Thursday, 7 June 2012


The Treasury is trying to work out how to tempt individual savers use some of the £500 billion cash they have in the bank to fund its ambitious National Infrastructure Programme.

If it can be done it would fulfil two key objectives. First, savers would get a bit more than the dismal 3% or so that is currently on offer even to active savers who move their money regularly. Second, it would get new money into roads, rail, trams, housing, telecoms and so on which would create jobs, help companies and boost the economy. And all without it being booked as Government debt.

But both parts are tricky. Savers with cash in the bank are cautious. They want to know that their money is safe. Even if it does not go up very much, cash uniquely cannot go down (and email me if you are thinking 'what about inflation?' it would take too long here). So any growth bond would have to offer a clear hope of a better return than cash but some sort of protection against loss.

And that brings us to the second tricky part. How to keep the loan - for that is what it is - off the Government books? It already has a debt of more than £1 trillion and is expected to borrow another £120 billion in 2012/13. The Coalition is committed to borrowing less not more. So is it possible to bypass the national accounts by getting savers to lend money directly for infrastructure projects? I am told by someone close to the process that it is this step which is proving very difficult. Especially if savers are to be given any sort of government guarantee.

A similar scheme is being developed by the UK's pension industry. The National. Association of Pension Funds will soon be piloting a Pension Investment Platform to pump initially £2 billion into infrastructure projects. Eventually it could be ten times as big. Like any professional investor the funds want certainty and a good return. One example might be road building or widening. The income stream would come not from a toll - too risky and the M6 toll road has lost money every year since it opened - but from a Government payment per vehicle. They hope for returns of 2% to 5% above inflation.

Retail investors might be tempted with rather less than that. Especially if the offer was sweetened by making returns tax free. There is nearly £400 billion in ISAs, half in cash, just on that promise. But to tempt cash savers with money in the bank the growth bonds would need some sort of protection against loss. And that has to be done without adding the loan to the Government's debt.

If that trick can be pulled off then an infrastructure programme funded by the public would fit in well with Liberal Democrat policy and the public statements of deputy Prime Minister Nick Clegg.

If it can't then growth bonds seem unlikely to leave the bright ideas box and enter the real world.