The UK Debt Management Office – Borrowing on behalf of Government

1. INTOSAI Public Debt Committee Meeting Lisbon, Portugal 21-22 June 2007 The UK Debt Management Office – Borrowing on behalf of Government Mike Suffield – UK National Audit Office

2. The UK Debt Management Office • established on 1 April 1998. • an executive agency of the Treasury. • borrows funds on behalf of government through the issue of gilts and Treasury bills • increased activity in recent years caused by government spending and ‘roll-over’ of existing government debt. • our review examined the DMO’s debt management activities and reporting arrangements.

3. Aims of the review • to provide briefing for the Treasury Sub-Committee • to set out our conclusions and make recommendations • to deepen our understanding of debt management arrangements and practice

4. Approach to the review • The main elements of our work were: • a survey of overseas debt managers • a survey of gilt (government bond) market participants • meetings with DMO and Treasury staff • work-shadowing within the DMO; and • attendance at key events

5. Briefing the Treasury Sub-Committee • Parliamentary Select Committees scrutinise the activities of government bodies (hold hearings with senior staff) • the UK DMO falls within the remit of the Treasury Sub-Committee • Committee members are not debt management experts • NAO’s role was to provide members with high quality information to support their questioning of DMO management • enhanced accountability

6. Conclusions & Recommendations (1) • the Treasury has overall responsibility for central government debt management. The DMO operates according to an annual remit agreed with the Treasury • the DMO’s activities are guided by the Government’s debt management strategy (predictability and transparency as the most effective way of minimising government borrowing costs) • no recognised way of quantifying whether predictability and transparency is the best approach

7. Conclusions & Recommendations (2) • the UK’s primary debt management policy objective is: • “To minimise, over the long term, the costs of meeting the Government’s financing needs, taking into account risk, whilst ensuring that debt management policy is consistent with the aims of monetary policy” • the objective is similar to those used by the overseas debt managers in our survey and consistent with IMF/World Bank guidance • measuring performance against the debt management objective is not straightforward (no ‘magic number’)

8. Conclusions & Recommendations (3) • The Treasury has stated that the debt management objective is achieved by: • pursuing an open, transparent and predictable gilts issuance policy • managing the maturity and nature of the Government’s borrowing • selling gilts that achieve a benchmark premium • developing a liquid and efficient gilts market • our review indicated that the DMO’s activities are consistent with the achievement of the above criteria

9. Conclusions & Recommendations (4) • no clear insight into the DMO’s contribution towards the primary debt management objective • the ‘Strategic Debt Analysis Model’ may enhance accountability in the future

10. Conclusions & Recommendations (5) • the DMO and the Treasury have agreed to take forward some specific actions to enhance performance reporting: • encompass key initiatives & developments within performance reporting • minimise the number of documents involved • provide details of where performance information can be found • Treasury to set out clearly what it requires from the DMO when conducting its debt management activities • revisit the factors identified as contributing to the achievement of the primary debt management objective

11. Deepening our understanding • work focussed previously on the audit of financial statements • better understanding of debt management and the issues facing the UK DMO and the Treasury • increased credibility with the DMO and the Treasury • closer ties with the Treasury Sub-Committee • good platform for future work

12. Questions? • have other PDC members completed similar reviews? (what were the outcomes?) • are the issues raised in our review of relevance for PDC Members? • how regularly do others conduct such reviews? • what would be useful areas for further scrutiny?