This funded debt is a permanent one, in the sense that no date is named for its final payment. In 1911, the total was X610,315,194. The State is under no obligation to rehnburse the creditors ; only to pay to them a certain interest fixed by law. But, fortunately, the British Govern ment is one of the very few that recognise a practical necessity for the repayment, as far as possible, of all their capital liabilities. Its permanent character is therefore regarded more as a refuge in tinies of financial stress than as a reason for its undiminished maintenance, and s, right to redeem within a certain fixed period is now usually reserved. The French and Italian governments, on the contrary, regard the great part of their re spective debts as so actually permanent, as to measure their totals by the annual dividends or " rentes," instead of by the capital indebtedness the latter represent. The recognition of the necessity to reduce its capital liabilities has been followed, in Great Britain, by the introduction of the system of a Sinking Fund, the results of which, though also of the long period of peace which prevailed until some three years ago, is found in a great part of the reduction of the debt, and in the enormous increase in borrowing capacity in times of stress. A sinking fund was first proposed by Sir It. Walpole in 1716, and by him the system was partially and for a time applied. Subsequently, in 1786, Pitt improved upon his predecessor and elaborated a scheme whereby certain sums of money and 0E1,000,000 per annum were appropriated out of the national income towards the extinction of the debt. But the annual fund of £1,000,000 had to be borrowed for the purpose, and the only real advantage of the scheme accrued from an unfounded confidence it imparted to the public, who were consequently more willing to bear a higher rate of taxation than might have been tolerable but for the expectation of future relief through its means. Other modifications and extensions of the scheme were from time to time introduced, particularly in the reign of George IV., when redemption by the sinking fund was made applicable to the Unfunded Debt and by a generally repealing and initiative Act of 1875. In pursuance of the latter statute the annual charge for the debt was, in 1876, made a fixed sum, which was to be raised in three years to .E28,000,000. The excess amount of this charge, not required for the payment of interest and expenses of the debt, was to be applied to the redemption of debt as time "New Sinking Fund." In 1900 the annual charge for the debt was reduced to 1'23,000,000.
By the Life Annuities Act, 1808, the Government Annuities Act, 1829, and a number of subsequent and recent statutes, the Commissioners for the Reduction of the National Debt are empowered to grant annuities, im mediate or deferred, either for lives or for certain terms of years, payment therefor being accepted either in cash or in Government stock to the atnount of the equivalent cash price. By this means, which it will be seen from the above figures has been adopted very freely, the Government can obtain some future relief from liability at the expense of a present sacrifice ; ar.d, provided the plan is not carried so far as to interfere with the onward progress of the country through an overload of taxation, an issue of termin able annuities is always more prudent than an issue of perpetual stock. Supposing that A. transfers to the Commissioners ,P1000 of 21 per cent. stock which would yield a perpetual dividend to him of 1)27, 10s. per annum, the Commissioners will grant him an annuity of spy S50 a year for twenty years, and having received the stock will forthwith cancel it. The result of the transaction is that the funded debt is reduced by 11000, and the per petual payment of .€27, 10s. per annum as interest thereon is avoided ; but for the next twenty years the Government incurs an annual liability of 1'50.
This is really an advantage to the Government, and by no means an advan tage to averpt„,ae private individuals. Consequently the latter make no very considerable demand for these annuities, and the State must dispose of them elsewhere. And so the many Government departments that hold Govern ment stock, such as the Post-Office Savings Bank and the Chancery Division of the High Court, are practically compelled from time to time to exchange their stock for annuities, the stock then being cancelled [note (b) in above account]. And not only are they bound to do this, but when in times of financial difficulty the State's supply of money is restricted, they are required to temporarily accept interest on the capital value of their annuity holdings instead of the higher gross annuity instalments. Thus the Government not only makes a market for its annuities, but can make a provision for relief from some part of its outgoings which would be impossible if all the annui * This Annuity does not represent a capital liability, because it is applicable to the pur Jhase and cancellation of stock, like the New Sinking Fund.
tants were private individuals. It took such a relief, in fact, in the year 1900-1, when in consequence of the large expenditure incurred in connection with the war in South Africa, the payment of so much of the terminable annuities created in 1883-84, and 1899-1900, as representing payment of capital (.C4,540,771), was suspended ; and in the next year, because of the continuance of the war, the corresponding payment was also suspended. The system of terminable annuities is not by any means an ideal one. Thus, to be consistent, the Govermnent should never suspend its payments, but should create a sinking fund of an obligatory nature, and so be forced from time to time into the irrational position of borrowing money to pay off debts. Again, it works an injustice upon any income-tax payer 1% ho holds these annuities, for circmnstances then make him pay a tax upon his property as well as upon his income. Other objections to the system could be raised, but here it will be sufficient to remark, that an unreasonable exten sion of the system may easily become both a public and private injustice and inconvenience.
This portion of the National Debt, the " Floating Debt," comprises the liabilities incurred by the State on the security of TREASLTRY BILLS (q.v.). It represents, in fact, loans the Government has been obliged to raise for temporary accommodation, bills being given therefor payable at various short dates. In 1911, the figure was .E40,500,000. When these bills mature, the principal sum they represent must of course be paid off. EXCHEQUER BONDS are, also issued for the purpose of obtaining temporary financial assistance, and advances are also obtained from the Bank of England. 1Var Stock and War Bonds are also issued in the same manner. In the year 1901, in consequence of the large expenditure incurred in connection with the war in South Africa, so large a sum as szt,000,000 Exchequer Bonds were issued in addition to R5,000,000 Treasury Bills, the object being to obtain financial accommodation until a permanent loan could be issued. When such a loan has been raised, then the temporary loan is wiped out. In the usual course of thing,s, Treasury Bills and Exchequer Bonds are paid off' out of the revenue of the State, but when in consequence of extraordinary circumstances the Unfunded Debt assumes abnormally large proportions, the repayment can ultimately only be effected with money raised upon the security of the Funded Debt. Exchequer Bonds and Treasury Bills are also paid off with the Sinking Fund monies. This was done for example in the year 1897, when £325,000 Exchequer Bonds and £1,517,200 Treasury Bills were paid off.