News story

Chancellor to repay the nation’s First World War debt

The government will now be able to refinance this debt with new bonds benefiting from today’s very low interest rate environment.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

The bond was issued in 1932 as part of a nationwide conversion campaign by Chancellor Neville Chamberlain to reduce costs of servicing the national debt.
The bond was issued in 1932 by Chancellor Neville Chamberlain. Image: PA.

The Chancellor of the Exchequer, George Osborne is today (Wednesday 3 December) announcing that the government will repay all the nation’s First World War debt.

The Chancellor also announced that the government will adopt a strategy to remove the other remaining undated gilts in the portfolio, some of which have origins going back to the eighteenth century, where it is deemed value for money to do so.

The Treasury will redeem the outstanding £1.9 billion of debt from 3½% War Loan on Monday 9 March 2015.

This bond was issued in 1932 as part of a nationwide conversion campaign led by the then Chancellor Neville Chamberlain to reduce the costs of servicing the national debt.

The bond was issued in exchange for 5% War Loan 1929 to 1947, which had been issued in 1917 as part of the unprecedented effort by the government to raise money to pay for the First World War.

The government will now be able to refinance this debt with new bonds benefiting from today’s very low interest rate environment, which in part reflects confidence in the plan the government has put in place to cut borrowing and create a resilient economy.

This follows the government’s decision on 31 October to redeem the much smaller 4% Consolidated Loan, the first planned repayment of an undated Gilt of this kind by government for 67 years.

Today’s announcement also represents the start of a strategy to remove all six of the other remaining undated Gilts in the government’s portfolio, when we deem it value for money to do so.

This will take advantage of the low yield environment to consolidate the debt portfolio and deliver a long-term advantage of the tax payer.

These Gilts include some debt originally issued in the era of the South Sea bubble in the 18th century, as well as to provide for the Bank of England nationalisation.

The register of holders of 3½% War Loan is maintained by the gilt registrar, Computershare Investor Services PLC, and they will contact all registered holders in due course to make arrangements for the redemption payment.

A very small minority of bonds are held in bearer form and holders of these will need to surrender their bonds in order to redeem their gilts.

Chancellor of the Exchequer, George Osborne said:

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.

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.

Further information

The Debt Management Office estimates that the nation has paid some £5.5 billion in total interest on 5% War Loan 1929-47 and 3½% War Loan since 1917.

3½% War Loan is by far the most widely held of any UK government bond with more than 120,000 holders, or 60% of all holdings of government gilts. 97,000 of these investors hold less than £1,000 nominal, and almost 38,000 holders own less than £100.

The government will bring forward the necessary legislation to provide for any future redemption of the three undated gilts for which Parliamentary approval is required - these are 2¾% Annuities, 2½% Annuities and 2½% Consolidated Stock. Redemptions of these gilts will then be achievable as and when government deems it value for money to do so.

The table below lists all the current undated gilts. All of these gilts, except 3½% War Loan, are rump gilts (i.e. gilts whose size is deemed by the DMO to be so small that Gilt-edged Market Makers (GEMMs) are not required to make a market in them and the DMO acts as buyer of last resort).

Undated gilts £ million (nominal)
4% Consolidated Loan 218.4
3½% War Loan 1,938.6
3½% Conversion Loan 15.6
3% Treasury Stock 34.6
2¾% Annuities 0.7
2½% Treasury Stock 220.9
2½% Consolidated Stock 162.1
2½% Annuities 0.9
Published 3 December 2014