UK 100 year bond

George Osborne is planning to take advantage of Britain's historically-low interest rates by issuing so-called 'super bonds', which will not be repaid for 100 years or more.
The Chancellor believes that the UK's safe haven status - thanks to its triple-A credit rating - can save billions of pounds in debt repayments by locking in a low yield on the bonds.

But such a move would also mean that children not yet born will continue to pay interest throughout their lives on debts racked up during the financial crisis of 2008/09.

Mr Osborne will launch a consultation in the Budget.

By maintaining a low interest rate on a large proportion of the UK's national debt, the Treasury also believes it will help insulate Britain from potential market instability in the future.

It is something of a return to the end of the First World War.

To help pay off the country's vast debts, Britain issued perpetual gilts, on which the capital is never repaid but interest continues to be charged for ever.

These debts - along with some issued to pay for the 18th century South Sea Bubble - are still held by the Treasury.

The UK already issues long-term bonds of up to 50 years - double the length of
those of many other European states.

No decision has yet been taken on whether the perpetual gilt model would be used by Mr Osborne.

A Treasury source said: "This is about locking in for the future the tangible benefits of the safe haven status we have today.

"The prize is lower debt interest payments for taxpayers for decades to come. It is a chance for our great-grandchildren to pay less than they could otherwise have expected to because of this Government's fiscal credibility."

The UK's borrowing costs have fallen as low as 2% - largely a result of the austerity drive.

Credit rating agencies have maintained the UK's triple-A status in return for the country getting to grips with its debt mountain.

The Office for Budget Responsibility is expected to release figures indicating that a rise of just 1% in bond yields - the interest rate paid on Government debt - would increase the cost of financing it by a total of £20bn over the years to 2016/17.

Labour has said it will examine the proposals in full.

Rachel Reeves, the shadow chief secretary to the Treasury, said: "This is not extra borrowing to help build a stronger economy for the future but to pay for the costs of economic failure and the bills of a growing dole queue.

"Britain already has more long-term debt than other countries but we will look hard to see if this proposal actually delivers value for money for the taxpayer."

However, the National Association of Pension Funds (NAPF) was more cautious.

Its chief executive Joanne Segars said: "A 100-year bond would be too long for most pension funds and we don't think that many would buy them.

"Pension funds are looking for 30, 40 and 50-year index-linked debt and would much rather the Government issue more of those.

"Even if a 100-year bond were attractive in duration, there would be a question mark over whether it would yield a strong enough return for investors."