Osborne to Finish Paying Off U.K.’s Century-Old WWI Debts

A century after the start of World War I, Chancellor of the Exchequer George Osborne announced he’ll redeem the last of the U.K.’s gilts issued to pay for that struggle.

The Treasury will redeem the outstanding 1.9 billion-pound ($3 billion) undated War Loan that pays 3.5 percent. That gilt was itself issued in 1932 in exchange for a 5 percent 1929-47 War Loan issued in 1917, the year before the war ended. It is by far the most widely held U.K. government bond, with 120,000 investors. The government is also looking at other undated gilts in its portfolio, including some dating back to the 18th century.

“This is a moment for Britain to be proud of,” Osborne said in a statement today. “We can, at last, pay off the debts Britain incurred to fight the First World War.”

The announcement came on the morning of Osborne’s Autumn Statement to Parliament, which is likely to be dominated by news that the chancellor’s own fight to eliminate Britain’s deficit will take longer and be more painful than he originally predicted.

‘Fiscal Credibility’

While Osborne argued that the ability to pay off low-yielding bonds and borrow at even lower levels is “a sign of our fiscal credibility,” it mainly reflects the failure of the global economy to return to normal after the banking crisis. Osborne also extended an emergency funding program today designed to help smaller businesses get credit.

National War Bonds were first issued in 1917 as part of an effort to raise money to finance the continuing cost of the four-year war. They were refinanced 10 years later by the then chancellor, Winston Churchill, with the issue of the Consolidated Loan.

The first sale of National War Bonds was supported by a huge advertising campaign intended to inspire patriotic fervor. The bonds paid a high rate of interest of 5 percent.

The success of that campaign is reflected by the fact that most of those holding the 3.5 percent War Loan are small investors. Around 97,000 of these investors hold bonds with a nominal value of less than 1,000 pounds, and almost 38,000 holders own less than 100 pounds.

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