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Government to Start Repaying WW1 Debts

Government to Start Repaying WW1 Debts

The Treasury plans to repay all £1.9 billion worth of debt, that payed for the UK’s effort during World War One, starting from May next year. They will pay off the entire debt, over 100 years after it was first issued, in an attempt to take advantage of low interest rates. Chancellor George Osborne made the announcement as part of his final Autumn Statement before next year’s general election, saying that it was a “a moment for Britain to be proud of”. To take advantage of the lower interest rates the treasury will refinance the debts with new bonds, effectively issuing IOUs. The current bonds were issued in 1927 by the then chancellor Neville Chamberlain at a lower interest rate of 3.5 per cent rather than the previous 5 per cent.
The main holders of the bonds are Fidelity and Threadneedle Asset Management, who have been lobbying for the debt to be repaid. The reduction in the interest rate is estimated to lead to a saving of £15 million per year in interest payments equivalent to a debt reduction of £500 million. The debt has currently cost the country £5.5 billion since it was first issued. Aside from the £1.9 billion war loan, and the £218 million 4 per cent consols bond which will be redeemed in February, there are £435m of perpetual gilts (which never mature) in the government’s portfolio.

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