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Pensioner bonds: the total cost to the taxpayer
Pensioner bonds are “ludicrously expensive” for the taxpayer, and make a mockery of the NS&I mission statement to reduce the cost of government borrowing.
Since then, the subject has been much discussed in the press (I spent some time explaining it on the BBC), and it seems most commentators agree that the bonds are not the best use of taxpayers' money. In the Times today Patrick Hosking looks at the total cost.
According to Hosking, "the cost to the Exchequer is considerable, and must now be far higher than the £325m pencilled in when the bonds were announced in the March budget. Even then, they looked fabulous value to savers and terrible value for taxpayers. The subsequent slide in inflation expectations and market interest rates has magnified those features."
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Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
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That's because "thechancellor has two ways to borrow by issuing government bonds or gilts, or by raising money through NS&I products such as Premium Bonds and the pensioner bonds.
"Today, he could borrow in the gilt market for a year and pay interest of only 0.3%. Instead, he is borrowing from pensioners and paying them 2.8% nine times as much.
"Over three years he could issue gilts at a price of 0.6%. Instead, he is paying pensioners 4% a year, seven times as much."
it's a "ludicrously expensive" way of borrowing and "it represents a significant redistribution to better-off pensioners from all future taxpayers."
It's also makes something of a mockery of the NS&I mission statement: "to help reduce the cost to the taxpayer of government borrowing now and in the future".
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