As Britain fought for its life during the Second World War, can you imagine being obsessed by the level of government debt?
In practice, we let the debt ratio rise to a peak of about 250pc of GDP (compared to today’s 100pc) and only sought to bring it down once the war was won. Moreover, we sought to do this gradually. This should be the approach now.
Mind you, wherever we can, we should try to finesse the difficulties of our current financial position. At the moment, the huge level of government debt is causing few problems because interest rates are low and the Bank of England is hoovering up the new debt issued. But things will not stay this way forever.
The Treasury’s nightmare is that interest rates will rise at a time when the government debt ratio is still enormous. Then we could face a serious financial crisis.
Peter Oppenheimer, the Oxford economist, has suggested a way of avoiding this danger.
If the real threat in the current situation concerns refinancing risk, then why not postpone the refinancing, or even eradicate it altogether?
The latter would be achieved by the issue of perpetual bonds, that is to say bonds that have no redemption date.
This may sound like pie in the sky but in fact it is very far from it. In the past, we have issued many perpetual bonds, starting in the 18th century.
Indeed, there were some perpetuals – also known as “irredeemables” – still in issue until recently.
The most famous of them was War Loan, issued in 1917 to help finance government spending in the First World War.
The Government had no obligation to redeem War Loan at any particular date. In the end, it was redeemed (at the original issue price) in 2015.