UK War Debt and Slave Debt Repaid Today

UK War Debt and Slave Debt Repaid Today.

Following announcements made by the Chancellor of the Exchequer, George Osborne, in October last year, the British government has today repaid its World War I war debt to the tune of £1.9 billion.

To finance various wars including the Napoleonic War, World War I and subsequent conflicts most governments including the United States and the UK funded these  wars by borrowing money from the people in the form of war bonds. War bonds are government debt stock which have no maturity date and pay a fixed rate of interest each year in perpetuity. Britain's World War I war debt was refinanced in 1927 by Winston Churchill (4%pa) and then again in 1932 by Neville Chamberlain. The fixed coupon yield was then set 3.5% per annum.

In October last year the Chancellor confirmed that Britain would look to repay these debts by taking advantage of lower borrowing costs and interest rates that are available today.

In very simplistic terms if the government can borrow today at a cost of around 1.25% per annum for a three-year bond, this makes mathematical and financial sense to repay higher interest-bearing debt with cheaper borrowing at today's rates.

It is rumoured that some of the debt being repaid today could even include government debt (gilts) that go as far back as 1720 when the so-called 'South Sea Bubble' crisis happened where speculation in the slave trade caused a slave market crash under the government borrowed money to support investors that had lost money.  In addition there are still some government bonds in perpetuity from the Napoleonic War that may also be repaid.

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Whilst this news item may be purely for interest for many readers it actually makes financial sense that a reduction in interest payments could save the British taxpayer around £20 million per year in interest payments which can be passed on to fund new schools and hospitals.  Most of the war bond debt is being repaid to around 120,000 investors with £1,000 or less in war bond holdings.

This may not seem a lot in today's economy but lending the British government £1,000 over 200 years ago was clearly a huge investment and it is estimated that interest payments on these debts over the last 100 years or so may have cost the British taxpayer around £6 billion according to the Debt Management Office.

Combining the above debt settlement with a debt repayment of around £218 million of World War I war bonds at 4% per annum coupon back in October 2014 represents very good business for the British people.  That said, is this really 'robbing Peter to pay Paul' given that in February 2015, China had a record trade surplus of exports in excess of imports of over $40 billion.  It just puts things into perspective that Britain is no longer the global superpower that it was and the balance of power is returning to where it was all those years ago, in the Far East.