Britain’s debt sinkhole

Philip hammond’s budget will make the UK ever- more dependent on the kindness of strangers. The rise in borrowing – £29bn over the forecast period already – has led to gloom from the Office for Budget Responsibility as to when the holy grail of a balanced budget might be achieved. Chairman Robert Chote suggested it might not be until 2030-31.

But even more worrying is Government fund-raising needs. Translated into gross financing the budget requires the Debt Management Office (DMO) to raise up to £59bn over the course of this parliament.

Why then the big discrepancy in the numbers? in 2017-18 the Government’s financing requirement will rise by £1bn despite a better-than-expected outturn for borrowing. This is because savers have put less money than hoped for into National Savings and investments, leading to a downgrade of £5bn of income.

in addition, bits of privatisation, including some tranches of student loans, have been shuffled off into the future.

Over the longer haul the biggest factor causing a surge in financing needs looks to be the jiggery-pokery around the budgeting for housing associations.

Taking the funding out of current budgets cuts the headline borrowing requirement by £4bn and gave Chancellor philip hammond more room to spray money around on stamp duty tax breaks.

But the housing associations still have to be financed and over the forecast period this adds another £16bn or so to the fundraising that has to be done by the debt office. Similarly, the costs which will be associated with an expansion of help to Buy also have to be met by the issuing of more Government bonds.

The result is that the DMO will have to handle at least a 30pc rise in gilt issuance between the next financial year and 201920, says RBC Capital Markets.

No one should underestimate the appetite for gilts from UK financial institutions because of post-financial crisis requirements that banks, insurers and pension funds must keep large proportions of their assets in bonds for prudential reasons.

So far the reaction of the foreign exchange markets to the Budget has been positive, with the pound gaining against the dollar.

But there can be no confidence that this will continue. investment bankers UBS are predicting euro-sterling parity.

Moreover, there is still great uncertainty about the outcome of the Brexit negotiations, and how the £20bn or £40bn exit bill will be dealt with in the Government accounts. Weakened public finances together with currency turbulence and uncertainty about EU leaving costs will all increase pressure on the gilts markets. Still, it could be worse. if Shadow Chancellor John McDonnell has his way the Government will have to finance a £250bn ‘Transformation Fund’ for investment in infrastructure.

No wonder McDonnell told the labour party conference that he is war-gaming for a run on the pound.

Thames clean-up

AFTER a decade as a renegade company best known for sending its dividends overseas, dumping sewerage into the Thames and regularly flooding london’s streets and businesses, Thames Water is pledging to turn over a new leaf.

The change has not happened by osmosis. Thames was put on notice that it had to change by Jonson Cox, chairman of the water regulator Ofwat.

Whether the right person to effect the changes is new Thames Water chairman ian Marchant, a refugee from big six energy group SSE, is not entirely clear.

in his previous role he was not known for open governance.

Still, Marchant’s first gesture at Thames, a commitment to close down the company’s Cayman island subsidiaries, is a start. There is also talk of speeding up the Victorian pipe replacement which has been such a stain. One Thames expert confides he is ‘over the moon’ about the changes.

We’ll see.

Homes for all

MUCh excitement at philip hammond’s pledge to help fuel the building of 300,000 new homes a year. if he succeeds he will be following in the footsteps of post-war Tory premier harold Macmillan.

But the real master housebuilder was none other than labour pM harold Wilson, who delivered 425,830 homes in 1968.

he wasn’t just a pipe smoker and wearer of Gannex waterproofs.