War effort: The public were encouraged to invest

Britain will repay a £218million chunk of debt that helped fund causes including the Napoleonic War, cleaning up the South Sea Bubble and the First World War, as National War Bonds, the Treasury announced today.

Chancellor George Osborne said the government would redeem the debt from 4 per cent Consols, first issued in 1927 by Winston Churchill, partly to refinance Great War debt.

They are a form of perpetual bond, where there is no date of redemption for the original sum put in and investors just receive interest.

The payment, due in February, will be the first repayment of an undated gilt in 67 years.

The move comes less than two weeks before Remembrance Day and during the year that marks the centenary of the outbreak of the First World War.

The Government is taking advantage of low interest rates to pay back the debt, as it can refinance it at a lower rate.

British ten-year gilts currently yield 2.23 per cent.

National War Bonds were issued in 1917 as part of efforts by the government to fund the ongoing cost of the First World War.

They initially paid 5 per cent interest, before being cut to 3.5 per cent in the 1930s after the Great Depression.

Interest is earned tax-free but over the years any initial investments will have been heavily eroded by inflation.

The war bonds and assorted other debts were refinanced into 4 per cent Consolidated Loans by Winston Churchill in 1927.

This also covered debt on the capital stock of the infamous collapsed South Sea Company originating in 1711, and bonds issued in 1752 used to finance the Napoleonic and Crimean Wars, the Slavery Abolition Act in 1835 and the Irish Distress Loan in 1847.

The Debt Management Office estimates that the nation has paid £1.26billion in total interest on these bonds since 1927, but there is still around £2billion of First World War debt remaining.

This is one of eight undated government bonds currently outstanding.

The Treasury says there are currently 11,200 registered holders of the bond.Mr Osborne said the debt can be refinanced to lower rates which will deliver more value for money for the taxpayer.

The move follows calls from experts such as Threadneedle in recent weeks to use the low interest rate environment to refinance these loans.

Toby Nangle, head of multi-asset for Threadneedle, previously said: 'Having perpetual debt outstanding is about as about as cool as it gets for a bond issuer.

'But it would be facetious to imagine that the Debt Management Office would value the arcane international bragging rights that come with having a perpetual outstanding over a debt reduction and associated interest savings that could be achieved for HM Treasury.'

Responding to the news today, he said: 'This is a great example of pragmatic and attentive debt management on the part of the UK government. I hope that this move is the first of many to cut the interest bill and save taxpayers money.'

Mike Riddell, a bond fund manager for M&G, questioned the timing: ‘Effectively this is such a tiny bond that it won’t make much difference to the deficit.

‘This bond’s price was around the same level in 2012 but they chose not redeem and made the markets think they would not ever buy the bonds back. It could be because of the upcoming General Election or just because it is 100 years since the war

‘The big implication is that there are other bigger perpetual gilts outstanding, if they refinanced the others it will start making a bit more difference.’