With his Budget U-turns, executed and not, the Chancellor has come in for considerable flak lately. And his U-turns, though relatively small, have still cost the Exchequer money. So it is perhaps not surprising that, as we report today, George Osborne is looking for a new means of raising revenue that could also help rebuild his political reputation. In "growth bonds", or whatever more seductive name the Treasury dreams up, he may just have found the answer.
Such bonds may be what many others have been looking for, too. While Britain's huge number of debtors – those with mortgages, overdrafts and unpaid credit cards – are still benefiting from ultra-low interest rates, there are others being hammered by those very same low yields. Anyone who lives, or hopes one day to live, on savings has been penalised by rates that are negative in real terms. And each round of quantitative easing approved by the Bank of England has only exacerbated their plight. With hints that another round is in the offing, there is little light for savers on the horizon.
There will be those who argue that, if anyone could afford to suffer in this general climate of austerity, it is savers – and there is more than a grain of truth in that. It is savers, after all, who by definition have surplus cash. Among them are those still enjoying a golden age of final-salary pensions. And the same generation profited mightily from the rise in house prices over their working lives and now own their homes outright.
It must also be conceded that, with the economy still languishing, higher interest rates would do more harm than good, casting more people on to the mercy of the State, just when the State too needs to cut its costs. With students facing tuition fees of £9,000 a year and home-buyers having to supply substantial deposits to qualify for a mortgage, the arguments against raising interest rates are compelling.
The longer this situation persists, however, the more divisive it becomes. Those penalised by low rates resent the breaks they feel are being given to the profligate, while many young people feel the door to easy credit has been slammed against them by a generation that has had it, financially, all its own way. The Government is also in a bind. It wants people to "do the right thing" by saving for retirement and not running up debt. But it also needs people to spend to get the economy moving. The combination of low interest rates and financial crisis, though, has had a logical, if undesired, effect. People have paid down their debts rather than spend.
"Growth bonds" would be a way to square this circle, offering savers somewhere to put their money that is as safe (or almost as safe) as a deposit account, but with a better return. The best part, though, would be that this money, currently idling to little effect, would help fund the sort of infrastructure projects that small savers themselves would probably favour: new housing, green energy generation and transport. Such undertakings also create jobs.
The choice of projects will be one key to the success of such bonds. The other will be trust. The signs are – from the speed with which new National Savings vehicles are routinely oversubscribed – that people are readier to trust government with their money than the banks. That is a sad comment on the reputation of high street banks five years after the run on Northern Rock, but if it allows the Government to meet the needs of savers, while also meeting some of the costs of new infrastructure, it should be an idea whose time has come.