The government borrows at a price of its choosing. Here’s how.
Government borrowing has no initial cost. Because of the way accounting functions, the payment system provides the funding. There would be no cost to the government’s borrowing if it chose to stop there.
For every borrower, there is a corresponding saver. People choosing to save rather than spend causes borrowing. But if it is government policy to reward these savers, then it has a few options available.
It could offer a savings product at National Savings with a variable interest rate.
It could offer a £100 savings bond at National Savings with a fixed interest rate and a fixed term.
It could offer a £100 treasury gilt at the Debt Management Office with a fixed interest rate and a fixed term.
Note how the last two items are the same, showing that there is no need for the Debt Management Office. National Savings could do it all.
If pension funds had used National Savings rather than gilts, they wouldn’t have had a problem.
Now we know how to fix government borrowing costs.
If National Savings issues a bond at 2%, then 2% is all anybody will get.
Nobody can make the government pay more than it wants to.