Recommendation 11

We asked the Treasury how much it knew about the owners of UK debt held overseas. The Treasury recognised that it did not have a “very accurate picture” because gilts were a “traded commodity” and may be sold on. The DMO explained that it cannot know who the ultimate beneficial owner of any gilt is unless it is explicitly told because gilts can be sold multiple times to different investors. The DMO also disagreed with the OBR’s view 13 Q 71 14 Qq 41, 71 15 Qq 71, 73 16 Qq 5, 17 17 Qq 17, 18 Managing government borrowing 11 that overseas investors were the most volatile element of the investor base. The DMO told us that over the last 20 years, sterling had become much more of a “reserve currency”, accounting for around 5% to 6% of global reserves. It explained that this suggested that overseas central banks and other international organisations, such as life insurance companies, were more likely to hold UK gilts over the long-term. The DMO added that until recently, domestic pensions funds were always seen as the “ultimate buy-and-hold” part of the investor base. However, in the aftermath of the gilt market’s reaction to the government’s September 2022 Growth Plan announcement (also known as the “mini- budget”), the DMO told us that domestic pension funds arguably became the “more volatile portion of the investor base”. The DMO stressed that foreign investors were an important part of having a “diverse investor base” and their involvement in the UK gilt market “acts as a safety valve”, giving the DMO access to a wider range of investors.18 18 Qq 74–75 12 Managing government borrowing 2 Lessons learned and wider challenges Borrowing during the pandemic