The statement issued by Her Majesty’s Treasury on 29 May 1985

Julian D. A. Wiseman

Abstract: Gilts prospectuses refer to “the statement issued by Her Majesty’s Treasury on 29 May 1985”, not otherwise available online, and hence put here.

Publication history: by Her Majesty’s Treasury on Wednesday 29 May 1985, and at www.jdawiseman.com/papers/finmkts/19850529_hmt.html. Usual disclaimer and copyright terms apply.

Contents: The statement issued by Her Majesty’s Treasury on 29 May 1985; Afterword.

The Information Memorandum: Issue, Stripping And Reconstitution Of British Government Stock published by the UK Debt Management Office in August 2011, refers to “the statement issued by Her Majesty’s Treasury on 29 May 1985”. But the UK authorities have not made this statement available online, so it is reproduced here. Presumably it has Crown Copyright ©, hereby acknowledged.

29 May 1985

Disclosure of Tax Decisions Affecting Government Securities

The Government is in a unique position in that it both has responsibility for the tax system and is a major issuer of securities. From time to time, tax changes are considered that could specifically affect the terms of issue (express or implied) of those securities.

It has always been understood that, for the orderly conduct of fiscal policy, it may on occasion not be possible to disclose decisions on such tax changes as soon as they have been taken, for example if the changes need to be announced together with other decisions in a Budget statement. However, in the course of preparation for this year's Budget, it emerged that there was an element of doubt as to the point at which a decision on the tax treatment of accrued interest on fixed interest securities should be disclosed. Accordingly, immediately after the Government had made its decision, the measure was announced by the Inland Revenue on 28 February, despite the close link between this measure and the proposals for reform of Capital Gains Tax announced later, in the Budget on 19 March.

Although the occasions when tax changes giving rise to such doubts are under consideration are likely to be infrequent, it is desirable to clarify the position for the future. The Government must be able to take its tax decisions in an orderly manner and announce them, with any related policy decisions, at an appropriate time. This means that on occasion some time may elapse between the point when a tax decisions that may specifically affect the terms of issue of Government securities is taken and its eventual announcement.

For the avoidance of doubt, therefore, the Treasury wishes to make it clear that in the interest of the orderly conduct of fiscal policy, neither HM Government nor the Bank of England or their respective servants or agents undertake to disclose tax changes decided on but not yet announced, even when they may specifically affect the terms on which, or the conditions under which, Government securities are issued or sold by or on behalf of the Government or the Bank. No responsibility can therefore be accepted for any omission to make such disclosure and such omission shall neither render any transaction liable to be set aside nor give rise to any claim for compensation.

A reference to this statement will henceforth be included in the documentation upon which Government securities are issued or sold by or on behalf of the Government or the Bank.

PRESS OFFICE                         80/85
H M TREASURY
PARLIAMENT STREET
LONDON SW1P 3AG

Notes For Editors

Today's statement by the Treasury clarifies the position of the Government and the Bank of England in relation to Government securities issued or sold by them or on their behalf.

2. It makes clear that, as has always been understood, in the interest of the orderly conduct of fiscal policy some time may on occasion elapse between the point when a decision on tax that may specifically affect the terms of issue of Government securities is taken and its eventual announcement. As the statement explains, an element of doubt about the point at which the decision should be disclosed in the particular case of the recent measure to change the tax treatment of accrued interest on fixed interest securities led the Inland Revenue to bring forward the announcement of that measure, which would otherwise have formed part of the Chancellor's Budget statement.

3. The Treasury statement clarifies the position, and explains that a new paragraph will be included in future Government stock prospectuses and related documents.

4. The Chief Secretary to the Treasury told the House of Commons on 8 May that there had been suggestions that the CGT indexation provisions could be used by those seeking to establish a short term CGT loss on gilts and other debt instruments where counterbalancing gains did not normally arise. He said that if the Government were to conclude that any countervailing action were necessary it would be ready to introduce amendments to the Finance Bill at a later stage. Apart from this, the Government has at present no intention to introduce, nor has under consideration, any tax change affecting the terms of issue of any of its securities.

Afterword

Nov 2011: when the author requested a copy of this statement, in August 2011, it was not on the website of the UK Debt Management Office. But since, perhaps prompted by the request, it has appeared at (a link which in December 2017 changed to) www.dmo.gov.uk/media/14588/1985hmttaxstatement.pdf.

June 2013: the author has been asked about whether this applies to gilts that existed before this announcement. Yes it does: observe that it “clarifies the position”, rather than introducing a new policy. But anyway only a few pre-announcement gilts have not yet matured: the perpetuals; inflation-linked 2½% July 2016 and 2½% April 2020; and a small quantity of 12% Dec 2013–17.

Jan 2016: all eight perpetuals have been called (see pp23–24 of DMO Annual Review 2014–15), and 12% Dec 2013–17 was called to mature on 12 Dec 2013. So only two outstanding gilts were issued before 29 May 1985, both ILGs: 2½% July 2016 and 2½% April 2020.

Mar 2016: no longer secret is the decision process behind this announcement, revealed in correspondence between Nigel Lawson (then Chancellor of the Exchequer) and Margaret Thatcher (then Prime Minister).

Apr 2020: and the last of the befores, inflation-linked 2½% April 2020, has now matured. All existing gilts were issued after 29 May 1985. The oldest existing gilt is the ILG 2½% July 2024, issued at the end of 1986; and the oldest conventional is the 8% June 2021, issued Feb 1996.