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The upheaval in gilt (UK government bond) markets that led to last week’s spectacular intervention from the Bank of England continues to reverberate.

The Bank was obliged to buy long-dated gilts – those with a maturity of 20 or 30 years – on Wednesday last week following a wave of forced selling by pension funds.

Those pension funds had been engaging in strategies known as liability-driven investment (LDI) which, despite becoming a £1.5 trillion market, was until last week little known outside the world of pensions investing.

Under the strategies, pension funds seek ways to better match their assets (the retirement savings of scheme members) with their liabilities (the future pension payments that have been promised to those members on their retirement).

They did so using derivatives contracts – a way of using leverage – but, when gilt yields spiked higher as markets took fright at Kwasi Kwarteng‘s borrowing plans in his mini-budget, the investment banks that write those derivatives contracts sought more money from the pension funds to reflect the fact that gilt prices were falling (the yield and the price move in opposite directions).

The episode has led to a lot of misunderstanding. One is that the Bank has spent £65 billion propping up the gilt market. It hasn’t: it has simply indicated that the maximum it could end up spending under its intervention will be £65 billion.

Another is that this is some kind of taxpayer bail-out of pension funds. Again, it isn’t.

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It is more akin to the Bank’s asset purchase scheme, or Quantitative Easing in the jargon, under which the Bank bought assets like gilts and held them on its balance sheet, although the Bank would prefer this latest move not to be regarded as QE, more a special operation to ensure more orderly market conditions.

Pension funds have not been given something for nothing by taxpayers and nor does the Bank emerge with nothing for the money it spends – it emerges with a holding of gilts on which interest will be payable by the government.

Other misconceptions concerned those who participate in LDI.

Shares of Legal & General, one of the biggest insurance companies in the FTSE-100, have come under pressure since questions began being asked about its participation in the LDI market.

Between the close on 22 September – the night before Mr Kwarteng unveiled his mini-budget – and the close of business last Friday night, shares of Legal & General fell by just under 15%.

That may be because the episode shone a spotlight on L&G’s role in the LDI market in an unflattering way. It was widely reported that the sell-off gathered momentum early last week because L&G had been requesting that pension fund clients put up more cash in response to falling gilt prices.

The investment bank Jefferies had said on Monday that the insurer could be exposed to fund outflows as a result: “The biggest risk for L&G is that this crisis has discredited the firm’s risk management abilities.

“In the process, it’s possible that this sparks outflows from LDI funds, as clients reallocate to alternative strategies, with lower liquidity risks.”

So today’s stock exchange announcement from L&G, in which it clarified its role in LDI and set to soothe the anxieties of investors, is a big deal.

The company made clear that Legal & General Investment (LGIM), its asset management arm, has merely been acting as an agent between LDI clients – pension funds – and market counterparties sitting on the other side of those trades, chiefly investment banks.

It added that, as a consequence, it “therefore has no balance sheet exposure”.

L&G also praised the Bank’s intervention and said that, as a result, interest rates had come down.

It added: “These steps have helped to alleviate the pressure on our clients.”

The insurer added for good measure that, although it holds gilts as part of its investment activities, the sell-off had not affected its capital or liquidity position.

It went on: “Despite volatile markets, the group’s annuity portfolio has not experienced any difficulty in meeting collateral calls and we have not been forced sellers of gilts or bonds.”

Shares of L&G have rallied by more than 5% on the statement while shares of Aviva and Phoenix Group, two other big FTSE-100 life companies, have also bounced.

While L&G’s statement may have calmed nerves about its own role in the LDI market, it may not do so for the market as a whole. People are rightly confused and concerned about how defined benefit pension funds, which, in theory, should be an exceptionally safe and dull corner of the investment universe, have suddenly – thanks to the involvement of derivatives products – been made inherently more risky and prone to the vagaries of market movements.

Lord Wolfson, the chief executive of Next and one of the most influential figures in British business, said last week that he had written to the Bank in 2017, when Mark Carney was governor, outlining his concerns about LDI strategies.

He said the strategy – buying gilts and then using them as collateral to obtain further exposure to the gilt market – “always looked like a time bomb waiting to go off”.

So L&G’s statement today is far from being an end of the matter.

The Commons Treasury Select Committee is now looking into the issue and is set to question the Pensions Regulator. The Financial Conduct Authority and the Bank are also likely to be asked what they knew.

One of the bankers who helped invent LDI strategies told the Financial Times this week that the technique had “helped stabilise pension funding over the past two decades” and that it had helped “provide a future for millions of members of defined-benefit funds”.

But it seems likely that the Bank, which is mandated to maintain the stability of the UK’s financial system, will now be looking to make this particular corner of the markets less risky.

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‘Godfather’ of AI warns arms race risks amplifying dangers of ‘superhuman’ systems

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'Godfather' of AI warns arms race risks amplifying dangers of 'superhuman' systems

An arms race for artificial intelligence (AI) supremacy, triggered by recent panic over Chinese chatbot DeepSeek, risks amplifying the existential dangers of superintelligence, according to one of the “godfathers” of AI.

Canadian machine learning pioneer Yoshua Bengio, author of the first International AI Safety Report to be presented at an international AI summit in Paris next week, warns unchecked investment in computational power for AI without oversight is dangerous.

“The effort is going into who’s going to win the race, rather than how do we make sure we are not going to build something that blows up in our face,” Mr Bengio says.

He warns that military and economic races “result in cutting corners on ethics, cutting corners on responsibility and on safety. It’s unavoidable”.

Mr Bengio worked on neural networks and machine learning, the software architecture that underpins modern AI models.

He is in London, along with other AI pioneers to receive the Queen Elizabeth Prize for Engineering, the most prestigious global award for engineering, in recognition of AI and its potential.

He’s enthusiastic about its benefits for society, but the pivot away from AI regulation by Donald Trump‘s White House and frantic competition among big tech companies for more powerful AI models is a worrying shift.

‘Superhuman systems becoming more powerful’

“We are building systems that are more and more powerful; becoming superhuman in some dimensions,” he says.

“As these systems become more powerful, they also become extraordinarily more valuable, economically speaking.

“So the magnitude of, ‘wow, this is going to make me a lot of money’ is motivating a lot of people. And of course, when you want to sell products, you don’t want to talk about the risks.”

But not all the “godfathers” of AI are so concerned.

Take Yann LeCun, Meta’s chief AI scientist, also in London to share in the QEPrize.

Yann LeCun, Meta's Chief AI scientist
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Yann LeCun, Meta’s Chief AI scientist

“We have been deluded into thinking that large language models are intelligent, but really, they’re not,” he says.

“We don’t have machines that are nearly as smart as a house cat, in terms of understanding the physical world.”

Within three to five years, Mr LeCun predicts, AI will have some aspects of human-level intelligence. Robots, for example, that can perform tasks they’ve not been programmed or trained to do.

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But, he argues, rather than make the world less safe, open-source AI models such as DeepSeek – a chatbot developed by a Chinese company that rivals the best of America’s big tech with a tenth of the computing power – demonstrates no one will dominate for long.

“If the US decides to clam up when it comes to AI for geopolitical reasons, or, commercial reasons, then you’ll have innovation someplace else in the world. DeepSeek showed that,” he says.

The Queen Elizabeth Prize for Engineering prize is awarded each year to engineers whose discoveries have, or promise to have, the greatest impact on the world.

Previous recipients include the pioneers of photovoltaic cells in solar panels, wind turbine technology and neodymium magnets found in hard drives, and electric motors.

Science minister Lord Vallance, who chairs the QEPrize foundation, says he is alert to the potential risks of AI.

Organisations such as the UK’s new AI Safety Institute are designed to foresee and prevent the potential harms AI “human-like” intelligence might bring.

Science minister Lord Vallance
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Science minister Lord Vallance

But he is less concerned about one nation or company having a monopoly on AI.

“I think what we’ve seen in the last few weeks is it’s much more likely that we’re going to have many companies in this space, and the idea of single-point dominance is rather unlikely,” he says.

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Treasury Committee demands HMRC answers on sanctions regime after Sky News investigation

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Treasury Committee demands HMRC answers on sanctions regime after Sky News investigation

The Treasury Select Committee has sent a formal notice to HM Revenue & Customs demanding answers to critical questions about how it has been enforcing trade sanctions on Russia, following a Sky News investigation into the government department.

Last month Sky News reported that while HMRC had issued six fines in relation to sanction-breaking since 2022, it would not name the firms sanctioned or provide any further detail on what they did wrong. HMRC also admitted it had no idea how many investigations it was currently carrying out into sanction-breaking.

The admissions raised questions about the robustness of Britain’s trade sanctions regime, described by government ministers as the toughest in British history.

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How robust are UK-Russia sanctions?

While the UK has introduced rules preventing the export of certain goods to Russia, banned items are still flowing into the country via third countries in the Caucasus and Central Asia. Some suspect that part of the reason these flows continue is that HMRC is not enforcing the rules as robustly as it could be.

Following Sky News’ investigation, the chair of the Treasury Select Committee (TSC), Dame Meg Hiller, has written a letter to the chief executive of HMRC, Sir Jim Harra, with 10 questions about HMRC’s conduct in the enforcement of sanctions.

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Among the questions, the TSC chair asks: “Why doesn’t HMRC publish information on breaches in sanctions in a similar way to the Office for Financial Sanctions Implementation (OFSI), which gives the details of the company, how it breached sanctions and the amount of penalty issued?”

Many other countries around the world – most notably the United States – routinely “name and shame” those who break sanctions, in part as a deterrent and in part to inform other businesses about what it takes to break the rules. But HMRC instead protects the privacy of those who break sanctions.

The TSC has been scrutinising the sanctions regime in recent months, examining loopholes in the legislation and its enforcement. HMRC has been asked to respond to the letter by 17 February.

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Millions face council tax rise of more than 5% after government gives green light to bigger hikes

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Millions face council tax rise of more than 5% after government gives green light to bigger hikes

Millions of people face council tax hikes over normal thresholds after the government allowed six areas to boost rates above the usual 5%.

More than two million people will be hit by increases of between 5 and 10%.

Windsor and Maidenhead Council wanted to increase council tax by 25% but the plan was blocked – instead it will go up by 9%.

Newham Council will go up by the same amount, while Bradford Council will put up taxes by 10% and Birmingham, Somerset and Trafford councils will all put up rates by 7.5%.

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Speaking to Sky News’ Kay Burley, health and social care minister Karin Smyth defended the above normal increases – saying “many more councils” asked for permission to hike taxes, but were refused.

She said the ones given the nod “are particularly desperate” and need the money to keep “basic services running”.

The Labour MP was quick to blame the Conservatives, saying local government was left in a “really, really dark state” by the previous government.

How do councils increase tax?

In order to keep up with demands, councils are allowed to raise council tax usually by up to 5%, broken down into 3% core spending with an additional 2% for social care.

At the moment, a principle exists which prevents more than a 5% increase to council tax without a referendum, mostly to protect taxpayers from excessive increases.

But if a council is already in conversation with government on exceptional financial support, and if the government agrees to allow the council to raise tax above the cap as part of this, the council doesn’t necessarily have to take that to a local public vote.

Deputy prime minister Angela Rayner – who is also the secretary of state for local government – confirmed the move on Monday.

She said the average council tax increase across the country would not surpass last year’s total of 5.1%.

She also said more than £69bn in central funding would be made available to regional administrators, a rise of 6.8% compared to the 2024-25 period. Close to £4bn has also been put aside to help councils with social care.

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The Conservatives accused Labour of “pushing the burden on to taxpayers after they promised to freeze council tax”.

Shadow communities secretary Kevin Hollinrake said: “Their Local Government Finance Settlement will mean that councils will have to raise council tax to accommodate Labour’s jobs tax.

“This means that local people will pay more for less when it comes to local services, especially in rural areas which are losing the Rural Services Delivery Grant that Labour have abolished.

“The Labour Party have made false promises to local people, promising to freeze council tax while many councils will now have to raise it due to Labour’s political choice to raise council tax.”

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The County Councils Network, which represents 37 administrations, said they are facing pressure from the government’s decisions to increase national insurance contributions for employers, and increases to minimum wage.

Barry Lewis, the network’s finance spokesperson said: “More than four in five CCN members say they are in a worse position than before the autumn budget and this finance settlement, and one-third say their service reductions next year will now be severe.

“Considering there is very little fat left to cut from many of these services already, a further reduction will have a material impact on our residents.”

Ms Rayner confirmed allocations worth £502m to assist councils with the impact of increases to employer national insurance contributions.

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