The national debt now stands at around £2.2 trillion, or >100 percent of GDP. But to whom do we actually owe the money? Using the Freedom of Information Act, The London Economic sought to obtain a list of creditors from the Treasury’s Debt Management Office but was told that, while a register exists, its contents are a state secret.
How the national debt works
The House of Commons Library states: “When the Government spends more than it receives in taxes and other revenues it has to borrow. This is sometimes referred to as the Government’s budget deficit,” currently £304 billion, or 14.5 per cent of GDP.
The Tories could make more money by raising corporation tax, as they plan to do from 19 per cent to 25 per cent by the year 2023. They could also increase income tax for the highest earners. (Just 321,000 people in the UK have a >£150k annual income. For them, the current rate of taxation is 45 per cent.)
But raising taxes would be bad for the corporations and individuals that donate to the Tory party, hence loopholes currently allow a yearly £30 billion “tax gap” (the difference between what is owed and what is paid). Successive governments attract investors with phrases like “competitive tax regime.” The Department for International Trade, for instance, boasts that the UK’s corporation tax is “the lowest in the G20.”
The Institute for Fiscal Studies notes that total tax in the UK–capital, corporate, income, social security, VAT–is 33 per cent of GDP, “considerably lower than in most other western European countries,” which average 39 per cent. The revenue-generating burden will be shifted onto the working classes. The Office for Budget Responsibility (OBR) estimates that plans by the billionaire hedge fund Chancellor, Rishi Sunak, to generate £8 billion more in tax revenues will mean that 1.3 million workers who previously fell below the taxation threshold will start paying in 2026.
Instead, the government would rather cut public spending, helping the “chumocracy” in the process. In what the Financial Times describes as “salami-slic[ing] the overall government budget,” the Tories aim to cut £15.2 billion from the public purse during 2022-23.
Enter the gilts.
The GILT markets
According to OBR figures, of the >£2 trillion owed, £371 billion (or around a quarter) is owed to the Bank of England (BoE). This is about the same as the national deficit. The Official Monetary and Financial Institutions Forum describes the situation as the BoE “nearly financ[ing] the deficit.” In addition, £172 billion is owed to the UK’s state bank, National Savings and Investment. So, we owe around one-third the debt to ourselves. Much of the remaining two-thirds of the national debt is held by private gilt buyers.
Gilts (a.k.a., gilt-edged securities) are government liabilities that typically take two forms: conventional and index-linked. The value of index-linked gilts depends upon inflation via the Retail Price Index. The Debt Management Office (DMO) calls gilts government “stocks.”
Through a system called Gilt-Edged Market Makers, the BoE opens gilt operations to companies registered with the scheme. These are gilt dealers and traders who often work with Inter Dealer Brokers who act as intermediaries for anonymous trading between the so-called “market makers.” They include Barclays, BNP Paribas, Citigroup, Deutsche Bank, Goldman Sachs, HSBC, Lloyds, Merrill Lynch, Morgan Stanley, NatWest, and Santander.
The DMO implies that gilts are safe investments for private buyers because “the British Government,” meaning the taxpayer, “has never failed to make interest or principal payments on gilts as they fall due.”
Gilt buyers are registered. A Freedom of Information Act (FOIA) request from several years ago revealed that the gilt registrar was (as of 2018) the English-based branch of a US company called Computershare Investor Services. The company describes itself as “a global leader in transfer agency, employee equity plans, mortgage servicing, proxy solicitation, stakeholder communications, and other diversified financial and governance services.”
The FOIA request also revealed that the Treasury has two types of gilt holder: legal and beneficial. Just to complicate things further, the DMO says: “The registered legal entity,” such as Company X, “may not be the underlying beneficiary,” which could be Company Y. “[T]he beneficiary may be domiciled in a different country to the registered legal holder.” It turns out that after the UK, Belgium held £197bn-worth of British government debt, followed by Luxembourg (£17 billion), Spain (£440 million), Germany (£289 million), and the USA (£23 million). After that, there was a drop off (e.g., UAE £3 million, Ireland £2.3 million).
But The London Economic wanted to find out not just the countries, but the private holders of UK gilt debts.
FOIA refused… but we can guess
TLE asked the DMO “which companies (e.g., pension funds, asset managers) and entities (including corporations and individual investors), both legal and beneficial, hold UK gilts.” The DMO responded: “The DMO holds information on registered legal holders of gilts, but not on underlying beneficial holders.” So, who are the registered legal holders? The DMO further stated: “The gilts register is not a publicly available document, and corporate and individual holders therefore have a reasonable expectation that details of their holdings will not be disclosed”–even
when public money is servicing their debts.
It emphasised: “Information relating to the holdings of companies and individuals is exempt under section 41 of the Freedom of Information Act 2000 (information provided in confidence).” Sometimes secret information can be released if the FOIA applicant makes a convincing case that the information is vital to the public interest. But citing potential breach of corporate confidence, the DMO said: “This exemption is an absolute exemption, so is not subject to the public interest test.”
Adding to the mystery of who owns the government’s debt, the DMO concluded: “it can be difficult to identify the legal holders themselves, as gilts are often purchased through a subsidiary account of a larger entity.”
Scraps of evidence exist elsewhere, particularly in the business press. The BBC says that the “buyers of these bonds, or ‘gilts’, are mainly financial institutions, like pension funds, investment funds, banks and insurance companies.” But which ones and how much does the government owe them? Bloomberg names the fund manager Bill Gross, as well as Paul Singer of Elliott Management Corp. But these are just a couple of individuals out of potentially tens of thousands. The FT Adviser names Paul Brain of Newton Investment Management, which is itself owned by the US giant, BNY Mellon.
In fact, American asset managers are quite open about their and their UK subsidiaries’ investments. BlackRock ($6.8 trillion assets under management (AUM)) advises its iShares investors on the performance of conventional Tory bonds. Fidelity ($4 trillion AUM) boasts of its “universe of UK Gilts.” A State Street ($3.5 trillion AUM) brochure for investors in our national debt gives details of gilt maturity yields and types.
Contrary to what right-wing media and “free marketeers” tend to say, national debt and central banking are not inherently bad in the context of the global nation-state system. If pushed by grassroots organisations, governments could borrow money to finance projects needed for the future challenges we face, such as decarbonisation, elder care, future pandemic planning, sorting the social housing crisis, and transitioning to renewables.
But as long the left remains split and largely inactive wealthy international investors will continue to invest in right-wing government bonds.
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