Since 1917 the low interest rate paid on the debt has meant that the Government has paid a total of £1.26 billion (roughly $2 billion) in interest, which works out at around £13 million ($20.8 million) per year. This outgoing is a small amount on the current balance sheet.
The government said: “around £2bn of First World War debt remains, which is one graphic illustration of the legacy of this war on our nation and the long-term effects of high debt. The Government is looking into the practicalities and value for money of repaying this outstanding debt in full.”
Britain government looking for a lower interest rate
However at current interest rates the Britain could refinance the debt and pay even less interest. Currently the Government can borrow money at record low interest rates, so replacing old debts makes a lot of sense.
Investors looking for safe investments are willing to accept lower rates of return and buy into government debt. The Government predicts that after refinancing the debt it would be able to pay a lower rate than the current 4%.
A payment of £218 million ($348.8 million) is scheduled for February. The debt has no time limit on it, and the payment will be the first that the Britain has made in 67 years.
Britain’s other debts
Under the planned initiative the Britain will also pay off other historical debts, some of which date from the 18th century. Eight undated government bonds remain outstanding.
One of those bonds was issued by prime minister William Gladstone to shore up the capital stock of the South Sea Company, which collapsed in the South Sea Bubble financial crisis of 1720.
World War 1 was not the only war to be financed by bonds. In 1888 chancellor George Goschen converted bonds that were issued in 1752 in order to pay for the Napoleonic and Crimean wars.
The long history of refinancing bonds to pay for wars was continued by Winston Churchill. During his time as Chancellor he issued the First World War bonds, otherwise known as 4% Consols, in order to refinance the National War Bonds from World War 1.