SIXTH SUPPLEMENTARY MEMORANDUM BY HM TREASURY
5 APRIL 2000 FROM
Copies of the quarterly reports submitted by the
Debt Management Office to HM Treasury assessing its performance
against a counterfactual measure
A copy of the most recent reports currently
available, covering the period April-December 1999, are attached.
We will supply the report for the most recent quarter, which is
not yet ready, by 17 April.
An explanation of the impact of the proposed 2000-01
financing requirement on the stock of Treasury Bills, perhaps
drawing on that given for 1999-2000 in table 9 of the Debt Management
The 2000-01 proposals will bring the stock of
Treasury bills to £10 billion at 31 March 2001.
Table 9 in the 1999-2000 Debt Management Report
illustrated the changes necessary to bring the stock of Treasury
bills at 31 March 2000 to £10 billion, and the balance on
the Ways and Means facility to £17 billion. In 2000-01 the
gilts sales residual from 1999-2000 performs the same function.
The table below shows the divergence of short
term debt stocks from the plans in the 1999-2000 Debt Management
Report. Projected short term debt stocks at 31 March are £9.5
billion less than forecast in the 1999 Budget, which underpinned
the financing arithmetic in the 1999-2000 Debt Management Report.
This £9.5 billion is the gilt sales residual from 1999-2000
in the financing arithmetic for 2000-01 (table 7 in the 2000-01
Debt Management Report). In 2000-01 gilts sales are reduced by
£9.5 billion due to the residual. The counterpart is that
short terms sales will be £9.5 billion higher. That will
bring short term debt stocks back to the level planned in the
1999-2000 Debt Management Report (£10 billion Treasury bills;
£17 billion balance on Ways and Means).
MOVEMENTS IN SHORT TERM DEBT 1999-2000 (£
|1999 Budget Forecast|
31 March 2000
|2000 Budget Projection|
31 March 2000
Ways & Means||17.0||15.0||--2.0|
Other short term debt||--0.2||--0.5||--0.3|
Details of what is meant by "pre-financing
foreign currency debt due to mature in 2001-02 and 2002-03",
including an analysis of its possible implications for the level,
maturity and transparency of the foreign currency debt reserves.
As stated in the 2000-01 Debt Management Report,
if the forecast central government net cash requirement for 2000-01
is revised down during the year then before reducing gilts issuance
the Treasury will consider pre-financing some of its foreign currency
debt. This is therefore a contingency measure. Pre-financing is
distinct from the re-financing of foreign currency debt which
is planned for 2000-01 in that it would involve replacing debt
which does not mature until after the financial year 2000-01.
The foreign currency debt that might be pre-financed
a total of £3.8 billion maturing
in 2001-02 (a $2 billion bond maturing in July 2001, a $2 billion
floating rate note maturing October 2001 and a (2 billion note
maturing in January 2002); and
a total of £1.9 billion maturing
in 2003-03 (a $3 billion bond maturing in December 2002).
Pre-financing would be carried out by swapping
surplus sterling receipts into foreign currency assets. Decisions
on the maturity range of those assets would be for the Treasury
to determine on advice from the Bank of England and would depend
on circumstances nearer the time: however, when compared to financing
through the issue of foreign currency debt, swapping out of gilts
need not limit options on maturity. There would be no change in
the Treasury's foreign currency exposures. Whilst there would
be a temporary rise in the Treasury's spot reserves this would
be offset by a fall in the forward book.
On the liabilities side, the amount of gross
foreign currency debt issued by the Treasury would reduce under
pre-financing as existing debt matured over time to the extent
that the Treasury would be substituting financing of the foreign
currency reserves with sterling for financing through borrowing
directly in foreign currency.
The arrangements for regular and transparent
reporting of the position in relation to the foreign currency
reserves would be unaffected by any decision to use the pre-financing
contingency measures set out in the Debt Management Report.
A statement on the closing balance of the Ways
and Means overdraft and any measures taken to increase that balance,
including an explanation of why such measures were considered
The 2000-01 Debt Management Report assumed a
balance on the Ways and Means of around £15 billion on 31
March 2000, compared to the £17 billion assumed in the 1999-2000
Debt Management Report. During 1999-2000 the Government's finances
turned out significantly better than forecast in the 1999 Budget.
This improvement was largely absorbed through a reduction in short
term debt, including the balance on the Ways and Means facility
at the Bank of England.
The 2000-01 Debt Management Report noted that
during 2000-01 the Government planned to bring the balance on
the Ways and Means facility back to £17 billion in a limited
series of transactions agreed in advance with the Bank of England.
Prior to the transfer of cash management from the Bank of England
to the Debt Management Office the Ways and Means facility had
two functions. It was an overdraft facility for the Government's
cash management function. But it was also an asset backing the
Bank's note issue. The Bank still require assets to back the note
issue and would replace a shortfall below £17 billion in
the Ways and Means facility with other assets. The Government
therefore agreed to bring the balance back to £17 billion
during the course of 2000-01 (though should the financing requirement
be reduced during the year, the published contingency arrangements
allow the planned Ways and Means balance to be changed to £15
596-614 AT THE
5 APRIL 2000
It is important to clarify the answers to questions
596-601 by stating that the questions were in respect of the Public
Works Loan Commissioners and the answers were in relation to the
National Debt Commissioners. Although this confusion was corrected
in some measure in the answers to questions 605 and 610, the misunderstanding
pervaded the remaining evidence, leading to other misconceptions.
The Treasury therefore wishes to state more clearly the role of
the Public Works Loan Commissioners as asked. This is important
if the Sub-committee is to be able to draw meaningful conclusions
from the evidence.
The Commissioners are an active body who meet
on a regular basis to conduct their business. Their statutory
role is to provide loans to local authorities: they have never
been seen as an advisory body as such to Ministers and Government,
other than in relation to their own affairs. With regard to questions
605-614, the Commissioners' role is to make decisions on lending
and this is done with the advice of their Secretary and their
staff who put those decisions into effect. The Secretary in turn
maintains an ongoing dialogue with the Treasury and other Ministerial
departments as necessary to inform decisions on both sides.
In the answer to question 602, the decision
made by Sir Andrew Turnbull was in respect of the problem facing
him as Accounting Officer for the National Loans Fund. The Commissioners,
taking account of points made by Sir Andrew, discussed the issue,
including the impact on local authorities (question 603), and
made their own decision to stop lending beyond 25 years. This
decision was conveyed to Sir Andrew with the Commissioners' comments
on some of the possible ramifications.
With regard to question 614, the Public Works
Loan Board is not strictly a part of the Treasury. Nevertheless,
the financial nature of the department's business requires close
co-operation with the Treasury and the Chancellor has traditionally
acted as the Commissioners' link to Parliament.
6 Not printed. Back