Recovery Bonds Are Not the Answer

Labour’s recovery bonds are a retail offer masquerading as something radical – their real beneficiaries will be those with significant savings at a time when many can’t keep their heads above water.

Keir Starmer, under pressure from Labour’s falling political polls and his own negative personal ratings, yesterday decided to take the bold step of announcing policies. The flagship is a ‘British Recovery Bond’, a shakily described programme. The most comprehensive details I could find were from the BBC:

‘A Labour government would offer people a savings account with the government at a competitive interest rate – similar to the previous National Savings and Investments bonds.’

Starmer may be trying to draw inspiration from the British government during both world wars using a supportive population as a source of cheaper credit than could be obtained through the normal means; the prime minister Lloyd George described the 5% rate offered to the public by his war bonds in WWI as ‘penal’.

But this purpose is moot today. If the Covid crisis has proved one thing, it’s that our current government has access to as much credit as it wants to use at costs well below what would be considered the competitive interest rates for the retail market. If the finances the government would receive via this ‘bond’ would be both more costly and laborious to acquire than other methods, it can be assumed the ‘British recovery bond’ doesn’t exist for its benefit to any national recovery, but for the benefit to the people who would take up this retail offer.

The barrier to entry for involvement in the Labour party’s flagship recovery policy is having savings – a requirement inversely related to how badly one has been affected by the pandemic. Those who have been struggling to stay out of debt, or have had their savings eaten up and gone into debt, get nothing from this policy. Starmer argues against the Tory government’s ‘build back better’ sloganeering, but his decision to focus on building those who haven’t struggled further up above everyone else subverts his authority on the matter.

Despite what the BBC website says, the National Savings and Investments programme still exists, offers multiple products along the line of Starmer’s suggestion, and is backed by HM Treasury. Their premium bond mixes savings with a lottery to provide a bit of thrill-seeking to low-interest saving and is extremely popular with my grandparents’ generation. According to their literature, a solid one in three of UK savers have investments with them, so it’s hard to see how rebranding would increase market share.

Without further details on how Starmer’s scheme is priced, it’s hard to tell what the intentions here are. On the one hand, it could be a paper-thin rebranding exercise of an existing and successful government programme to be on a more patriotic footing, harking back to the idea of war bonds and the Blitz, and designed to do nothing more than assist Labour in its attempt to shore up its shattered defences in the decade-long culture war.

Or, instead of renaming the National Savings and Investment bonds, it could aim to exist as its own entity, not as the government offering market-rate transactions but behaving similarly to the Tory-created lifetime or help-to-buy ISA programmes. These are schemes that essentially offer free money in the form of overly generous savings accounts, targeting groups the government has deemed worthy: first-time house buyers and retirees. In this scenario, the accounts would likely be administered by third parties, banks, and building societies. Our government’s relationship with it would simply be paying the cost of whatever additional benefits or interest above market rate it wants to offer the public.

The first issue with this option is plain: it’s a reward for those in the country with access to capital. The more capital you have, the more you’d be rewarded. It’s a regressive policy that essentially turns the logic of our tax system on its head. Even the two similar programmes started by George Osborne hid this bare fact by restricting access to sympathetic groups for specific uses, and capping the potential reward.

Starmer claims this policy is bold and innovative, but it compares poorly to the Tory Northern Research Group’s recent policy pitch, which is roughly the same as Starmer’s, but specifies that it would be targeted in the North and overseen by a ‘Northern growth board’ rather than paid into central government. Assuming good faith, this board sitting outside of Westminster would achieve one legitimate benefit Starmer’s policy doesn’t: providing access to capital to public bodies which struggle to fund investments (councils) rather than the one that doesn’t (central government).

The sheer lack of detail offered by the Labour leader is startling. The data offered to underpin it speaks only of the country’s total savings, offering no analysis of who would benefit. As a whole, the country might have gained £125bn, but on average, low-income families in the UK have £95 in savings, while the high-income families have an average of £62,885. This gap between the low and high income households has become wider during the Covid pandemic, a trend that will in all likelihood continue this year.

Using an example of 1% above market rate interest, this would be a financial offer from Labour of 95p to the low-income families, and one of £629 to the high-income household. The exact numbers could change, but the ratio wouldn’t; regardless of whether the interest rate is a generous or a parsimonious offer, the high-income household would receive 630 times the reward of the low-income.

It’s striking that the new Labour leadership’s first big policy position not only sits very comfortably within the conservative thinking of the past decade. It strips off the social niceties the Tories adorned their projects with. While still devoted to providing capital to those who already have capital, both Osborne and the recent northern Tory groups justify their policies via special pleadings for specific groupings or areas.

Not talking about class seems to be the first rule of Starmer’s head of policy, Claire Ainsley. (Which is ironic, given her 2018 book.) Demanding a channel of direct, unvarnished cash payments to those who have come through this crisis with the least amount of strain, and a flourishing bank balance to prove it, however, is not just failing to talk about class, but engaging in a form of class warfare.

In Starmer and his team’s defence, it’s also entirely possible this scheme is an empty branding exercise without any intellectual underpinning. So while a failure both in presentation and content, Starmer’s grand intervention does reflect the core question the Left has been increasingly asking itself about his project: is he an empty suit, or is he a Tory?