Britain starts paying off WW I debt

One hundred years after the outbreak of World War I, Britain plans to repay some of the debt issued to help finance the conflict. Photo / NZ Herald

One hundred years after the outbreak of World War I, British Chancellor of the Exchequer George Osborne announced plans to repay some of the debt issued to help finance the conflict.

About 218 million pounds (NZ$448.5 million) of undated debt paying 4 per cent a year will be redeemed at par on February 1, Osborne said on Friday. The Debt Management Office estimates Britain has paid 1.26 billion pounds in interest since the bonds were sold in 1927.

National War Bonds were first issued in 1917 as part of an effort to raise money to finance the continuing cost of the four-year war. They were refinanced 10 years later by the then chancellor, Winston Churchill, with the issue of the Consolidated Loan.

The move represents the first settlement of an undated gilt in 67 years. About 2 billion pounds of World War I loans will remain and the Treasury is "looking into the practicalities" of paying off the debt in full, it said. The government pays just over 2 per cent to borrow for 10 years, based on current gilt yields. Britain's total debt is about 1.5 trillion pounds.

"The fact that we will no longer have to pay the high rate of interest on these gilts means that most important of all, today's decision represents great value for money for the taxpayer," Osborne said in a statement.

Some of the debt being repaid in redeeming the Consolidated Loan dates back to the 1700s. It includes a bond issued by Chancellor William Gladstone in 1853 to consolidate, among other things, the capital stock of the South Sea Company, which had collapsed in the South Sea Bubble financial crisis of 1720.

In 1888, Chancellor George Goschen converted bonds first issued in 1752 and subsequently used to finance the Napoleonic and Crimean wars.

The first sale of National War Bonds was supported by a huge advertising campaign intended to inspire patriotic fervor. The bonds paid a high rate of interest of 5 per cent.

There are 11,200 registered holders of the Consolidated Loan, with 7,700 investors holding less than 1,000 pounds and 92 per cent of holders owning less than 10,000 pounds each, the Treasury said. The debt is one of eight undated government bonds outstanding.

- Bloomberg