LONDON (Reuters) – British finance minister Sajid Javid said on Wednesday he had no current plans to stop the sale of inflation-linked government bonds which are based on a flawed measure of price growth, but changes would begin possibly as soon as 2025.
More than a quarter of British government bonds, worth around 450 billion pounds, are linked to the Retail Price Index (RPI) which runs higher than other measures of inflation, meaning investors receive an estimated windfall of 1 billion pounds a year.
“I can confirm that the government has no current plans to stop issuing gilts linked to RPI,” Javid said in a letter to the chair of an economics committee in the upper house of Britain’s parliament which recommended changes earlier this year.
Javid said he recognised there were flaws in RPI but scrapping it now would “potentially be highly disruptive for the wide range of users of RPI” which could be damaging to the economy and the public finances.
He said the government was focused on Brexit for now but would launch a consultation about when to accept a recommendation by Britain’s statistics regulator to align the RPI with another measure of inflation, the CPIH, after 2025.
The government’s consultation is due to begin in January and a response will be published before the end of March.
Inflation-linked gilts were little changed in financial markets after the announcement.
“It’s disappointing that they are not leaving open the option of going earlier in the consultation but at least we are moving on from where we were,” David Norgrove, chair of the UK Statistics Authority, told Reuters after Javid’s announcement.
“This was always a very difficult decision to make. As always the gainers keep quiet and the losers shout very loudly,” he said.
Insurance firms are big buyers of index-linked bonds to help them pay private pensions that are linked to RPI, and they would have been losers from any immediate change.
But RPI is also widely used for setting annual increases in rail fares and student loan repayments, meaning commuters and students face higher increases than they would if the fares and loans were based on CPIH.
Norgrove said he had asked the government to stop using RPI in contracts when possible.
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LONDON (Reuters) – British lawmakers defeated Boris Johnson in parliament on Tuesday in a bid to prevent him taking Britain out of the EU without a divorce agreement, prompting the prime minister to announce that he would immediately push for a snap election.
The government was defeated by 328 to 301 on a motion put forward by opposition parties and rebel lawmakers in Johnson’s party – who had been warned they would be kicked out of the Conservative Party if they defied the government.
More than three years after the United Kingdom voted in a referendum to leave the European Union, the defeat leaves the course of Brexit unresolved, with possible outcomes still ranging from a turbulent ‘no-deal’ exit to abandoning the whole endeavour.
Tuesday’s victory is only the first hurdle for lawmakers, enabling them to take control of parliamentary business.
On Wednesday they will seek to pass a law forcing Johnson to ask the EU to delay Brexit – for a third time – until Jan. 31 unless he has a deal approved by parliament beforehand on the terms and manner of the exit.
It puts Johnson in a similar bind to that faced by his predecessor Theresa May, who failed three times to get the backing of lawmakers for the Withdrawal Agreement that she had negotiated with the EU. Johnson took over from her six weeks ago with a promise that his more robust approach would force a better deal out of the EU that would satisfy parliament.
The 21 Conservative rebels who now face expulsion from the party include Nicholas Soames, the grandson of Britain’s World War Two leader Winston Churchill, and two former finance ministers – Philip Hammond and Kenneth Clarke.
“I don’t want an election, but if MPs vote tomorrow to stop negotiations and compel another pointless delay to Brexit, potentially for years, then that would be the only way to resolve this,” Johnson told parliament after the vote.
“I can confirm that we are tonight tabling a motion under the Fixed Term Parliament Act.”
In an historic showdown between prime minister and parliament, Johnson’s opponents said they wanted to prevent him playing Russian roulette with a country once touted as a confident pillar of Western economic and political stability.
They argue that nothing can justify the risk of a ‘no-deal’ Brexit that would cut economic ties overnight with Britain’s biggest export market and inevitably bring huge economic dislocation.
Johnson cast the challenge as an attempt to force Britain to surrender to the EU just as he hopes to secure concessions on the terms of the divorce, helped by the threat to walk out without one. Ahead of the vote, he said would never accept another delay to Brexit beyond Oct. 31.
“Parliament is on the brink of wrecking any deal we might be able to strike in Brussels,” Johnson said. “Because tomorrow’s bill would hand control of the negotiations to the EU.”
Johnson’s government will now seek to hold a vote on Wednesday to approve an early election, most likely on Oct. 14. This would pit the avowed Brexiteer against Labour leader Jeremy Corbyn, a veteran socialist.
In the Brexit maelstrom, though, it was unclear whether opposition parties would support such a move – which requires the support of two-thirds of the 650-seat House of Commons.
Corbyn has long demanded an election as the best way out of the crisis, but many of those seeking to prevent a ‘no-deal’ Brexit say Johnson could time the poll to ensure that parliament cannot prevent an Oct. 31 departure – with or without a deal.
After the vote, Corbyn told Johnson that he must get the Brexit delay bill that will be discussed on Wednesday passed before trying to call an election.
The 2016 Brexit referendum showed a United Kingdom divided about much more than the European Union, and has fuelled soul-searching about everything from secession and immigration to capitalism, empire and modern Britishness.
It has also triggered civil war inside both of Britain’s main political parties as dozens of lawmakers put what they see as the United Kingdom’s fate above that of party loyalty.
Just as Johnson began speaking, he lost his working majority in parliament when one of his own Conservative lawmakers, Phillip Lee, crossed the floor of the House of Commons to join the pro-EU Liberal Democrats.
The pound, which has gyrated to the twists and turns of Brexit since the 2016 referendum and is highly sensitive to the prospect of a 'no-deal' exit, had briefly dipped as low as $1.1959 GBP=D3 before the vote in parliament. Barring a minutes-long "flash crash" in October 2016, sterling has not regularly traded at such low levels since 1985. [GBP/]
Fears of a ‘no-deal’ Brexit were rising elsewhere.
The European Commission said such a scenario was a “very distinct possibility” and French Foreign Minister Jean-Yves Le Drian said it was the most likely scenario.
In a document seen by Reuters, the European Commission set out proposals to be published on Wednesday to provide financial help for EU businesses, workers and farmers if Britain crashes out of the bloc without any agreement.
It restated its view that a ‘no-deal’ divorce would hit the British economy much harder than that of the EU.
The U.N. trade agency UNCTAD said it would cost Britain at least $16 billion in lost exports to the EU, plus a further substantial sum in indirect costs.
The U.S. investment bank JPMorgan said an election would make a no-deal Brexit more likely.
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