posted at 03:00
Author Name: Tomas Hirst
The UK Government Redeems War Loans
The UK Treasury has announced plans to buy back £218 million of loans first issued by Winston Churchill in 1927, when he was Chancellor. The majority of the bonds being redeemed were issued to refinance debt taken on during the First World War. Some of the debt goes back even further - with part of the borrowing pre-dating the signing of the US Declaration of Independence. Also included in the government buyback are: loans originally taken out to cover losses from the collapse of the South Sea Company in 1720, debt taken on to fund Britain's fight against Napoléon Bonaparte, and some that helped finance the Slavery Abolition Act of 1835. These loans are unusual because they were issued as perpetual bonds. The government has the right but no obligation to pay off the debt. So why have they done it now? The Debt Management Office estimates that the UK has paid £1.26 billion in total interest on these bonds since 1927 and, with a yield of 4%, these bonds were paying a much higher interest rate than the government would have to pay if it raised the same amount of money now. So the £1.93bn 3.5 per cent 90-day callable perpetual bond issue could be redeemed and replaced with a £1.63bn 3.5 per cent 30-year callable perpetual bond delivering a no-brainer £300m debt reduction to the taxpayer and an associated £9m per annum saving in interest costs.

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