It must have been
sometime in the 1950s that I used to watch Mr Pastry on the television, and I’m
sure that I remember one episode in which he wanted to be a ‘village auntie’;
but my memory also told me that Mr Pastry was Clive Dunn rather than Richard
Hearne, so maybe it was a different programme. Anyway, the plot line was that our hero had completely
failed to understand what a vigilante was. The media and commentators seem to
be suffering from a similar lack of understanding every time that they refer to
the dreaded ‘bond vigilantes’ who are apparently forcing
interest rates up because they’re worried that the Labour government might
in any way deviate from the Tory financial straightjacket rectitude to
which they’ve been stupid enough to commit themselves.
It’s
not true; the participants in the bond markets really don’t give a damn about
what government policy is, and are not trying (as true vigilantes would) to
exercise extra-judicial powers over perceived miscreants. They care only
about extracting maximum benefit for themselves, and see the widespread belief
that a change in government policy might make UK bonds a riskier prospect as an
opportunity to line their own pockets. It’s a form of self-fulfilling prophecy. Those paying the interest might well want a stable low level, but that isn't necessarily true of those receiving it.
That
doesn’t mean that paying higher interest rates on government ‘debt’ isn’t a
potential problem for the public finances. The extent of that problem is
somewhat exaggerated though: part of the ‘debt’ is held by the government-owned
Bank of England, so the government is paying interest to itself in an exercise
which is more about book-keeping than debt management, and the higher interest rates
only apply to new ‘debt’, not to the money which has been ‘borrowed’
previously. It’s also true that around 30% of the 'debt' is owed to banks,
financial institutions and governments outside
the UK, but that is offset by the fact that governments outside the UK also
owe large amounts (almost
£900 billion in the case of the US alone) to UK banks and financial
institutions, and to the UK government itself, and interest comes into the UK
as well as flowing out.
The
bigger problem with the conventional analysis is that it looks at only one side
of the equation, to wit the financial impact on government finances. But we
need to look at the other side of the equation – after all, if one body is
paying interest, someone else is receiving it, and those recipients are the
holders of those bonds, and they are mostly based in the UK. They include a
small number of wealthy individuals who directly buy bonds and a much larger number
of indirect holders, mostly current and future pensioners. And since the
benefit received through interest payments is proportional to the amount of
bonds held, the benefits will flow disproportionately to the most well-off. In
short, government bonds are a mechanism by which wealth is transferred from the
many to the few (Richard Murphy has a fuller
explanation of that here),
and it is the few (or their representatives) who are manipulating the markets
to maximise that flow.
Bowing to the
perceived pressure from ‘the markets’ is outsourcing financial policy to those to
whom wealth is being transferred. Understanding that is a key first step to debating
alternatives – but not one that the political representatives of the few,
whether Tory, Labour, Reform UK or whatever, are keen on promoting.
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