rates for bonds of the equivalent maturity.