By Chris Cook
It was pleasing to see that the editorial in the Financial Times today – which is entitled “Sovereign Equity” – suggests that perhaps financial instruments other than debt may be appropriate for governments. It is becoming daily more evident that UK Plc not only has no equity, but shows the debt on its balance sheet while ommitting the assets against which the debt is secured.
I have been promoting the concept of a National Equity, and a legal and financial infrastructure enabling it, for several years now. But merely floating the idea on LabourList elicited a mixture of incomprehension and derision.
In fact, as I pointed out, a National Equity has to all intents and purposes existed since the mid 18th century in the form of the UK Treasury’s undated, but redeemable Consolidated Loan, and the more recent undated, redeemable War Loan, both of which are interest-bearing government debt or ‘gilts’
In addition to this apparently anachronistic undated debt, the UK’s notes and coin, which are undated instruments of ‘sovereign credit’, are to all intents and purposes also a non-interest-bearing form of equity, and we have Mr Darling to thank for the fact that this stock of cash has now been boosted by £200bn of sovereign credit in the form of the much maligned and widely misunderstood ‘Quantitative Easing‘. The fact that the Bank of England chooses to pay 0.5% in respect of the bank reserve balances which were pumped up by QE has essentially created a form of UK Plc redeemable equity costing the public 0.5% a year. Cheap at the price.
I believe that it is possible for the public and private sectors to combine to create new forms of equity instruments within the framework of corporate partnerships, rather than archaic company and trust law vehicles. Such Public Equity is capable of revolutionising the long term financing of UK productive assets – such as affordable housing, renewable energy, new transport infrastructure, and the re-skilling of our workforce. As I have pointed out, such massive government investment can and should be funded by QE provided it is managed professionally under the supervision of a monetary authority.
It may not be conventional – but I agree with the FT that it is about time the UK issued some National Equity – just not the toxic form of equity comprised in a Plc.