The Really Useful Gold Thread

Business comment
Last Updated: 12:59am GMT 30/12/2006



Eagerness to pay off war debts stops at these shores

Ed Balls looked thoroughly pleased with himself yesterday as the economic secretary (and, hopeful, Chancellor in waiting), took to the airwaves. Anyone would think he was trying to raise his profile given the frequency of his television appearances.

The reason for Mr Balls' pleasure? Britain has finally repaid the last instalment of its Second World War loans from the United States and Canada.

"This week we finally honour in full our commitments to the US and Canada for the support they gave us 60 years ago," puffed a very proud Mr Balls.

So I assume that the Treasury will soon be "honouring" the commitment made by small investors who, following a patriotic marketing campaign, entrusted more than £2bn worth of savings to the government as part of the First World War effort.

More than £1.9bn of those war loans are still outstanding and largely held by small investors, many of whom are believed to be the heirs of original investors.

When they were introduced, investors were promised that the bonds would pay a fixed rate of 5pc (although later Neville Chamberlain "blackmailed" investors into accepting an arbitrary cut to 3.5pc).

The war bonds are among just a handful of undated gilts – with the government only promising to repay in "1952 or after". Every £100 (more than £3,000 in today's money) invested when the bonds were first issued is today worth just £81.35 – although holders have been paid interest on the bonds over the years. Inflation has already destroyed much of the bonds' value and this year the 3.5pc coupon doesn't even keep pace with the rise in the retail price index at 3.9pc.

Given Mr Balls's new found resolve to honour wartime commitments, I could not resist ringing the Treasury to ask if an announcement was imminent. Apparently, 80-odd years later they still have no intention of buying them back.