Managing government borrowing – Report Summary

Summary

Government is borrowing substantial amounts of money, the scale of which has changed markedly over the last 20 years. Since 2003, the Debt Management Office’s (DMO’s) borrowing, which the Treasury instructs it to carry out, has increased from less than £50 billion a year to more than £230 billion in 2023. Over the same period the value of the DMO’s entire borrowing portfolio (the total amount of government bonds or ‘gilts’ sold to investors that have not yet reached maturity) has ballooned from £300 billion to £2.5 trillion, putting the taxpayers on the hook for more debt repayments and interest costs. However, it is impossible to know whether government is securing value for money from its borrowing as the Treasury’s debt management objective is not directly measurable.

Borrowing typically peaks during times of crisis, most notably during the COVID-19 pandemic where the government borrowed over £500 billion in a single financial year (2020–21). The DMO and National Savings and Investments (NS&I), who borrow on behalf of government, faced unprecedented challenges during this time, often being required to raise record amounts. Nevertheless, they managed to successfully raise the money needed to keep government functioning. External factors have helped government borrow such large sums of money such as the Bank of England’s quantitative easing (QE) programme under which it bought substantial numbers of gilts.¹ However, the Bank of England is now unwinding its QE programme, meaning it is selling gilts at the same time as the DMO, creating unprecedented challenges.

In addition to the vast borrowing levels, the DMO and NS&I face several difficult operational challenges. NS&I is taking steps to address the problems it faced during the pandemic and dealing with the levels of demand through its modernisation programme, known as the Rainbow Programme. NS&I currently outsources its entire back-office and customer-facing operations to a single service provider called Atos. The Rainbow Programme will see NS&I move from a single outsource provider to a multi-provider model. However, this programme is already significantly delayed. The DMO is preparing to recruit a new CEO for the first time in over 20 years, and other senior members of staff are nearing retirement. It will be essential that it undertakes the succession planning needed to avoid any problems during this transition and ensure it has the required skills and experience in place.