Third, the structure of government debt matters. So, index-linked bonds have proved to be a terrible idea. They have apparently increased the cost of government debt by many tens of billions a year. But no one mentions that, on average, this debt won’t be repaid for more than fifteen years, which is when the average index-linked bond is redeemed, which is the only time when this liability can fall due. Instead, it is portrayed as a current cost. That, though, is not true. The real question is not the cost, but how funds are to be set aside between now and the redemption date to fund the cash cost at that time. Properly understood in this way, we have no index-linked bond funding crisis at all. There is a long period to accumulate a redemption fund, and the right question to ask is how the funds in question should be used now to produce the return required fifteen years hence. But with totally crap accounting data, that point is totally missed. It is scandalous that it is.
Finally, because we do not use a national balance sheet we do not talk about what should be on it.
So people make balance sheet adjustments for those costs of index linked gilts. And the complaint is that we don’t do things by a national balance sheet?