by Greg Klein | December 3, 2014
Calling it “a sign of our fiscal credibility,” UK Chancellor George Osborne announced plans to take on £1.9 billion in debt to “pay off” previous debt issued to help pay for World War I. With interest rates close to all-time lows, the refinancing would save the government about £15 million in annual interest payments, the Guardian reported on December 3. The UK has already announced February plans to refinance £218 million in debts dating back to the 1720s. Now Osborne says his government will pay off the rest of those debts, non-maturing perpetual gilts that total £435 million, at some future date “when we deem it value for money.”
This is no more ‘paying off’ those debts than my taking out a bank loan to pay off my credit card is paying off debts.—Tim Worstall,
writing in Forbes
The £1.9 billion would redeem a 4% War Loan Bond issued in 1927 to redeem a 1917 bond that paid 5% interest.
Forbes contributor Tim Worstall took Osborne to task for claiming the government was repaying the debts. “The government really is borrowing £100 billion a year and change at present,” Worstall points out. “This is no more ‘paying off’ those debts than my taking out a bank loan to pay off my credit card is paying off debts. It might well be a very good idea to do that, given the difference in the terms of the debts and the interest rates, but it’s still not paying off, is it?”
Worstall describes the non-WWI debts as “odd bits and pieces from the 19th century, debt from the Crimean War, from those (not large enough) attempts to deal with the Great Famine in Ireland, bits and pieces relating to the Napoleonic Wars and even, would you believe it, some parts that related all the way back to the South Sea Company and the South Sea Bubble of the 1720s (although that connection is pretty remote).”
The UK Debt Management Office “estimates that the country has paid about £5.5 billion in interest on two main War Loans since they were issued,” the Financial Times reported.