As many readers here will know, I have been arguing that savings should be redirected to fund the costs of climate transition for some time. The latest version of my report, with Colin Hines, on this issue is out today, although it is merely a Green New Deal Group version of one previously issued. In that case it would be fair to expect me to be celebrating the announcement from NS&I that the new green savings account from them, promised by the Chancellor in March, is now available.
I am not. As the Guardian, amongst others has noted, the rate on offer from this new account is 0.65% and the money must be locked up for three years and no early redemption is possible. An ISA option, which most people wanting to lock up money for that period would be looking for, is not available. As has been pointed out this morning, you can get an instant access account with that rate of interest from the Coventry Building Society right now.
The rate is also lower than that the government is paying on its recent green gilt - which was almost 0.9%.
And as my research has shown, it is about 1% less than the Treasury charges on internal government loans at present through the Public Works Loan Board, which shows that they are offering a rate somewhat lower than they think the cost of capital to be.
So, why has the government made such a paltry offer? There are three reasons, I suggest.
The first is that this idea was first mooted as a spoiler to neuter a Labour proposal, which I think might well have been influenced by the proposals the Green New Deal Group has made. There was never any real government commitment to this idea.
Second, the government does not want this scheme to work. They only believe in private sector solutions, and this scheme could show the public liked state sector ones.
Third, they really do not want to raise too much money. In 2015 George Osborne offered a bond that raised £15 billion and crashed the NS&I web site, so popular was it. If the 1% we recommended had been made available this time I think that would have happened again. But that might than have also shown the public wanted to save for green projects, and that is a message the government does not want relayed. In that case they have priced this to fail.
This, then, is not good green news. It really is instead indication of a government that does not care about climate change, and that does not want to fund tackling it . And that is very worrying when climate change is the biggest issue that humanity faces.
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You may be right…. or it may just be a cock-up.
Just 2 months ago, 3 year gilts yielded 0.20% which would have made the 0.65% offered look rather attractive. Since then, the BOE has been banging the drum about interest rate rises and the 3 year gilt is now yielding 0.73%…. which makes the NS&I look miserly. The NS&I have always been rather slow to move its rates into line with market rates and it might just be a case of that. That is the “charitable” explanation….. but it does seem odd. You always want to pitch a new offer to go well and surely someone at the top should have said “Hold the bus! We need to look at this rate again in the light of market conditions”….. but they did not….. and that means you might be right.
I think I am Clive
I expressed my views to NS&I last night in a call – I got a polite silence in response – but also a rather knowing one, I felt
Interesting!! Thank you for that extra little bit of colour.
Is it, perhaps a function of the target market for the product; whether, for example it is principally for sophisticated buyers, or at least significantly, aimed at the general public, in either case with slightly different perspectives on the determination of a ‘safe asset’ and the returns expected?
It’s as if a certain Dr Beeching is in charge of this investment product.
It’s designed to send you elsewhere – as you say – the private sector instead, like Beeching’s proposals were designed to send you to the roads and car manufacturers.
You can’t compare the NSI product with the coupon on the recent green gilt issue without looking at the risk also.. and that gilt is 30 odd years so super super risky.
Or alternatively super unrisky if you want a long holding
And people do despite all you trolls who deny it
That’s why they exist
“Or alternatively super unrisky if you want a long holding”
Well yes par is guaranteed.. but that’s not much use if inflation is running at 4% or 5%.pa. To invest for for 30yrs at 1% pa is insanity
Tell me then, why do so many people want these bonds? Are they all insane?
“Tell me then, why do so many people want these bonds? Are they all insane?”
Why don’t you think about it rationally? Do you think getting par back in 30yrs with inflation running at 4-5% is a good investment??…and getting 1%pa is sufficient compensation? I don’t personally.. why others choose to buy is besides the point, though many pension funds have a legal requirement to do so.
And why do you think that is?
Australia managed to issue 100 year bonds and investors bought them. 30 years is nothing…
Correction. I mean Austria.
Richard,
John McDonnell is giving a lecture on the afternoon of 27th ,”The Political Economy to Secure Socialist Changes in the 21st Century.” I know he rolled over to Treasury orthodoxy in his 2019 election manifesto, but has he changed now that he is no longer shadow chancellor, but part of a relatively small rump of left MPs? Perhaps you have a line of communication to find out and make suggestions? As I have commented on your site on numerous occasions, getting the basic MMT ideas about fiat currencies over to the European left is a priority educational objective. Perhaps this provides one small opportunity? I would like to believe this honest man has now had his epiphany, but my confidence is low.
I admit I am not sure what influence he has left now
Thanks for this. It’s not really surprising. The G20 have decided that meeting the SDGs should be achieved with private capital. Excellent summary here.
https://us.boell.org/en/2019/10/11/washington-consensus-wall-street-consensus
2 implications (amongst many) of this policy are: the government will use public funds to derisk private capital investment in emerging markets, and the types of projects which are funded are specifically those which give tasty returns. This excludes the poorest from climate investment because of course they don’t have any wealth that can be bilked.