War Loans were propped up by Bank of Eng­land

New re­search shows WW1 gov­ern­ment scheme was a fail­ure

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New re­search into Bri­tain’s World War 1 War Loan scheme has re­vealed that it was much more of a fail­ure than pre­vi­ously re­alised.

In Au­gust 1914 the then Chan­cel­lor of the Ex­che­quer, David Lloyd Ge­orge, took the UK out of the gold stan­dard and from Novem­ber is­sued War Loans at an in­ter­est rate of 3.5%, to be re­deemed be­tween 1925 and 1928. A sec­ond tier fol­lowed in June 1915, of­fer­ing 4.5%, again to raise money to pro­tect the econ­omy in wartime, and a third in 1917.

Now, de­tailed anal­y­sis of re­stricted ac­cess Bank of Eng­land ledgers by re­searchers at Queen Mary Uni­ver­sity Lon­don (QMUL) has re­vealed the scheme was ‘a spec­tac­u­lar fail­ure’, to the ex­tent that the Bank of Eng­land had to fund half the short­fall in se­cret.

As part of the project the re­search team was granted ex­clu­sive ac­cess to ledgers in the Bank of Eng­land which show that the gov­ern­ment’s first War Loan scheme of 1914 raised less than a third of its £350 mil­lion tar­get. The £91 mil­lion that was raised pub­licly came mostly from a tiny group of wealthy fi­nanciers, com­pa­nies, and pri­vate in­di­vid­u­als.

QMUL re­searcher Norma Co­hen said: ‘The fundrais­ing ef­fort was such a fail­ure that the es­tab­lish­ment felt com­pelled to cover it up. The truth would have led to a col­lapse in the price of out­stand­ing war loans, which would have en­dan­gered fu­ture cap­i­tal rais­ing. Had it come to light, it would have been a pro­pa­ganda coup for the Ger­mans.’ To hide the fact that the Bank was forced to step in, the bonds were clas­si­fied as hold­ings of ‘Other Se­cu­ri­ties’ in the Bank’s bal­ance sheet, rather than as hold­ings of gov­ern­ment se­cu­ri­ties.

The fail­ure of the scheme was in stark con­trast to pub­lic per­cep­tions, thanks to a pro­pa­ganda ef­fort. The Fi­nan­cial Times re­ported on 23 Novem­ber 1914 that the scheme was ‘over-sub­scribed by £250 mil­lion’.

The Bank of Eng­land’s chief cashier Sir Gor­don Nairn later for­mally swore a state­ment that all £350 mil­lion of the orig­i­nal War Loans had been sold to the pub­lic – this was not true

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