The most startling number in the Budget is tucked away at the back of the Red Book. It reveals that, in the current fiscal year, which ends on April 5, the Government had to raise £483.5billion, a sum representing almost a quarter of national output.
Next year it has to find a further £297.7billion. That is providing the roadmap to Covid freedom does not become blocked. After 16 spending statements from the Chancellor since the pandemic started you can never be sure.
The question most asked as the Covid year has unfolded is how will all the Government largesse be paid for?
Roadmap to Covid freedom: Chancellor Rishi Sunak has made 16 spending statements since the pandemic started
The Debt Management Office provides a helpful list of the bonds and gilts to be issued and their maturities to meet borrowing needs.
Buyers of these gilts tend to be the banks, the big insurers and pension funds. Under rules put in place after the financial crisis, all are required to hold a safety cushion of capital in the safest of assets.
Indeed, this policy is deemed to have worked well in Covid when the banks have maintained lending without risk to financial stability.
The other backstop is the Bank of England. Since the financial crisis, it has gained the authority to buy up £875billion of Government debt.
This has assisted in pumping cash into the financial system, helped to stabilise markets and eased pressure on the public finances when there has been a lack of enthusiasm for gilts.
The catch is that economic conditions change rapidly. The Office for Budget Responsibility (OBR) forecasts show a rising trend for inflation, which hits 2 per cent by the end of the forecast period.
Fears that the combination of loose fiscal policy, near zero interest rates and central bank bond buying are frightening the horses.
As the OBR notes, the 0.3 per cent rise in market interest rates since it put its forecasts to bed a month ago have added £6.3billion to the interest rate bill in 2025-26. Dangerous forces lurk.
Bucket list
The review by Jonathan Hill on City listings is a skilful piece of work.
It was completed in record time of ten weeks, overrides the caution of some big battalion investors and throws down the gauntlet to the EU by underpinning the UK’s desire to go global.
The most contentious of Hill’s proposals is that the London Stock Exchange join the special purpose acquisition companies (Spacs) revolution.
Last year alone some £90billion-plus was raised on US markets through Spacs, which are ready-made firms designed to acquire lucrative assets.
As a major financial centre it must be right that London seeks to be a player when rivals, notably the Hong Kong Stock Exchange, are heading in the same direction.
In the past, London financiers have used ‘shell’ companies, which play a similar role, with mixed results.
The long-term success stores include WPP. The big disappointments include Nat Rothschild’s mining flop Bumi and litigation firm Burford Capital.
The greatest weakness in the Spacs plan is not the entrepreneurial concept but feeble UK regulation.
The Financial Conduct Authority (FCA) is simply not fit for purpose as a listing gatekeeper and enforcer. The investigation into Neil Woodford’s collapsed investment empire has demonstrated it is sclerotic, with 15 months gone and still no report.
It is also useless in picking up on early signals. There were 600 calls to the FCA expressing disquiet about rotten mini-bond firm London Capital & Finance and none were acted upon.
A well-worn answer from former FCA bosses is there is simply too much to do, with 60,000 firms to be regulated.
The use of artificial intelligence might help in spotting the outliers but there is no substitute for enforcers with a nose for trouble. The City almost certainly needs the capability to be part of the Spacs universe.
However, the FCA, which is to consult on the proposals, should not be at the controls. A new, independent authority, employing seasoned market operators (including reformed hooligans), is a prerequisite.
Hidden truths
The ‘Jo Moore’ prize for burying bad tidings on Budget day goes this year to grocer Sainsbury’s. In spite of 9.3 per cent jump in third-quarter trading it is proposing to axe up 1,150 jobs in a restructuring.
So much for the heroes of the pandemic.
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