The government employed a range of borrowing structures in the course of the war to fund its constant need for money. One of the most important was the series of war loans issued in November 1914, June 1915 and January 1917.
Each investor in war loans was effectively lending money to the government. The loans were for fixed periods, during which interest was paid. Government stock was the securest type of investment, assuming Britain would eventually win the war, and the interest rates were favourable, ranging from 3.5% up to 5%, compared to a normal pre-war rate of 3.25% on government stock. In practice, such profits were more than wiped out by rampant wartime inflation, but nevertheless, war loans were a relatively attractive investment. The government also sought to give the loans a strong patriotic appeal, making investing a national duty as well as a financial opportunity.
For the loans to succeed they had to secure a broad subscriber base, both geographically and across different sectors of the economy. It was here that the commercial banks undertook a vital role. The government recognised the banks' unique position in having connections with millions of potential investors all over Britain, and called upon them to use their influence to encourage the sale of loan stock.
After a slow start in 1914, the banks undertook their task with gusto in 1915 and 1917, filling their banking halls with advertising posters, calendars, counter blotters and leaflets. Even more influentially, they wrote and spoke directly to customers, adding a personal dimension to the national marketing campaign. They also - along with post offices and savings associations - took responsibility for processing the many thousands of subscriptions, and themselves bought very large quantities of the stock.
Each successive loan offered more generous terms. Investors could roll their existing stock over onto the newer, better terms, which meant that a decreasing proportion of subscriptions to later loans was actually new money.
By the end of the war the vast majority of outstanding loan stock was from the largest of the war loans, issued in 1917. The government continued to pay interest on this loan until 1932, during the Great Depression. At this time the economy and government finances were under extreme stress and the 5% interest payments were a heavy burden on the national budget. The government decided to resolve the situation. It offered to repay the loan at par, but strongly encouraged stockholders instead to convert their holdings into a new 3.5% loan with no fixed maturity date. Although some people opted for the former, more than £1.9bn was rolled into the new loan, which remained outstanding until it was repaid in March 2015.