Jeff Salway: Growth bonds look like another flawed idea

Published on 10/06/2012 00:00

IN A week almost unique in recent times for the absence of U-turns, the government instead offered up a reminder as to why it has been forced to abandon so many hastily drawn-up policies.

So-called “growth bonds” are the latest idea that will inevitably be ditched once the unintended consequences have been thought through.

The suggestion came from Chancellor George Osborne, who wants the Treasury to work out a way of encouraging savers to invest in government “growth bonds” to raise money for infrastructure projects such as toll roads and housebuilding.

One possibility is that savers would be offered tax breaks to transfer some of the billions held in bank accounts, building societies and investment funds to the new bonds.

The government would underwrite a certain amount of any losses incurred by those projects, giving savers an extra layer of protection.

For this government it would amount to a remarkably socialist market intervention, for which a Labour administration would doubtless be heavily castigated.

Plans to pool UK pension fund savings into new projects have made precious little progress, with the National Association of Pension Funds not expecting the proposed £2 billion infrastructure fund to be launched until 2013.

And having scared companies into hoarding cash by bringing a nascent economic recovery to a juddering halt, the coalition now has little choice but to flutter its eyelashes at the savers it has done so little to support.

On its own merits, there’s plenty to commend an idea that would aim to kill two birds with one stone – the money ploughed in by savers desperate for better cash returns providing a cost-effective way for the Treasury to kick-start the UK’s moribund economy.

After more than three years at the mercy of inflation, savers would be surprised even to have been considered by the government, let alone presented with a new tax-efficient savings opportunity.

Looked at that way, the Treasury has something of a nerve to lament the fortunes of savers then claim to offer a solution after doing so little to help them and having promoted a quantitative easing policy that has wreaked havoc with pension incomes.

In many ways, this latest wheeze is a non-starter, due to several flaws and potentially conflicting objectives.

One option under consideration is to use NS&I to issue the new bonds. That would be the same NS&I that was forced by government restrictions to withdraw its index-linked savings certificates when it was swamped by demand from savers desperate for protection against rising prices.

So, having stuck rigidly to funding rules that force NS&I to restrict availability of the certificates, the government would allow the same body to effectively flout those principles.

And what about other savings providers, from the smallest mutuals to the high-street banks? The restrictions under which NS&I operates are there primarily to maintain a level playing field and prevent a government-supported savings provider from enjoying an unfair competitive advantage.

If “growth bonds” ever look like coming close to reality, the industry backlash would almost certainly be sufficient to force a rethink. And if they do somehow see the light of day, the returns will have to be eye-catching, because it’ll take that much to get savers interested in anything touted by this particular government.

Claim your benefits

THE average pensioner failing to claim benefits and tax credits to which they’re entitled is missing out on nearly £900 a year, it was claimed last week.

A fifth of retirees are missing out on some or all of the payments they are eligible for, according to Just Retirement. It said claiming those benefits and credits could boost retirement incomes by thousands, with £8,766 the biggest “loss”.

The stigma attached to benefits, for older generations in particular, has a lot to do with this. That’s one reason why the inception of tax credits was expected to encourage greater take-up of benefits. Unfortunately, however, the complexity of that well-intended system, which sucked potential claimants into a means-testing quagmire, only made matters worse.

Bureaucracy and bad administration don’t help either: seven in ten retirees quizzed by retirement specialists McCarthy & Stone said they had been deterred from making a benefits claim by lengthy and complicated application processes.

To find out if you’re entitled to state payments that you’re not getting, go to www.turn2us.org.uk or call 0808 802 2000.