George Osborne has come under fire for a "ridiculous stunt" after boasting that his economic management means that Britain can finally "pay off" the debt it accrued in fighting the First World War.
The Chancellor confirmed the news in his Autumn Statement on Wednesday, saying in a statement: "We can, at last, pay off the debts Britain incurred to fight the First World War. It is a sign of our fiscal credibility and it's a good deal for this generation of taxpayers."
However, experts said that Osborne was wrong to say he was "paying off" the debts, and instead just "swapping one debt for another".
— George Osborne (@George_Osborne) December 3, 2014
Professor Philip Booth, from the Institute of Economic Affairs, told the Huffington Post UK: "The whole issue of War Debt is irrelevant to the general position of the public finances and should instead be a minor matter for the Debt Management Office.
“The government has an option to repay existing debt and replace it with debt paying lower interest rates at more or less any time. This is no different from – for example - property companies having an option to repay debt on which they are paying 5% interest if they can get finance at 4%.
"It is a sensible financing decision but does not reduce the total amount of debt. That this is included in the Autumn Statement is just a political stunt”.
Osborne's Treasury will redeem the outstanding £1.9 billion of debt from a 3½% War Loan on Monday 9 March 2015 by using current low interest rates to refinance it with new bonds.
The loan was originally issued in 1932 as part of a nationwide conversion campaign led by the then Chancellor Neville Chamberlain to reduce the costs of servicing the national debt. This bond was issued in exchange for 5% War Loan 1929-47, which had been issued in1917 as part of the unprecedented effort by the government to raise money to pay for the First World War.
Meanwhile Tim Worstall, a fellow at the free-market Adam Smith Institute think-tank, said Osborne's claims were "ridiculous".
Writing on the Forbes website, he went on: "He [Osborne] really has said “pay off” there and that’s the part that just isn’t so. A government that is borrowing £100 billion a year and change isn’t paying off any debt whatsoever. It’s just swapping one debt for another.
"By the definitions that Osborne is using, in fact that WWI debt was all paid off in 1927. Which, given that we’ve still got bonds around relating to that debt shows that a refinancing is not actually the same as paying off a debt.
"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. If Osborne’s definition is correct we paid off those debts 87 years ago. Which means that Osborne’s definition cannot be correct, for if it were we wouldn’t have to be paying them off today, would we?"