Everybody's Guide to Money Matters

Everybody's Guide to Money Matters by William Cotton, F.S.A.

CHAPTER V. BRITISH GOVERNMENT FUNDS.

THE safest of all investments are those represented by the National Debt of this country, but the rate of interest or annual income derivable therefrom is small. The debt is nominally divided into three parts:The Funded Debt, the Unfunded Debt, Terminable Annuities.

The Funded Debt (1) is permanent; it is represented by Consols yielding interest at the rate of 2 1/2 per cent. per annum, or £2 10s. a year for every £100 of stock. The Government is not under obligation to redeem the principal at any fixed time, but power is reserved to pay off the loan at "par" (that is at the rate of £100 for every £100 stock, irrespective of its then selling value) in the year 1905. Another debt of comparatively small amount, bearing interest at 2 3/4 per cent. per annum, may also be paid off at "par" in 1905.

The great bulk of the National Debt, amounting to over five hundred millions sterling, is, represented by what, in Stock Exchange "parlance", is known as Goschen's Consols, so called from the Chancellor of the Exchequer of that name, to whom is due the conversion of the old "three per cents.," in the year 1888.

This stock bears interest at the rate of 2 3/4 per cent. per annum until the year 1903; from that date it is to be reduced to 2 1/2 per cent. until 1923, when the principal may be paid off at "par".

There is yet another fixed debt of about forty millions sterling called "Local Loans Stock," being money borrowed by the Government for the purpose of making advances to Corporations for local works. This stock may be redeemed at "par" in 1912.

The Unfunded Debt (2) consists of loans to the Government for temporary purposes. These loans are for various periods varying from seven days to as many years. They are represented by Exchequer Bills, Exchequer Bonds and Treasury Bills, which bear interest, according to the value of money at the time they are issued, from day to day. Due notice is given when a loan is to be paid off or renewed, and interest ceases on the day named for redemption.

TERMINABLE ANNUITIES.

Terminable Annuities (3) may be regarded as a "Sinking Fund," or means by which a considerable portion of the National Debt is paid off every year and "The Funds" proportionately reduced.

Thus the Government is empowered to give an annuity for a certain number of years in exchange for permanent stock in the Funds. For instance, a holder of £1,000 2 3/4 per cent. stock is receiving £27 10s. a year in the shape of interest. The Government offers to pay double the amount of interest or £55, if the £1,000 stock is transferred to them, and to continue this £55 a year for twenty years and no longer.

At the expiration of that period the interest ceases and the principal sum of £1,000 is struck off the National Debt, which is in consequence reduced by that sum.

LOANS - THE INTEREST ON WHICH IS GUARANTEED BY THE BRITISH GOVERNMENT.

These consist of loans to the Government of Canada for railway purposes, upon which 4 per cent. per annum is guaranteed. Also loans to the Colonies of Jamaica at 4 per cent. and Mauritius at 3 per cent., to the Egyptian Government at 3 per cent. and to the Turkish Government at 4 per cent.; in this latter case the French Government joins in the guarantee.

These are all perfectly safe investments, so far as the interest or income derived is concerned, but there appears to be no arrangement for the redemption of the loans.

The large loans to the Government of India at 3 1/2 and 3 per cent., repayable in 1931 and 1948, are guaranteed by the Secretary of State for India, practically the British Government.

Any amount may be invested in the above stocks and annuities through the medium of either a banker through his broker, or by a broker direct. The broker's charge for transacting in Consols is 25. 6d. (1/8) per cent. on the amount invested, but provincial bankers make a further small charge for guaranteeing the business, that is, they protect their customer from any loss that may arise owing to the failure of the broker to carry out the contract.

The dividends, interest, or annuity derivable from these investments, may be received by personal application of the holder at the Bank of England on certain fixed days, or on signing a printed form furnished on application by the Bank of England, per post, they will send from time to time without further notice a warrant or order for the amount due, which warrant or order may be paid into a bank account, or, on a proper introduction, cashed at any bank or post office. The simplest plan, however, may be to give your banker a Power of Attorney to receive the dividends from time to time and place the amount to the credit of your account.

Income tax is deducted from all dividends; but if a person is not liable to such tax, by reason of the total income coming within the Exemption Clause, the amount can be recovered through a surveyor of taxes, as to which the banker would give all the information required (*).

(*) Such information may also be found in detail in a little handy book, "Income Tax, and how to get it Refunded." 1s. 6d. Published by Messrs. Effingham, Wilson & Co.

The stock of the Bank of England, which may be purchased in any amount, the same as Consols, is a favourite investment with some, but the price is so high that the income to be derived therefrom is no more, and sometimes even less, than from the Funds.

AUTOMATIC RE-INVESTMENT OF DIVIDENDS.

Holders of stock in the Funds who are not desirous of receiving their dividends, but prefer to have them added half-yearly to the capital sum without further action on their part, are granted facilities by which this may be done automatically, on application to the Bank of England. The instructions apply to amounts of stock of less than £1,000 only. These facilities are also extended to holders of Metropolitan Consolidated Stocks, and to the India 3 per cent. and 3 1/2 per cent. stocks.

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