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Osborne wants to sell 100-year debt

Chancellor expected to announce a consultation on possibilities of long-term debt.

The Chancellor George Osborne is expected to use next week's Budget to announce plans for Britain to sell "perpetuals" – loans on which the principle is never repaid, accruing interest indefinitely – or 100-year bonds.

George Parker and David Oakley report for the Financial Times:

George Osborne will say in next week’s Budget that he wants to “lock in” the benefits of Britain’s low borrowing costs, which he says reflect market confidence in his fiscal plans.

Investors, however, are divided over the bonds’ attractions. Some said they liked the idea of a safe security with a fixed interest for such a long period but others said they would be reluctant to buy such debt because of the low yields, or returns.

When an investor buys a bond, they are making a loan to the British state, which usually pays a fixed interest rate to the investor for the period of the bond. Since loans made to a nation which prints its own currency are very safe – they will be repaid in full unless Britain goes bankrupt – the interest rates paid on them are correspondingly low. Ten-year loans, or "gilts", are the benchmark, and currently command a yield of 2.17 per cent.

The longer the period of the loan, the higher the yield gets. This partially represents the increase in risk being taken on – for all that Britain going bankrupt is unlikely, it is more likely to occur in the next 30 years than it is in the next month – but it also necessarily reflects the fact that the investor could get more with their money elsewhere. The advantage for the seller, the Treasury, is that they buy greater certainty as to their income.

At the same time, both buyer and seller are engaged in a gamble as to what will happen with future interest rates. If they are likely to rise, then demand for short term bonds will outstrip demand for longer term ones. No investor wants to get locked into a 30 year bond paying interest rates of (at present) 3.24 per cent if they rocket up shortly after the contract is signed. But if they fall after a long term bond is bought, the investory is quids in, and the Treasury loses out.

So why introduce a 100-year bond now?

As the FT explains, Britain's bond yields are at a historically low level – although whether that actually represents market confidence is debated – so there is an advantage for the government in getting as many long-term loans as they can before the recovery eventually forces the rates back up. But as the BBC's Robert Peston points out, the actual market for long-term bonds is small, and shrinking; this may be little more than a stunt, a way of showing off just how credit-worthy Britain is.

If Osborne decides to introduce a perpetual rather than a 100-year bond, the stunt status seems assured. Such bonds carry the nice tradition of being named after the chancellor who issues them, ensuring a place in history, but are of little material value. For one thing, "they are excluded from many index-tracking portfolios, reducing demand"; for another, the economic phenonomen of "present value" means that their actual worth is little different from a 100-year bond.

As a result, Osborne would lose liquidity and predictability in exchange for a lot of prestige and very little extra value.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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No, David Cameron’s speech was not “left wing”

Come on, guys.

There is a strange journalistic phenomenon that occurs when a party leader makes a speech. It is a blend of groupthink, relief, utter certainty, and online backslapping. It happened particularly quickly after David Cameron’s speech to Tory party conference today. A few pundits decided that – because he mentioned, like, diversity and social mobility – this was a centre-left speech. A leftwing speech, even. Or at least a clear grab for the liberal centre ground. And so that’s what everyone now believes. The analysis is decided. The commentary is written. Thank God for that.

Really? It’s quite easy, even as one of those nasty, wicked Tories, to mention that you actually don’t much like racism, and point out that you’d quite like poor children to get jobs, without moving onto Labour's "territory". Which normal person is in favour of discriminating against someone on the basis of race, or blocking opportunity on the basis of class? Of course he’s against that. He’s a politician operating in a liberal democracy. And this isn’t Ukip conference.

Looking at the whole package, it was actually quite a rightwing speech. It was a paean to defence – championing drones, protecting Britain from the evils of the world, and getting all excited about “launching the biggest aircraft carriers in our history”.

It was a festival of flagwaving guff about the British “character”, a celebration of shoehorning our history chronologically onto the curriculum, looking towards a “Greater Britain”, asking for more “national pride”. There was even a Bake Off pun.

He also deployed the illiberal device of inculcating a divide-and-rule fear of the “shadow of extremism – hanging over every single one of us”, informing us that children in UK madrassas are having their “heads filled with poison and their hearts filled with hate”, and saying Britain shouldn’t be “overwhelmed” with refugees, before quickly changing the subject to ousting Assad. How unashamedly centrist, of you, Mr Prime Minister.

Benefit cuts and a reduction of tax credits will mean the Prime Minister’s enthusiasm for “equality of opportunity, as opposed to equality of outcome” will be just that – with the outcome pretty bleak for those who end up losing any opportunity that comes with state support. And his excitement about diversity in his cabinet rings a little hollow the day following a tubthumping anti-immigration speech from his Home Secretary.

If this year's Tory conference wins the party votes, it’ll be because of its conservative commitment – not lefty love bombing.

Anoosh Chakelian is deputy web editor at the New Statesman.