Role of the Population - Providing Finance for the War Flashcards
1
Q
The Bank of England and its role
A
- Founded to allow the Gov to manage its debts its accumulated during wars
- Responsible for the issuing of Govt bonds and the way that the Govt borrows money
- Br Gov no longer had to pay in cash, they could issue promissory notes (guarantee a debt would be settled) due to confidence in the Bank of England
2
Q
What were Consols issued by the Bank of England?
A
- Consolidated annuities, different from normal bonds as they had no fixed period to be repaid
- The Govt would not have to repay capital investment, for the investor this meant that every quarter they would receive an interest payment
- When the rate of inflation was low then the consol’s guaranteed a return of 2.5% or 3%
- These became highly tradable on the stock market
3
Q
Effect of consols
A
- The gov issued the first consols during the 1750’s with an interest rate of 3.5% then reduced to 2.5%
- Consols formed a very small part of gov debt they were important in times of crisis
- Used in 1855 and 1920s after WW1
4
Q
Government Bonds + Industrial Revolution Effect
A
- Gov Bonds and Bank of England allowed Br to raise a lot more money than its opposition
- Industrial revolution increased trade and middle class of industrialists began to grow and the wealthy had an appeal to govt bonds
- The guaranteed return had made it a very good investment strategy
- Allowed Br to also fund its allies, e.g 7 years war British subsidies kept the Prussian army in the girls against the French and Austrians
5
Q
Taxation during the Napoleonic War
A
- William Pit the Younger introduced indirect tax after American War of Independence
- More were introduced 1798 on inheritance, import duties and suspension of gold payments to fund Austria and Prussia
- This increased government revenue fro £12.7 million in 1783 to £18.6 million in 1792
- 1798 Income Tax at the rate of two old pence in the pounds on incomes above £60 a year
- This did not affect many as the common wages were not that high and only targeted wealthy businessmen and landowners
- Brought in £6 million for the treasury despite hoping for £10 million and many declared income below £60 to avoid tax
- Income Tax suspended in 1802 but reinstated when war broke out in 1803
6
Q
How much did Pitt bring down national debt by?
A
£243 million to £170 million
7
Q
Increase in National Debt during WW1
A
- Increased from £625 million in 1914 to £7,800 million in 1918
- Money was borrowed from British and international institutions via Govt bonds
- Direct loans were also taken from Govts, e.g the USA
- 25% of income from tax was being used to pay interest on debts
8
Q
War bonds during ww1
A
- Investment bonds bought by individuals on the idea that the Govt would pay them back with interest at the end of the war
- First was issued at 5% interest
- As low as £5 to buy war bonds to allow ordinary people to afford them
- Post Office allowed people to open War Savings Certificate Accounts, you bought war stamps for 15 shillings with the understanding that you will gain a pound back in 5 years
9
Q
Effects of War Bonds
A
- First war where the public were asked to help finance the effort
- Raised hundreds of millions showing how the British people believed in the cause and the govt repaying their money
- Reputation of London as a centre for stocks had also helped the gov sell to foreign investors
10
Q
Chancellors of Exchequer and increase of taxation during ww1
A
- Lloyd George (1914-15)
- McKenna (1915-16)
- Bonar Law (1916-17)
- All increased income tax
11
Q
Increase in Taxation during WW1
A
- Income tax 3.75% —> 30% 1918
- Business profits tax at 80% 1918
- 1.5 million people paying income tax —> 7.7 million in 1918
- Wage required £160 down to £130 to get more people
12
Q
Bank of Englands role during WW1
A
- Stopped issuing gold in exchange for bank notes and kept gold as an emergency reserve
- Issued more bank notes than it had gold to back up, making sure they could continue to function and govt could make payments
