Savers are to be given an opportunity to invest in Britain’s zero-carbon economy plans through a huge issue of so-called green bonds.
Rishi Sunak will use a speech in the City this week to announce details of the GBP15bn bond plan, which will be issued by NS&I, the organisation behind premium bonds.
The chancellor flagged the bond issue in the Spring Budget in March and two tranches of green bonds are expected to be issued in 2021-22, The Times reported, the first of which is likely to be worth about GBP7bn.
Money from the bonds will be directed towards wind, hydrogen and solar power projects.
Other countries, notably Sweden and Germany have already issued green bonds, but the UK’s plan is expected to be larger than both.
How popular they prove will depend on the rate of interest, said analysts, but the backing of the UK government will give a copper-bottom guarantee over their safety that is likely to prove popular.
NS&I caused howls of protest when it slashed the rate of interest of its bonds last year, suggesting there is pent-up demand, while savings have been piling up in bank accounts as people have curbed spending during the pandemic.
According to the Bank of England, savings have risen by GBP180bn with people still cautious enough over recovery to keep money back in the event the worst happens.
The best rate on an NS&I account currently is 0.15% with income bonds paying just 0.01%.
Boris Johnson is under pressure to deliver on promises made to improve the UK’s green credentials, especially with Glasgow hosting the climate summit COP26 in November.
There has been some movement on new projects. Nissan is expected to announce a new electric vehicle battery gigafactory in Sunderland tomorrow that will have government backing worth hundreds of millions of pounds.
Vauxhall, meanwhile, told Sky News that the UK government needs to back up its commitment to switch to electric vehicles with financial backing to build gigafactories.
The French-owned carmaker is in talks with the government about a new plant at its Ellesmere Port site, near Liverpool.
RBC Capital, meanwhile, said it expects there to be strong pension fund demand for any ‘green gilts’ issued by the UK government.
UK pension schemes invest in gilts to match the offsetting outflows from pension payments made from the scheme and currently, alongside insurers, hold one-third of all gilt issuance, said the broker.
“With GBP2 trillion of assets under management, the UK government also views UK defined benefit pension schemes as an important source in progressing the UK economy towards its goals.
“We see a surge for ESG versions of current assets, including demand for green sovereign bonds which exist but have yet to be issued in the UK. We expect schemes’ gilt ownership to continue to grow as the DB market is still 15 years from its peak.”