Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what assessment he has made of the potential merits of issuing long-term covid-19 bonds to finance a sustained economic recovery from the covid-19 outbreak.

Since the onset of COVID-19, the Government has announced an extensive package of measures in order to provide the critical support needed by individuals, families, and businesses facing disruption caused by the pandemic. This has significantly increased the Government’s financing requirement in the near term and, as previously announced by the Chancellor, this additional financing will be fully funded via additional borrowing through the Government’s normal debt management operations.

Our core gilt financing programme is the most stable and cost-effective way of raising finance to fund the day-to-day activities of the Government. This includes the significant funding increase required specifically to address the period of economic disruption arising from COVID-19 and the Government’s policy response. The gilt market is deep and liquid, with a good track record in responding smoothly to increases in gilt supply.

At present, the UK Government does not have any plans to introduce long term COVID-19 bonds to help fund the response to the pandemic. The Government remains open to the introduction of new debt instruments but would need to be satisfied that any new instrument would meet value-for-money criteria, enjoy strong and sustained demand in the long term, and be consistent with wider fiscal objectives. The Government recently announced its intention to issue a first sovereign Green Bond in 2021, for example. We keep the introduction of new debt financing instruments under regular review.

The UK already has comfortably the longest average duration to maturity in its debt stock across the G7, at around 15 years. This compares to around 8 years for our closest G7 peer (France) and helps to reduce refinancing risk in the UK. The conventional and index-linked yield curves stretch out to 2071 and 2068, respectively. When setting gilt issuance plans – including on the average duration of issuance – for the year ahead in the spring, HM Treasury and the Debt Management Office (DMO) seek to minimise, over the long term, the costs of meeting the Government’s financing needs, taking into account risk.