Blatant bribery

Tweet The UK Government’s new Pensioners’ Bonds seem to be popular amongst those pensioners who can afford to buy them.  There seems little doubt that the whole of the £10bn issue will be sold, and a million or more pensioners will be very happy with the above-average return on their investment.  There are, though, two sides to any investment.  As anyone who’s ever had anything to do with accounting will realise, one person’s savings are another person’s debt.  And in this case, the debt is the government’s – and therefore ultimately ours.

What has been presented as ‘selling’ £10bn worth of bonds to pensioners is in effect borrowing £10bn from pensioners.  There’s nothing wrong with that of course; governments borrow all the time, and most of their money is borrowed from citizens.  As an alternative to simply taking our money away in taxes, paying us a guaranteed rate of interest to loan them money is not without its attractions to many.

There are, however, two special factors about this particular bond issue.

The first is the generous rate of interest.  A government which has spent most of the past five years telling us that we must cut the deficit because continued borrowing commits the taxpayers to paying interest in future has decided, in effect, to pay over the odds to borrow £10bn which it could easily have borrowed on the bond markets at a lower rate of interest.

And the second is that it has restricted access to this generous rate of interest to a small section of the population, namely those pensioners who have spare cash to invest.  To put it another way, they have decided to commit all those of us who pay tax to paying interest at above the going rate to the most well-off pensioners. 

I don’t know how anyone can see this as anything other than a blatant bribe to a targeted section of the population – wealthier pensioners – in advance of the UK General Election in May.  And a bribe paid for by the rest of us at that – which is spun as a safe and well-rewarded investment to help our elderly.

But there’s another little lesson that we should learn as well.  When they say that we can’t afford to go on borrowing because of the future interest payments, what they actually mean is that we can afford to borrow as long as it helps them to win an election.  The worst of it is that it might actually work, and the irony is that many of those benefiting are probably amongst those whose support for cutting borrowing is strongest.