Treasury set to ‘pay off’ £1.9bn First World War debt


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The Independent Online

The Chancellor, George Osborne, intends to refinance all of the nation’s First World War debt, almost a century after it was first issued.

The £1.9bn repayment of the War Loan will take place on 9 March 2015 – although it is actually a refinancing, as the Treasury will refinance the debt with newly issued bonds, to take advantage of the record low interest rates.

The war bond was issued by the then chancellor, Neville Chamberlain, at 3.5 per cent in 1932, replacing a 5 per cent War Loan which had been issued in 1917 as part of the government’s efforts to fundraise for the Great War.

“This is a moment for Britain to be proud of. We can, at last, pay off the debts Britain incurred to fight the First World War,” the Chancellor said. “It is a sign of our fiscal credibility and it’s a good deal for this generation of taxpayers. It’s also another fitting way to remember that extraordinary sacrifice of the past.”

The Treasury said it was taking “advantage of the low-yield environment to consolidate the debt portfolio and deliver a long-term advantage to the taxpayer”.

It will pay back or refinance all six of the Government’s remaining perpetual gilts – which never mature – “when we deem it value for money to do so”.

It is also looking at repaying debt originally issued in the era of the South Sea Bubble in the 18th century, as well as to fund the nationalisation of the Bank of England. In 1853, William Gladstone, who was then chancellor, consolidated, among other things, the capital stock of the South Sea Company originating in 1711, which had collapsed in the infamous South Sea Bubble financial crisis of 1720.

It follows Mr Osborne’s decision in October to repay £218m of “4 per cent Consols” – bonds that were first issued by the then-chancellor Winston Churchill in 1927, to refinance National War Bonds originating from the First World War.

It was the first planned repayment of this undated bond by the Government for 67 years. The Debt Management Office estimates that the nation has paid £1.26bn in total interest on these bonds since 1927.