Source · Select Committees · Public Accounts Committee
Recommendation 11
11
Deferred
Treasury and DMO lack accurate data on ultimate beneficial owners of overseas gilts.
Conclusion
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
Government Response Summary
The government claims the recommendation is implemented, stating it currently lacks visibility of beneficial gilt owners. However, it commits to reviewing sovereign bond ownership data from other countries to learn from their approaches.
Government Response
Deferred
HM Government
Deferred
3.3 The government agrees with the Committee’s recommendation. Recommendation implemented 3.4 Overseas investors play an important role in maintaining the diversity of the gilt investor base, ensuring that underlying demand for UK debt remains strong, changes in gilt supply can be met smoothly, and borrowing costs can be minimised in line with the debt management objective. A diverse investor base ensures that government is not overly reliant on any one type of investor. 3.5 Overseas investors include a range of different types of investors, who each have different incentives to buy and trade gilts. This includes foreign central banks, where the role of sterling as a reserve currency has increased. It also includes funds which may originate from the UK but are domiciled abroad. It is therefore not the case that appetite for gilts from all overseas investors will be perfectly correlated or that they are all inherently riskier than domestic investors. 3.6 The gilt market is a large and liquid market with an independent rate setting body. There is no reason to believe that global investors’ strategic allocation will change while the underlying instruments continue to represent diversification and meet liquidity requirements. 3.7 While UK gilts are registered instruments, they are mostly held in nominee accounts, with intermediaries passing on any gilt principal or coupon payments to the underlying beneficial holder who may be domiciled elsewhere. The government currently has no visibility of the underlying beneficial owners of gilts. 3.8 This data limitation is not uncommon across jurisdictions; however, the department will review the sovereign bond ownership data available to other countries to consider if there is anything it can learn from their approaches.