Avios, gilts and the art of (stealth) default

The UK government can reduce the real burden of excessive debt through gradual debasement rather than an explicit default.

• British Airways illustrates the mechanism: a London–New York Club World return that cost about 100,000 Avios plus £650 in cash five years ago now requires 176,000 Avios plus roughly £400–£500.
• The Avios requirement has risen by approximately 76%, while the Premium Plus British Airways American Express card will cut its earning rate from 1.5 to 1.25 Avios per pound spent from October 2026.
• The spending needed to earn an equivalent business-class reward has therefore increased from about £67,000 to more than £140,000, more than doubling without an explicit cancellation of points.
• Governments apply similar tactics through inflation, which preserves the nominal value of bonds while reducing their purchasing power, and fiscal drag, which raises tax revenues by freezing thresholds as wages increase.
• Financial repression can also transfer value from savers to debtors when inflation remains above interest rates, supported by measures such as captive demand for government bonds and artificially low rates.

Takeaway: Investors should treat inflation, fiscal drag and financial repression as forms of stealth default that can reduce the real value of UK government debt, although the approach risks damaging confidence once holders recognise the debasement.