Budget: Govt to consult on launching perpetual gilts

Chancellor George Osborne has confirmed he will consult on launching perpetual gilts and gilts with a life longer than 50 years, despite a wave of criticism from potential investors.

Osborne, delivering the 2012 Budget, said the UK's Debt Management Office would look at issuing a tranche of gilts with no redemption date, as well as gilts dated more than 50 years, in what would be one of the longest-dated issues ever launched by the UK.

Osborne said he would float the idea to the market, with a consultation on whether the bonds could be launched.

However, following criticism, he did not propose a 100-year gilt.

Launching long-dated bonds now would enable the government to borrow when interest rates are at record lows, helping to manage down the country's debt over the long term.

However, potential buyers of the debt - including pension funds - have warned they would have little use for long-dated issues which mature in 100 years.

Joanne Segars, chief executive of the National Association of Pension Funds, said: "A 100-year bond would be too long for most pension funds, and we do not think that many would buy them."

A consultation will now gather opinions from market participants.

Currently most long-term debt has a maximum maturity of 30 years, and although a 50-year gilt was launched in 2005 the issuance was tiny compared to the 10-, 20- and 30-year gilt markets.

The only comparable bond in the market is the 3.5% War Loan, launched in 1932, although this is a perpetual bond with no maturity.

Around £2bn worth of War Loans are in the market, just a fraction of the £1.2tr of total outstanding debt.

The Treasury has forecast a 100-year note would save the country £20bn in debt interest over the next five years alone.

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