To ask Her Majesty’s Government who they expect to purchase Government debt when quantitative easing ends.

The Government are confident that financing remits will continue to be delivered successfully. The UK benefits from a diversified investor base. Recent meetings with market participants suggest continuing strong structural demand from the pensions and insurance sector for long and index-linked gilts; demand from investors overseas remains strong; and the Government are the benchmark borrower in their own market and currency.

Does the Minister accept that the traditional market for British gilts has been about £40 billion a year? That was not the case in 2009, when it was £200 billion and 90 per cent was bought by the Bank of England with newly printed money. Is the Minister really confident that the market will be able to absorb five times as many gilts as it historically has when the Bank of England is now indicating that quantitative easing is coming to an end? Does he also accept that it is not an attractive market for foreigners to come into, when we have seen devaluations of sterling against a basket of international currencies and when, traditionally, 30 per cent to 40 per cent have come from outside this country?

My Lords, I am not going to comment on any decision which the Monetary Policy Committee might make on quantitative easing. During the past 12 months, the gilt market has been the world’s best-performing international bond market for developed economies. We continue to be able to fund with comfort. The rate of funding currently required is in line with the quarterly rate of funding for the two quarters immediately preceding the commencement of QE—that is, just over £50 billion a quarter. There is nothing exceptional about this level of funding, particularly given that government borrowing is so far below the G7 average. We are borrowing at very attractive rates of interest. Noble Lords will no doubt be delighted that we are able to raise 10-year bonds at 3.9 per cent per annum. I checked what the rate was when the noble Lord first became a Minister: it was more than 16 per cent. I am not sure that the noble Lord is well positioned to ask questions about the cost of government funding.

My Lords, does the Minister think that there is a danger of rising inflation as a result of quantitative easing; and could he reassure us that this country will not be joining the so-called PIGS group of countries, particularly after the remark of Bill Gross of PIMCO that the gilts in Britain are sitting on a bed of nitro-glycerine?

The Bank of England, through its conduct of monetary policy, targets an annual rate of inflation at 2 per cent. Quantitative easing is designed to ensure that we achieve that target rather than fall into deflation and recession. I have noted the comments by Mr Bill Gross of the Pacific Investment Management Company in an article in which he describes himself as an “ageing rock star”. He goes on to explain clearly that he has been underinvested in sterling gilts for some time. In the City, we call this “talking your own book” and making your excuses before your clients ask why your performance has deteriorated by missing out on the world’s best investment in fixed income over the last 12 months.

My Lords, is the Minister not excelling himself in his complacency today? Is it not the case that if, as the noble Lord, Lord Bilimoria, says, the head of PIMCO was talking his own book, he would want to be proved right? His view, therefore, is to be regarded. As my noble friend Lord Hamilton said, in addition to the getting on for £200 billion of gilts that have to be sold over the next 12 months to fund the deficit, there is another £200 billion that must be sold in the unwinding of the quantitative easing, because that is the quantum there. Is it not dangerous to be so complacent? Given that the world economy is now in a strong recovery phase—admittedly, the United Kingdom is pretty anaemic—is it not important that we should cut the deficit as quickly as we can?

I am not being complacent at all, although I would rather be accused of complacency than of talking down the country’s economic outlook. The simple fact is that the central government net cash requirement, which is £174 billion for 2010-11, is intended to fall to £81 billion for 2014-15, as we adopt the glide path of progressively reducing the public sector borrowing requirement coming out of recession and achieve our fiscal responsibility objectives.

My Lords, is it not the case that, rather than talking the country down, we ought to be talking it up in our own interests? Is it not overwhelmingly the case that of course everybody agrees that quantitative easing has to come to an end, but it is all a matter of getting the timing right? Equally, we all know that massive cuts in public expenditure have to be made, but again you have to get the timing right. The real issue is not to plunge into these things, as the official spokesmen for the opposition seem to do by more or less choosing any date that they fancy on which to act, without thinking the problem through. We must not act too rapidly, but we must act when the time is right.

I, of course, agree with my noble friend in his observation. There is an appropriate time for reducing the deficit. We will do that once recovery is firmly established, but that is clearly not the case at the moment. The adjustment to quantitative easing does not necessarily require the Bank of England to sell the gilt-edged stocks that it currently holds. It can, for instance, hold them to maturity. That decision will be left to the Monetary Policy Committee.

My Lords, the Minister referred to the 2 per cent inflation target. Is the Treasury considering redefining the target to take account of asset price bubbles in the future?

There is no current intention to re-examine the target although, as I previously advised the House, the European statistical research body is looking at how one might devise inflation measures which capture the price of housing. Should it come up with a recommendation for the EU, we would no doubt take that into consideration, but there are no current plans.