3% Treasury Stock was first issued in 1946 by the then Chancellor Hugh Dalton to finance the nationalisation of the Bank of England, over 250 years after a Royal Charter formally creating the Bank was sealed.
The Treasury will redeem the full £35m holding of outstanding debt, which is currently held by around 1000 registered holders, though is not traded regularly. Successive governments have had the option to redeem this stock at par (£100) with 3 months’ notice since April 1966.
The government is only able to make this announcement because interest rates are lower today, thanks to confidence in the long term economic plan that the government has put in place to cut borrowing and create a resilient economy. Today’s announcement will take advantage of the low yield environment to consolidate the debt portfolio and deliver a long-term benefit to the tax payer.
This decision forms part of the strategy announced at Autumn Statement 2014 to remove all the other undated gilts in the portfolio, where it is deemed value for money. This follows previous decisions to repay other undated bonds with higher interest rates: 4% Consolidated Loan was redeemed on 1 February 2015, 3½% War Loan will be redeemed on 9 March 2015, and 3½% Conversion Loan will be redeemed on 1 April 2015.
The register of holders of 3% Treasury Stock is maintained by the gilt registrar, Computershare Investor Services PLC. The gilt registrar will contact all registered holders in due course to make arrangements for the redemption payment.
Chancellor of the Exchequer, George Osborne, said:
I am delighted the government can announce it will repay in full the debt incurred to finance the 1946 nationalisation of the Bank of England. We are only able to take this action today thanks to the difficult decisions that this government has taken to get a grip on the public finances. This is a sign of the fiscal credibility that our long term economic plan has delivered and today’s decision represents great value for money for the taxpayer.
It is also fitting that we can repay this debt at a time when the Bank of England continues to play a crucial role in supporting the economy and maintaining the resilience of the UK financial system.
- Following the redemption of 4% Consolidated Loan on 1 February 2015, there are now 7 undated gilts outstanding. The government has confirmed it will redeem 3 of these bonds (3½% War Loan, 3½% Conversion Loan and 3% Treasury Stock).
- As announced at Autumn Statement 2014, the government will bring forward the necessary legislation to enable redemption of the 3 undated gilts for which Parliamentary approval is required: 2¾% Annuities, 2½% Annuities and 2½% Consolidated Stock. Redemption of these gilts, as well as 2½% Treasury Stock, will then be possible when it provides value for money.
- In 1946 existing holders of Bank of England stock – which at the time paid an annual dividend of 12% – received £400 of 3% Treasury Stock in exchange for every £100 of their Bank of England stock, providing them with the same annual income.
- For the avoidance of any doubt, the redemption of the outstanding 3% Treasury Stock has no impact on:
- the ownership structure or governance of the Bank of England
- the operations of the Bank of England
- the remit of the Bank of England
- The Bank of England has operational independence within its remit, and remains wholly owned by the Treasury Solicitor on behalf of the government.