The government is scaling back issuance of index-linked gilts as a result of concerns over the long-term inflation impact they have on public finances.
HM Treasury's debt management report for 2018-19 - published alongside today's Spring Statement - said that, over the past four years, about 25% of the government's annual debt issuance has been through index-linked gilts, for which both the principal and interest payments are linked to the Retail Prices Index (RPI).
The stock of index-linked gilts - favoured by both pension schemes and insurance companies - stood at around £400bn in nominal terms at the end of 2017, making up around 26% of the government's debt portfolio.
But it said the index-linked proportion of the UK's debt stock was now "considerably higher" than in other G7 countries - more than double that of Italy, the country with the next highest total.
And it said the volume of index-linked gilt issuance in recent years - combined with the longer average maturity for index-linked gilts of 20 years, compared with 14 years for conventional gilts - had "consequences for the long-term inflation exposure in the public finances", risks which had also been raised by the Office for Budget Responsibility, the National Audit Office and the House of Commons' Committee of Public Accounts.
HMT's report revealed that the issuance of index-linked gilts is due to decrease from £28.4bn in 2017/18 to 21.7bn in 2018/19 - a fall of £6.7bn in absolute terms.
Issuance will also fall as a proportion of total gilt sales - with index-linked gilts making up 24.7% of expected total gilt issuance in 2017/18 but only 21.1% of expected total gilt issuance in 2018/19.
But the government is also planning to further review the balance between index-linked and conventional gilts, taking account of structural demand, the diversity of the investor base and the government's preferences for inflation exposure.
It said: "The 2018- 19 financing remit reflects the government's current view on the appropriate balance between these factors, and in the coming years the government will further consider the appropriate balance between index-linked and conventional gilts."
Issuance by method, type and maturity
The government said auctions would remain its primary method of gilt issuance - but noted it would continue its use of issuance via syndication, especially when it came to launching new gilts or re-opening high duration conventional and index-linked gilts, and also continue to sell via gilt tender.
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