I Owe You: A Churchillian Solution for the Covid Debt

The Adam Smith Institute’s latest paper, written by Dr. Eamonn Butler and Gabriel Stein, argues that the Government could finance debt accrued from Covid-related spending in the same way as Britain has done for past wars: using ‘consols’:

• The Government has borrowed hundreds of billions in response to the Covid pandemic. This has led to a record peacetime debt totaling £2.2 trillion, representing 97% of GDP.

• The use of regular bonds, with repayments in 10 or 30 years’ time, create a substantial future financial burden that could be rolled over even further into the future.

• The Covid debt could be separated from day-to-day lending using ‘consols’ or ‘consolidated annuities’.

  • Consols are like normal bonds, with a fixed interest rate paid to the bearer, however, they have no fixed repayment date. They continue to exist until the Government decides to buy them back.

  • Consols were first used in Britain in 1751 to pay for the War of Austrian Succession, and were used again to finance the Napoleonic Wars, and by  Winston Churchill, when Chancellor, in 1927 to refinance World War I debt.

• Consols would lock in ultra-low interest rates and not have to be paid back at any specific date — Napoleonic War consols were only fully repaid in 2014. They provide greater flexibility, with the government able to repay them when ready rather than on an arbitrary date in the future, with limited annual cost.

• The Government could specifically legislate to convert existing Covid debt into ‘Covid Emergency Bonds’ based on consols, with a commitment to repay when the economy recovers.

• Consols should not be used for routine big-spending projects, but rather, rare and unexpected emergencies like wars and pandemics that create an immediate large need for borrowing.