Keir Starmer needs to show ‘big change’ says former Corbyn aide
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Julian Jessop offered his gloomy assessment the day after Sir Keir outlined his plans for a British Recovery Bond, whereby a Labour Government would offer people a savings account with the Government at a competitive interest rate. Mr Jessop, Chief Economist at the Institute of Economic Affairs, wrote on his website: “It’s a nice idea on paper and many other people, from both left and right, have backed similar schemes.
“But it’s still hard to see what it would actually achieve in practice.”
The plan was to raise billions of pounds directly from the public via a new government-backed investment product that could draw on the surplus savings from the pandemic, he explained.
This money would then be given to a state-controlled National Infrastructure Bank (NIB), in order to invest it in growing business and the jobs of the future.
Sir Keir has suggested such a scheme would offer financial security for millions of people, many of whom have saved for the first time.
Mr Jessop commented: “So, what’s not to like?
“For a start, it’s not obvious what the problem is that this proposal is trying to solve.”
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Despite the British Recovery Bond being touted as something which Labour would introduce as soon as possible, the Government was already finding it easy to borrow huge amounts of money at ultra-low interest rates by selling ordinary bonds known as gilts, Mr Jessop explained.
He added: “Even without the help of the Bank of England, there’s no shortage of private savings looking for a safe investment (and there will be for at least as long as the economy remains weak).
“It’s also odd to pitch the British Recovery Bond as a boon for savers.
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“There are already plenty of government-guaranteed savings products that provide ‘financial security’, including conventional National Savings (NS&I), and plenty of ways to invest in UK businesses using private vehicles.”
In addition, the Financial Services Compensation Scheme (FSCS) already provided a degree of protection for these investments too, he pointed out.
Mr Jessop said: “There are still many other unanswered questions about the new Bond. In particular, what would the interest rate be?
“There are only three options: below market rates (which would be a bad deal for savers), above market rates, like George Osborne’s infamous ‘Pensioner Bonds’ (which would a bad deal for taxpayers), or similar to market rates (what then is the point?)
“In summary, there isn’t a lot of mileage in a British Recovery Bond.
“It might bring in a few tens of billions, but this is small change in the context of overall public spending.”
If this is really Labour’s ‘big idea’, I’d think again
Furthermore Mr Jessop highlighted forecasts suggesting NS&I was already expected to raise about £35 billion for the Government this year.
He added: “Above all, governments and state-owned banks should finance themselves from the cheapest possible source.
“This is unlikely to be directly from retail investors.
“If this is really Labour’s ‘big idea’, I’d think again.”
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