Sorta, and around and about.
The reason? One of the biggest buyers of government debt is about to become a seller – pushing up state borrowing costs as a result.
Defined benefit pension schemes, often known as final salary pensions, have traditionally been big buyers of the Government’s long-term debt.
The Treasury could keep borrowing cheaply as these pension funds were effectively guaranteed lenders through the gilt market.
But most of those schemes have closed to new contributions. Employers have shifted from costly defined benefit schemes to defined contribution pensions, which link payouts to the amount workers save rather than their final salaries.
Now, the sun is setting on the defined benefit industry as members reach retirement age.
As a result, instead of buying bonds, these funds are going to ditch around £40bn of long-dated gilts over the next five years as they raise funds to pay out to pensioners.
Brown, G, changed the rules on defined benefit pensions plans. Removed the dividend tax free stuff, forced higher bond holdings on solvency grounds on the funds. This made them big buyers of bonds which was nice for Brown. G.
But the prices on offer changed so much that the defined benefits pensions closed. And here we are, there are no new defined benefit pensions on offer (even in the public sector, they’re mostly unfunded) and so the bond positions are being sold down.
Which is, sorta, if you squint, a Laffer Effect. My Clever Plan! to lower the cost of govt borrowing has, in the fullness of time and maturation of prices, raised the costs of govt borrowing.
Thanks, Gordo.
It will probably be decades before the true extent becomes clear, of the damage wreaked by that cunt gordon brown.
He was a man of great talent. I hear Steve Backley was in awe of his mobile phone tossing. I understand many Treasury employees called Gordon “the greatest tosser I’ve ever seen”…
Taking decades for the true extent of the damage caused by idiot politicians is perfect timing. You can have troughed in the Lords and retired by the time it all comes home to roost.
The purpose of Labour and the Conservatives and the Liberal Democrats is to loot the British public until they’re dead.
What was the actual incidence here – who paid? Brown told pension funds to buy fewer stocks, more gilts. Therefore stock prices fell a bit, hitting shareholders. Because the gilts didn’t yield as much, companies had to pay in more. This reduced their profits, hitting shareholders a second time.
The corollary is that as companies wind down their gilt purchases, the government could raise corporation tax, and the overall effect on profits would be neutral. (Obviously the govt could just live within its means; but we all know that’s not going to happen.)
I think when the full impact of the Labour Government of 1997 to 2010 is known, unfortunately most of those impacted will be dead, whether through old age or being killed off by Hamas supporters or other undesirables.
What is deeply depressing is that the governments since 2010 have been equally inept despite being ‘nominally’ Conservative but the impact on pensions of Brown was a real killer. Of course Murphy and his acolytes blame it all on the pension companies and the Asset Management industry but the truth is out there.
The impact of the Labour government will never be known as those in the media and communications have no desire to let it be known. Hence the wonder of almost unlimited immigration, the scandal of low taxes on non-doms, the “fact” that the Tories broke the UK balance sheet by letting debt inflate whilst also forcing through austerity, that human rights for everyone is an unadulterated good even if those benefiting are barely human given their behaviours. Oh and high house prices is also the fault of the Tories and nothing to do with enormous numbers of people.
At work the line is long term belief is Gilts are going to get cheaper and cheaper and cheaper. They simply have too much debt, too large a deficit and too few people to fleece. No-one really *wants* Gilts in those circumstances. Yet Pension schemes discount liabilities using the Gilt rate so once they are “fully funded” they match with Gilts. Plus firms like mine can take them “in specie” as a premium payment whilst also keeping the scheme earning a return. We won’t keep all the Gilts though. So direction is only cheaper.
This is going to get ugly.
I think we’ve been doomed since Theresa May said “We’re conservatives, we believe in free markets” and then segued straight into “and that’s why we’re introducing an energy price cap”.