UK Govt to 'retire' £218m of its £2bn WWI debt

[pmaitra]

I wish to ask some questions, and we should be able to broaden the discussion with other examples on war debt and related activities, to get a better understanding of what really happens with war debt.

Government to 'retire' some of its WW1 debt

The UK Government has said that it will 'retire' £218m of the UK's £2bn First World War debt by refinancing bonds originally issued by Winston Churchill.

The UK has paid a total of £1.26bn in interest on these bonds since then.

Who was the interest paid to? Ok, I get it, the bond holders. Who could they be?

The debt has not been paid off before because of the relatively low interest it incurs.

The Treasury plans to cut the annual cost of the debt by re-borrowing money at current market rates. It is the first such move for 67 years.

This part if not clear to me. What was the original interest rate? What is the current interest rate. Who will buy the bonds?

The bonds that Chancellor George Osborne has acquired have a lower rate than the 4% interest on the debt.

The continued existence of the war bond debt illustrates the lasting shadow cast by World War One.

According to the UK Treasury there are currently 11,200 registered holders of the bonds.

Historical note.

Winston Churchill first issued "4% Consols" in 1927 when he was Chancellor partly to refinance bonds from the First World War.

What are "Consols?"

In addition to the war bonds, some of the debt being refinanced by the Treasury dates back to the 18th Century.

One of these bonds was issued by William Gladstone in 1853 to consolidate the capital stock of the South Sea Company, which was founded in 1711.

The South Sea Company collapsed during the South Sea Bubble financial crisis of 1720, leaving behind it a lot of debt.

In 1932 Chancellor Neville Chamberlain converted some war bonds into "perpetuals". This gave the government the right not to pay back the loans, as long as they continued paying 3.5% interest on them.

Historical note.

Perpetual bonds, as the name suggests, pay a steady stream of interest forever.

Interest paid to whom? Interest paid by whom?

@Sakal Gharelu Ustad, @Mad Indian, @Known_Unknown, and anyone interested.

 

[Sakal Gharelu Ustad]

No idea about consols. As far as the interest is concerned- the bond issuer i.e. the UK government in this case will pay the interest. Also, UK has a mature bond market where you can sell bonds on the secondary market. So, the identity of the bond holder can be very different from the person who bought them the first time.