George Osborne's latest plan: ask Britain's savers for money

Treasury to fund infrastructure projects by selling us 'growth bonds'

George Osborne is drawing up plans to use Britain's army of small savers to boost the country's growth prospects.

Click HERE to view graphic

The Chancellor has told Treasury officials to find ways to persuade savers to transfer billions of pounds held in bank accounts, building societies and investment funds to new government "growth bonds".

The money would be invested in infrastructure projects such as toll roads, green energy and housebuilding.

Savers could be offered tax breaks, similar to those available in Individual Savings Accounts (ISAs).

Ministers are also looking at how they can use the strength of the Government to underwrite the risk to small investors. They are considering proposals, similar to those recently announced for housebuilders, for the Government to underwrite a given percentage of any potential losses by the projects. This would mean that the Government took the "first" risk with the schemes – losing its money before any investors.

Such a guarantee would reassure the public, while ministers claim that the overall risk liability to the Government would be minimal. Calling on private savings to be used in the national interest would be the first time such a potentially lucrative source of cash has been tapped since the Second World War. Then, savings certificates were issued to help finance the war effort under a scheme which eventually became National Savings and Investments. NS&I, wholly owned by the Government, manages about £98bn in savings, has 9 per cent of the entire UK savings market and accounts for 16 per cent of the national debt. It is understood that one option being investigated by the Treasury is using NS&I as the vehicle for the new bonds.

Projects that could benefit from the idea include extending London Underground's Northern line to Battersea, a new Thames crossing, toll roads alongside some of the busiest sections of motorway, and significant investment in housing stock. Ministers point out that contraction in the building trade led to the double-dip recession.

A senior government source told The Independent: "While a lot of families are struggling and have no disposable income, there are others who are quite cash rich but have nowhere secure to put their money where they can be guaranteed a decent return. Because interest rates are as low as they are, there is the potential to tap into this money and get it invested in infrastructure which will have a dramatic effect on Britain's long-term growth."

The benefits of investing in infrastructure were twofold, the source said. "Not only will it provide a welcome kick-start to the economy at a time when growth is sluggish, but infrastructure improvement will also help Britain's long-term competitiveness and encourage investment from overseas. In that way it is a win-win situation."

Another source emphasised that the scheme was not seen as an alternative to investment from pension funds and overseas sovereign wealth funds but, rather, an addition. "To be fair, the money we can realistically raise from British savers will be far less than the potential from overseas investors or pension funds," the source said. "But it sends a clear signal and allows the public to invest in Britain's future."

Both David Cameron and Nick Clegg have pledged to make huge investments in infrastructure. Mr Clegg has said the Coalition is looking at "massively amplifying the principle of what we did on credit easing" – a reference to the £20bn scheme to use government balances to support lending to small firms.

He said some people were "neurotic" about using state funds to assume additional risks on housing, transport and other projects, and hinted that Treasury officials were hesitant. But he added: "From the top of government, a few weeks ago we decided this was the route we're going to take. That's the instruction we've issued to the Treasury."

Mr Clegg recently held talks in South Korea about securing investment from its pension funds. Meetings are also believed to have been held with Qatar and other Gulf states to drum up backing from their sovereign wealth funds. However, talks between the Treasury and UK pension funds about channelling billions of pounds of private savings into new projects have yet to bear fruit. The National Association of Pension Funds hopes to launch a pooled £2bn infrastructure fund but does not expect it to be up and running until next year. Mr Cameron and Mr Clegg hope to unveil the schemes before Parliament's summer recess. But Treasury sources said the detail was proving more complicated than expected and a final announcement might be made in the autumn. "The worst thing would be for it to unravel after we've announced it," said one.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

SThree: Trainee Recruitment Consultant - Birmingham

£18000 - £23000 per annum + Uncapped OTE: SThree: SThree Trainee Recruitment C...

Recruitment Genius: Interactive / Mobile Developer

£40000 - £45000 per annum: Recruitment Genius: This digital production agency ...

Recruitment Genius: PHP Developer - Midweight

£40000 - £45000 per annum: Recruitment Genius: This digital production agency ...

Recruitment Genius: Junior Front End Developer

£20000 - £30000 per annum: Recruitment Genius: This digital production agency ...

Day In a Page

Giants Club: After wholesale butchery of Idi Amin's regime, Uganda’s giants flourish once again

Uganda's giants are flourishing once again

After the wholesale butchery of Idi Amin's regime, elephant populations are finally recovering
The London: After 350 years, the riddle of Britain's exploding fleet is finally solved

After 350 years, the riddle of Britain's exploding fleet is finally solved

Archaeologists will recover a crucial item from the wreck of the London which could help shed more light on what happened in the vessel's final seconds
Airbus has patented a jet that could fly from London to New York in one hour

Airbus has patented a jet that could fly from London to New York in one hour

The invention involves turbojets and ramjets - a type of jet engine - and a rocket motor
10 best sun creams for kids

10 best sun creams for kids

Protect delicate and sensitive skin with products specially formulated for little ones
Tate Sensorium: New exhibition at Tate Britain invites art lovers to taste, smell and hear art

Tate Sensorium

New exhibition at Tate Britain invites art lovers to taste, smell and hear art
Ashes 2015: Nice guy Steven Finn is making up for lost time – and quickly

Nice guy Finn is making up for lost time – and quickly

He was man-of-the-match in the third Test following his recall to the England side
Ashes 2015: Remember Ashton Agar? The No 11 that nearly toppled England

Remember Ashton Agar?

The No 11 that nearly toppled England
Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

'How can I possibly be on the list with these writers I have idolised?'

Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

Bettany Hughes interview

The historian on how Socrates would have solved Greece's problems
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

Vegetarian food gets a makeover

Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks