A modest proposal for reducing the National Debt
George is the finance director of an overstretched conglomerate called UK plc, which can’t kick the habit of borrowing money. His biggest creditor is the bank that Mark runs. To help out in a crisis, this bank bought a huge amount of George’s loan stock — no less than £375 billion. All is not what it seems, though, for all the shares in Mark’s bank belong to George’s conglomerate. So the debtor owns the creditor, and a stroke of his pen could cross the £375 billion off both sides of the ledger.
This modest proposal for reducing the National Debt by a quarter was aired here not long ago, and caught the wind. It was put to Mark Carney, the Governor of the Bank of England, when he came to the House of Lords to give evidence. The Bank had bought all this stock by way of “quantitative easing”, but had, he said, no plan to sell it. If easing had to give way to tightening, he would rather raise interest rates.
In that case, he was asked, why not have the debt crossed off? “The Bank is wholly owned by the state”, said Lord Lawson of Blaby, who as Chancellor seldom let the Bank forget it. “When a company buys back its own debt, that is just cancelled out. Why do you not do that between you and the Treasury, and so reduce the headline figure for the National Debt?”
A crisp exchange followed. Carney: “The danger is that we would lose control of the money supply.” Lawson: “That cannot be so.” Carney: “It can be so” — because at some point he might need to put quantitative easing into reverse. But, said Lawson, you can still do it: “In my day as Chancellor it was known as overfunding” — when the Treasury issued more stock and raised more money than it strictly needed: “You can always do that.”
Carney then chose to break off the exchange: “I think we are going to have to agree to disagree.” The proposal remains on the table and must have its charms, for George or his successor as finance director of UK plc. A Chancellor watching the numbers mount up must yearn for some painless way to kiss them better. He can always quote Lord Lawson: “This is just a book transaction. It would not have made any real effect” — except, as he might have added, that subtracting £375 billion would make the figure for the National Debt more realistic. The Governor of that wholly-owned bank would, in due course, come round to it.