Ross Clark Ross Clark

Green bonds offer nothing but virtue-pleasing

Would you touch a ‘green gilt’ issued by the government, with an interest rate of just 0.87 per cent? Some people, apparently, would. The Treasury announced yesterday that it had shifted the first £10 billion tranche of ‘green gilts’ to raise finance for projects such as zero-carbon buses, wind farms and other green things. Indeed, the bond – which matures in 2033 – was ten times oversubscribed. The government had already planned to issue a further £5 billion, and might now be encouraged to issue far more.

Green gilts are just more government borrowing, rebranded to make lending to the government look virtuous

With the government’s preferred measure of inflation, CPIH, rising rapidly to 3 per cent in August, and with many expecting it to rise much further in coming months, green gilts look a pretty sure-fire way to erode your wealth. In real terms it is a return of less than, well, net zero. It has echoes of the war bonds which the government issued during the first world war to finance the war effort – and sold with the aid of patriotic posters. That is pretty well what it was: a patriotic act. In the long run, the government more or less got its war for free, thanks to inflation eating away the real value of the bonds. Initially issued with interest rates between 3.5 per cent and 5 per cent, the government in 1932 exercised a right to reduce the higher-paying bonds to 3.5 per cent. They carried on paying that rate through years of high inflation until the last tranche was finally redeemed in 2015.

Green gilts are just more government borrowing, rebranded to make lending to the government look virtuous. Meanwhile, the issuing of index-linked savings certificates – which protect savers against the ravages of inflation – has been trimmed back.

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