Anglo-American loan

Anglo-American loan

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The Anglo-American Loan Agreement was a post World War II loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....

 made to the United Kingdom by the United States on 15 July 1946, and paid off 29 December 2006. The loan was negotiated by John Maynard Keynes
John Maynard Keynes
John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...

 on behalf of the United Kingdom from the United States and Canada at the end of World War II.


The loan was made primarily to support British overseas expenditure in the immediate post-war years and to implement the Labour government's welfare reforms. British treasury officials initially believed they could implement the Labour government's domestic reforms without the loan if Britain withdrew from all major overseas commitments. but in reality had to channel vast sums to bolster social experiments such as the welfare state
Welfare state
A welfare state is a "concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens. It is based on the principles of equality of opportunity, equitable distribution of wealth, and public responsibility for those...

 and the National Health Service
National Health Service (England)
The National Health Service or NHS is the publicly funded healthcare system in England. It is both the largest and oldest single-payer healthcare system in the world. It is able to function in the way that it does because it is primarily funded through the general taxation system, similar to how...

 (NHS). Britain's lend-lease balance was written off for $650 million (US$ million in ).

At the start of the war, Britain had spent the money that they did have in normal payments for materiel
Materiel is a term used in English to refer to the equipment and supplies in military and commercial supply chain management....

 under the "US cash-and-carry
Cash and carry (World War II)
Cash and carry was a policy requested by U.S. President Franklin Delano Roosevelt at a special session of the United States Congress on September 21, 1939, as World War II was spreading throughout Europe. It replaced the Neutrality Acts of 1936...

" scheme. Territory was also traded for equipment eg. the Destroyers for Bases Agreement
Destroyers for Bases Agreement
The Destroyers for Bases Agreement between the United States and the United Kingdom, September 2, 1940, transferred fifty mothballed destroyers from the United States Navy in exchange for land rights on British possessions...

, but by 1941 Britain was in a terrible financial state and Lend-Lease
Lend-Lease was the program under which the United States of America supplied the United Kingdom, the Soviet Union, China, Free France, and other Allied nations with materiel between 1941 and 1945. It was signed into law on March 11, 1941, a year and a half after the outbreak of war in Europe in...

 was introduced.

Large quantities of goods were in Britain or in transit when Washington suddenly and unexpectedly terminated Lend-Lease on 29 August 1945. The British economy had been heavily geared towards war production (around 55% GDP) and had drastically reduced its exports. The UK therefore relied on Lend-Lease imports to obtain essential consumer commodities such as food while it could no longer afford to pay for these items using export profits. The end of lend-lease thus came as a great economic shock. Britain needed to retain some of this equipment in the immediate post war period. As a result the Anglo-American loan came about. Lend-lease items retained were sold to Britain at the knockdown price of about 10 cents on the dollar giving an initial value of £1,075 million.


John Maynard Keynes
John Maynard Keynes
John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...

 was sent by the United Kingdom to the United States and Canada to obtain more funds. British politicians expected that in view of the United Kingdom's contribution to the war effort, especially for the lives lost before the United States entered the fight in 1941, America would offer favorable terms. Instead of a grant or a gift, however, Keynes was offered a loan on favourable terms.

Historian Alan Sked
Alan Sked
Alan Sked is Professor of International History at the London School of Economics . He studied History at Glasgow, then Merton College, Oxford. His doctoral supervisor at Oxford was A. J. P. Taylor, who was a major influence on Sked. In particular, Sked's writings on the Habsburg Monarchy owe much...

 has commented that, "the U.S. didn't seem to realize that Britain was bankrupt", and that the loan was "denounced in the House of Lords, but in the end the country had no choice." America offered $US 4.33bn (US$ billion in ) and Canada contributed another US$1.19 bn (US$ billion in ), both at the rate of 2% annual interest. With the interest instead of paying the original loan amount the United Kingdom ended up paying a total of $7.5bn (£3.8bn) to the US and US$2 bn (£1bn) to Canada.

The loan was made subject to conditions, the most damaging of which was the convertibility of sterling. Though not the intention, the effect of convertibility was to worsen British post-war economic problems. International sterling balances became convertible one year after the loan was ratified, on 15 July 1947. Within a month, nations with sterling balances had drawn almost a billion dollars from British dollar reserves, forcing the British government to suspend convertibility and to begin immediate drastic cuts in domestic and overseas expenditure. The rapid loss of dollar reserves also highlighted the weakness of sterling, which was duly devalued in 1949 from $4.02 to $2.80.

In later years, the term of 2% interest was rather less than the prevailing market interest rates, resulting in it being described as a "very advantageous loan" by members of the British government, as elaborated below.


The last payment was made on 29 December 2006 for the sum of about $83m (£45.5m), the 29th being the last working day of the year. The final payment was actually six years late, the British Government having suspended payments due in the years 1956, 1957, 1964, 1965, 1968 and 1976 because the exchange rates were seen as impractical. After this final payment Britain's Economic Secretary to the Treasury
Economic Secretary to the Treasury
The Economic Secretary to the Treasury is the fifth most senior ministerial post in the UK Treasury, after the Chancellor of the Exchequer, the Chief Secretary to the Treasury, the Paymaster-General and the Financial Secretary...

, Ed Balls
Ed Balls
Edward Michael Balls, known as Ed Balls, is a British Labour politician, who has been a Member of Parliament since 2005, currently for Morley and Outwood, and is the current Shadow Chancellor of the Exchequer....

, formally thanked the US for its wartime support.


The original size of the debt and repayment terms (including deferments) can be ascertained from the debates in the House of Commons on 28 February 2002 and House of Lords
House of Lords
The House of Lords is the upper house of the Parliament of the United Kingdom. Like the House of Commons, it meets in the Palace of Westminster....

 on 8 July 2002 as recorded in Hansard
Hansard is the name of the printed transcripts of parliamentary debates in the Westminster system of government. It is named after Thomas Curson Hansard, an early printer and publisher of these transcripts.-Origins:...


"Bob Spink
Bob Spink
Robert Michael Spink is a politician in the United Kingdom. He was elected as the Conservative Party Member of Parliament for Castle Point in Essex in 1992, lost his seat in 1997, but regained it in 2001...

: To ask the Chancellor of the Exchequer
Chancellor of the Exchequer
The Chancellor of the Exchequer is the title held by the British Cabinet minister who is responsible for all economic and financial matters. Often simply called the Chancellor, the office-holder controls HM Treasury and plays a role akin to the posts of Minister of Finance or Secretary of the...

 (1) what outstanding liabilities there are to the United Kingdom of lend-lease loan facilities arranged during the Second World War; [38441]…"

"Ruth Kelly
Ruth Kelly
Ruth Maria Kelly is a British Labour Party politician of Irish descent who was the Member of Parliament for Bolton West from 1997 until she stood down in 2010...

: The information is as follows..."

"Under the Agreement, the loans would be repaid in 50 annual instalments commencing in 1950. However the Agreement allowed deferral of annual payments of both principal and interest if necessary because of prevailing international exchange rate conditions and the level of the United Kingdom's foreign currency and gold reserves. The United Kingdom has deferred payments on six occasions. Repayment of the war loans to the United States Government should therefore be completed on 31 December 2006, subject to the United Kingdom not choosing to exercise its option to defer payment.

As at 31 March 2001, principal of £243,573,154 [$346,287,953 at the exchange rate on that day] was outstanding on the loans provided by the United States Government in 1945. The Government intends to meet its obligations under the 1945 Agreement by repaying the United States Government in full the amounts lend [sic] in 1945."

Similarly, Hansard records from a debate that took place in the House of Lords
House of Lords
The House of Lords is the upper house of the Parliament of the United Kingdom. Like the House of Commons, it meets in the Palace of Westminster....

 on 8 July 2002:

"Lord Campbell of Croy
Gordon Campbell, Baron Campbell of Croy
Gordon Thomas Calthrop Campbell, Baron Campbell of Croy, MC, PC, DL , born in Lossiemouth, Moray, and a Scottish Conservative & Unionist politician....

: My Lords, is this payment part of the lend-lease scheme under which the United States supplied munitions, vehicles and many other requirements including food and other provisions that were needed badly by us in the last part of the war?

Lord McIntosh of Haringey
Andrew McIntosh, Baron McIntosh of Haringey
Andrew Robert McIntosh, Baron McIntosh of Haringey PC was a British Labour politician and last elected Principal of the Working Men's College....

: My Lords, I referred to lend-lease in the context of the generosity of the United States throughout that period. However, the debt that we are talking about now is separate; it was negotiated in December 1945.

Lord Stoddart of Swindon
David Stoddart, Baron Stoddart of Swindon
David Leonard Stoddart, Baron Stoddart of Swindon is a British independent Labour politician .-Political career:...

: My Lords, will the noble Lord remind me as to exactly how much the loan was, and how much we have repaid since then in principal and interest?

Lord McIntosh of Haringey: My Lords, the loan originally was £1,075 million, of which £244 million is outstanding. The basis of the loan is that interest is paid at 2 per cent. Therefore, we are currently receiving a greater return on our dollar assets than we are paying in interest to pay off the loan. It is a very advantageous loan for us."

In television

Sir Christopher Meyer
Christopher Meyer
Sir Christopher John Rome Meyer, KCMG is a former British Ambassador to the United States , former Ambassador to Germany and the former chairman of the Press Complaints Commission...

 presented a history of the loan and its effects in the BBC
The British Broadcasting Corporation is a British public service broadcaster. Its headquarters is at Broadcasting House in the City of Westminster, London. It is the largest broadcaster in the world, with about 23,000 staff...

series Mortgaged to the Yanks. Meyer erroneously claimed that the loan was primarily needed to pay for the Labour government's welfare reforms.

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