Here’s some potentially great news from the UK Government’s 2011 budget, for those of us who want to grow our money rather than spend it on petrol or new build houses.

Buried in the detail of page 90 of the full budget document is a snippet mentioning the Government expects to raise £2 billion from National Savings & Investments (NS&I) in 2011-2012.

I don’t know why Osborne didn’t specifically mention it today. It’s true £2 billion is small change compared to the total £165 billion the government will borrow. But it could be a £2 billion bonanza for savers who’ve tried to find safe ways to guard against inflation, after NS&I suddenly withdrew its index-linked certificates from sale last July.

The crucial statement from the budget:

The projection for the CGNCR in 2011-12 is £120.4 billion. Gross gilt redemptions are £49 billion and National Savings and Investments (NS&I) is expected to make a contribution to net finance of £2 billion.

According to the budget document, £4 billion is an increase from just £300 million in 2010-2011, which suggests that someone in the Treasury appreciates the strong demand for NS&I products, even if George doesn’t.

What’s not clear from the wording above is that this new funding will definitely be raised by issuing fresh inflation-linked certificates. However NS&I itself released an update on its operations today, which confirms it will be bringing back the Index-Linked certificates:

2011-12 Net Financing target

As confirmed in the Debt Reserves Management report, issued today, NS&I’s target for Net Financing for 2011-12 is £2 billion in a range of £0 billion to £4 billion. This positive Net Financing target will allow NS&I to plan the re-introduction of Savings Certificates for general sale in due course.  Currently only savers with maturing investments in Savings Certificates can continue to rollover their investments for a further term. Subject to market conditions, NS&I expect to be bringing Savings Certificates back on general sale in 2011/12.

NS&I can also confirm that a new issue of Index-linked Savings Certificates will retain index-linking against the retail prices index (RPI).

So that’s new index-linked certificates, and still linked to RPI too. (There had been fears it would be switched to CPI). Better get ready to fight for them!

Now, we still don’t know how much of the £2 billion will be allocated towards National Savings Index-Linked certificates, as opposed to its other products.

But at least some will – and provided the interest rate they pay above inflation is halfway attractive, the tax-free status and government-backing of the NS&I inflation linked products is impossible to beat for cautious savers.

Indeed, the demand for these sorts of index-linked products is clear from the rush of alternative inflation-linked savings bonds that banks and building societies have launched in recent weeks. The fear of inflation is growing.

For that reason, I think that whatever fraction of £2 billion NS&I issues as index-linked certificates will find a home no problem. Given such strong appeal, you should register with NS&I to ensure you’re told the moment they go on sale.

There was never much doubt that George Osborne would want to do something for first-time buyers struggling to get onto the housing ladder in the Spring 2011 budget.

His response – a new FirstBuy scheme that will provide a £250 million fund to help first-time buyers get on the housing ladder, via a shared equity arrangement in new-build property. It will be jointly funded by the housebuilders.

Osborne claims FirstBuy will help 10,000 first-time buyers, which is non-trivial in a market where only 43,000 or so mortgages were approved in February 2011 – way down from the 80,000 or so that was previously seen as required for stability in the housing market.

Yet in reality the £250 million FirstBuy fund is likely to prove a drop in the ocean compared to the total size of the mortgage market, which in January and February of 2011 was running at around £9.5 billion in mortgage loans advanced a month.

Who wins from FirstBuy?

Certainly, the government. In fact, it’s a double win from a politician’s perspective.

• Firstly, Osborne is being seen to support struggling first-time buyers, which goes down well with voters.

• Secondly, FirstBuy also helps prop up the wobbly housing market, which the authorities have decided – rightly or wrongly – that they can’t afford to let find its own level.

• Finally, anyone looking to sell a house or move up the ladder needs a healthy market with decent turnover (including a bottom level influx of first-time buyers or buy-to-let landlords). Existing homeowners may benefit if FirstBuy keeps the overall market moving, though the programme itself only applies to new build homes.

Sure enough, the chancellor has since gone further with his Help To Buy scheme in the 2013 Budget.

But whether first-time buyers and others benefit from being used as cannon fodder in the fight against a house price crash remains to be seen.

It’s true that first-time buyers have struggled to get a mortgage at all, due to the banks’ suddenly stingy requirements for a high deposit in the wake of the credit crisis. This inability to get a mortgage has meant that first-time buyers have ironically been denied access to the only thing making homes affordable despite the elevated level of prices versus average earnings and rents – that is, historically very low mortgage rates.

So superficially the FirstBuy scheme may seem attractive, and it doubtless will be to anyone desperate for a house who feels locked out of the market.

But I can’t help thinking first-time buyers would be better served by house prices falling the 20% or so that would seem a minimum to bring them back to their long term averages. It’s no coincidence that the FirstBuy programme is being jointly funded by housebuilders, who’ve been running their own increasingly inventive schemes for the past 18 months or so.

True, nobody who sees what the true house price crash in the US has done to that economy could be sanguine about the impact of lower prices more in line with long-term ratios here.

Yet the frightening thing is our bubble was far bigger than the American house price bubble. And there will be a price to be paid by some segment of society the longer we continue to puff it up. Rather unfairly, given they didn’t benefit from the boom, it’s surely the first-time buyers who are paying it.

Also, if you were a housebuilder, would you be thinking of increasing or reducing asking prices on your new developments in the wake of this announcement of lots of government cash coming your way?

Exactly.

Some good weekend reads from around the web.

There are many reasons to be a passive investor rather than trying to pick stocks or funds to beat the market: It’s cheaper, you’ll probably do better anyway, and it takes a lot less time than reading company reports or hunting for the next Warren Buffett.

A less frequently touted advantage is that passive investing saves you from having to make uncomfortable choices.

Regular readers will know that I actively manage a portion of my net worth, for my sins, despite suggesting most readers should follow the passive approach. And this past week brought out the best and the worst emotions in active investing.

The main reason I choose to actively invest some of my money is the most honest, but also the least edifying – it’s fun.

For example, for 12 months or so now I’ve been selling down shares a bit when the market has got ahead of itself, and loading up on companies I like when it dips. Unfortunately I only got my portfolio back up to about 10% cash and fixed interest (and only bank preference shares at that) before the recent wobble, which has limited my warchest for hunting bargains in a market I still judge decent value.

I only have a vague idea of how far my meddling has put me ahead of simply sitting in the market – and I have absolutely no idea if the outperformance is down to dumb luck. Ask me again in 30 years!

But I do know for sure that it is generally enjoyable.

That kind of attitude quite rightly enrages my co-blogger The Accumulator, but at least I’m honest about it. (It’s one reason why I first asked him to blog here).

Difficult choices

Taking advantage of the fear and greed of the public schoolboy traders in Canary Wharf is one thing, however. But looking at the market in the wake of a natural disaster, potential nuclear contamination, and heartbreaking loss of human life isn’t my idea of a rollicking good time.

Having previously read in some detail about the horrible human sacrifice at Chernobyl, my heart aches to think of the core 50 workers at Japan’s stricken Fukushima nuclear plant. They are likely committing themselves to a horrible lingering death in their efforts to get the situation under control. And while they are doing it for their country, it’s their bosses and shareholders in TEPCO who are most geared to their success, as well as investors and management in nuclear facilities across the globe.

As one who fears environmental meltdown on a global scale, nuclear power is an extremely difficult issue for me to make my mind up about. But I don’t need to think hard to feel awful for those workers – nor to wonder exactly what would happen if there was a similar nuclear accident in the UK or the US, rather than in a country with a strong tradition of personal self-sacrifice like Japan, or a long tradition of using troops as cannon fodder like Russia.

And what about as an investor? Here we get to the awkward moral issues.

If you’re a passive investor, you can sit through all this and look disdainfully at those who’d “try to make a buck” out of human misery. But if you’re an active investor, you can’t afford to leave crisis investing out of your strategy grab bag.

In both cases money will remain in the markets – and indeed in both cases returns will follow the decisions of active investors – but the active investor is the one who will be staring into the mirror in the morning, or washing her hands over and over in the bathroom after clicking ‘buy’.

Intellectually, I don’t believe economies benefit from the breakdown in orderly markets. Quite the opposite in fact. Japan would be in a stronger position if its market hadn’t tanked nearly 20% in a week in the wake of the magnitude 9.0 earthquake and its repercussions. In that sense, anyone buying into their cheap-looking market is doing them a favor.

Equally, I can see why that sounds like self-justification from someone who knows, for example, that an investor who bought into war-ravaged Germany in 1948 saw a 4,000% return over the following decade, whereas an investor who bought the UK’s FTSE 100 at the end of the happy-clappy 1990s is still looking at an index that’s lower 11 years on.

The case for investing in nuclear-related plays – some uranium miners have dived 30% or more – is even more fraught, with enough moral murkiness to propel along a Michael Frayn play.

I can’t tell you what to do. I can’t tell you how to sleep at night.

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