There comes a point in every Chancellor's reign when the manifest power and prestige of the job goes to the incumbent's head, and he begins to think of himself as some kind of demigod. For George Osborne, that moment seems to have come early in his stewardship with the grandiose notion, floated while on a visit with the prime minister to Washington, of an "Osborne bond" – a one-hundred-year gilt, or even a gilt issued in perpetuity, rather like the War Loan.From the Treasury's point of view, it makes perfect sense to try and refinance the ever-growing national debt at today's record low interest rates. Mr Osborne talks of "locking in the benefits of Britain's safe haven status" for future generations.
But from the investors' point of view it makes no sense whatsoever and if it ever comes to pass, I can guarantee it will eventually be seen as one of the most colossal cases of mis-selling ever seen in the UK – and there have been quite a few.
As any student of economic history knows, periods of very low interest rates can last an awfully long time, but they have never lasted 100 years or anywhere close. Any such gilt is therefore a hostage to long term fluctuations in interest rates and inflation. One thing is absolutely guaranteed – inflation adjusted, £1,000 invested in a 100-year bond today, even with interest re-invested, won't be worth anywhere close at maturity. Read More
