Financial Resolutions, 1978: Financial Statement, Budget, 1978. - Financing the 1978 borrowing requirement
It is the Government's general aim to finance as much of the borrowing requirement from domestic sources, particularly from the non-bank public, as is consistent with not depriving the private sector of the credit necessary for productive purposes and with not competing unfairly with other savings institutions. The Government intend to keep foreign borrowing to the minimum amount necessary to ensure the maintenance over the medium-term of an adequate level of external reserves, having regard to the impact on those reserves not only of deficits on the current balance of payments but also of repayments due in respect of existing foreign debt. It is not necessary—and we do not intend—to finance any of the manifesto requirements from external sources.
As I mentioned earlier, the $300 million credit which was renegotiated last year is available for 1978. After providing for the refinancing of some £50 million repayments in respect of existing foreign debt, this will yield approximately £100 million towards this year's borrowing requirement. The question of further foreign borrowing will be decided from time to time having regard to the criteria which I have just mentioned; it is, however, our intention to take advantage of long-term funds being provided by the European Investment Bank for capital projects.
The methods of raising funds from domestic sources are kept under constant review in order to ensure that they make their optimum contribution towards financing the Exchequer's borrowing needs. With this in view, I propose to make certain changes to improve the attractiveness of some of the Government savings media.
I am increasing the maximum amount which a person may hold of the 9th Issue of Savings Certificates from £5,000, as fixed in 1973, to £7,500.
I am increasing the maximum amount which persons of 65 years or over may hold of Index-Linked Savings Bonds from £500 to £750. I am also increasing from £40 a month to £50 a month the maximum amount which a person may invest in the Index-Linked National Instalment Savings.
I expect the gilt-edged market to be a significant contributor to funding Exchequer borrowing needs in 1978. One of the main requirements of the market is that a wide variety of securities should be available to meet the demands of the many different types of investors. For this purpose I am creating two new fixed-interest rate stocks which will be open for subscription on Tuesday next, 7 February. The first is a short-dated stock, has a coupon of 8½ per cent, a yield to maturity of approximately 9½ per cent and will mature in March 1981.
The second is a long-dated stock carrying an 11½ per cent coupon, a yield to maturity of slightly under 12 per cent and a final maturity in November 1999. Full details of these stocks will be announced in the national daily newspapers on Friday, 3 February.
I also intend to issue in the near future a variable interest rate stock. The main features of such a stock are that the capital value remains relatively stable throughout its life while the return on capital moves in line with current short-term interest rates. This type of stock should hold particular attractions for certain investors as against the more general fixed-interest stocks.