By Ryland Thomas
For many years Heriot-Watt University and the Institute and Faculty of Actuaries have hosted a historical database on British Government Securities. In the late 1990s David Wilkie and Andrew Cairns from Heriot-Watt University obtained a grant from the Institute of Actuaries to employ students to look up old copies of The Financial Times at monthly intervals and to construct a series of monthly prices and monthly nominal amounts in issue for all UK gilt-edged government stocks (or “gilts” for short). The data was made available on the Heriot-Watt University website and was kept updated monthly by David Wilkie for many years. The curation of the database is now being taken over by the Economic Statistics Centre of Excellence. This short blog provides some background to the database and its contents.
Background to the database
The joint investment committee of the Institute of Actuaries and the Faculty of Actuaries in Scotland decided in the early 1970s to construct a new series of indices for fixed interest stocks in the UK. The Edinburgh section of that committee, under the chairmanship of Eric Allan, set this in motion. One of the members, David Wilkie, was able to write computer programmes and so he took on the programming for the construction of the new indices. George Dobbie helped particularly in the practical details of the market, both in government stocks and commercial ones. This is described in the paper The F.T.-Actuaries Fixed Interest Indices by G.M. Dobbie and A.D. Wilkie published in Journal of the Institute of Actuaries (JIA) in 1978, which also describes the rather limited series of indices that had been published before then and were attached to the FT-Actuaries Share Indices which began in 1962.
David Wilkie wrote the initial programmes in Fortran and supplied these to the Financial Times. The FT-Actuaries Fixed Interest Indices were calculated from the end of 1975 but not published in the Financial Times until 1978. Later the indices were renamed the FTSE Actuaries UK Gilts Indices and continue to be published by the Financial Times but no historical record was kept. This provided the motivation for developing the Heriot-Watt-Institute and Faculty of Actuaries database in the late 1990s. Initially the indices not only covered fixed interest government securities but also private sector corporate bonds (debentures and corporate loan stocks) and preferences shares. But trading in these stocks was very light and the market prices were unreliable. The Preference Share indices were dropped at the end of 1990 and the Debenture and Loan Stock indices at the end of 1994. Index-linked government stocks were first issued in April 1981, so indices for these were started, using programmes also developed by David Wilkie, but not published until July 1984.
Before 1995 government stocks had been taxed only on interest and not on any capital gains. This meant that high coupon stocks were particularly attractive to investors who paid no tax, such as pension funds, and low coupon stocks were particularly attractive too high personal taxpayers. There was therefore no single yield curve, but rather a yield surface where the redemption yield varied both by term and by coupon. This was dealt with in the initial indices by constructing yield curves for High, Medium and Low stocks with approximately one third of the stocks in each band. Then, the taxation basis was changed to tax institutional investors on total returns and a smoother yield curve appeared. Yields for the High, Medium and Low bands were dropped at the end of 1998 and a single curve for all stocks began.
The yield curve in the original indices was based on the redemption yields of stocks. In 2012 a model developed by Andrew Cairns (first published in the British Actuarial Journal, 1998), was adopted based on a mathematical curve for zero-coupon yields. As a result, the calculation of par yields replaced that of redemption yields in the FTSE indices (see The New Yield Curve For The FTSE Actuaries BGS Indices for the details). These began publication in April 2014. Further details of the indices in the early years appear in the series of papers by David Wilkie published in the Journal of the Institute of Actuaries and in the Transactions of the Faculty of Actuaries (see for example 1976, 1977, 1978, 1979, 1984).
The database itself
The dataset itself consists of spreadsheets that capture monthly quantities (from 1964) and prices (from 1975) of every gilt issued by the British Government up until the present. This allows an analysis of the gilt portfolio in terms of both nominal and market values and allows the construction of statistics on maturity and duration to be calculated according to the researcher’s needs. Figure 1 shows a breakdown of the total nominal amount of gilts in issue since 1964, broken down into: conventional dated gilts (fixed-coupon gilts with a defined redemption date, or dates in the case of double-dated stocks); undated “perpetual” gilts redeemable at the government’s option (such as the famous “consols” and the 3.5% War Loan which were all repaid in 2015); and index-linked gilts (with coupon and principal values linked to inflation) following their introduction in 1981 and which now account for around a quarter of the total stock of gilts. The third spreadsheet contains the FTSE Actuaries UK Gilts Indices discussed earlier.
The dataset has been used by many researchers over the years. For example, Ellison and Scott (2020) use the dataset (linked in the repository here) in their analysis of the national debt back to 1694. The prices data from the database enabled holding period returns to be calculated on a gilt-by-gilt basis and allowed them to make an assessment of the cost of debt management. The dataset also conveniently starts when the comprehensive volumes of Pember and Boyle, British Government Securities in the 20th Century, end in 1975 (these volumes are digitised in the repository here). Together these two sources allow a comprehensive analysis of the national debt in the period following World War 1 when its structure changed radically (see Figure 2 for the post-WW1 stock ledgers held at the Bank of England Archive and analysed recently by Anson et al. (2017): Your country needs funds and Cohen (2012): How Britain paid for war). The structure of government debt is debt is currently an area of analytical focus at the moment. See, for example, recent analysis by the Office for Budget Responsibility (OBR) and Institute of Fiscal Studies (IFS).
Looking ahead
Later this year academic colleagues will be marking David Wilkie’s 90th birthday with a conference at the University of York to celebrate his many achievements and contributions to actuarial research. Curation of the dataset going forward will now pass to the ESCoE Historical Data Repository so that the dataset can continue to be updated and remain a free resource available to students and researchers. From 2024, ESCoE will host and update the dataset in a dedicated section of the Historical Data repository with David Wilkie and Andrew Cairns remaining as consultants on its curation and future development. For continuity and to reflect its new location, the dataset will now be called the Heriot-Watt-IFoA-ESCoE British Government Securities Database.
The British Government Securities Database can be found here.
ESCoE blogs are published to further debate. Any views expressed are solely those of the author(s) and so cannot be taken to represent those of the ESCoE, its partner institutions or the Office for National Statistics.