National debt reduced by £600 million in Court of Appeal ruling

22nd November 2023

A Court of Appeal charity law decision has given the Treasury an unexpected windfall!

At the end of the First World War the National Debt stood at £7bn and Stanley Baldwin, later Prime Minister but then Financial Secretary to the Treasury, asked for the rich to assist in paying off the country’s accumulated war debt. Baldwin, a successful industrialist from a family of steel and iron manufacturers, anonymously donated a fifth of his family’s wealth to the cause, a total of £120,000. The donation became known when he became Prime Minister in 1923.

Another donor was Gaspard Farrer a former partner in the Barings banking business.  In 1927, he transferred £500,000 to the bank to be held in a “National Fund” with the object of the fund growing to a size when it would pay off the National Debt.  Currently the National Debt is some £2.3 trillion whilst the “National Fund” has grown to £600 million.

The object for which the Fund was established is no longer capable of achievement because of the rate at which the National Debt has grown.  The Fund is a charitable trust and as such is governed by charity law. It has been the subject of litigation to determine what should happen to the £600 million now that the original purpose is impossible to achieve.

In 2020, the High Court decided that as the charitable purpose could no longer be attained, the funds should be applied under the doctrine of cy-près.  Essentially that means that the funds should be applied for a similar purpose to that originally envisaged when the charitable fund was established.

Two competing views were put forward: one by the Fund’s Trustee and the other by the Attorney General on behalf of the government.

The Trustee wanted to spend the £600 million on general charitable purposes in the UK.  The Attorney General said that the money should go to reducing the National Debt.

In 2022, the High Court held the Attorney General’s proposal was more appropriate. The court is entitled to look at matters such as the spirit of the original gift, the desirability for charitable purposes as close to the original purposes as possible, and its suitability and effectiveness in the light of current social and economic circumstances.

The Court of Appeal was asked to review that decision and last week gave a judgment confirming the High Court ruling.  The £600 million will be used for a similar purpose to that envisaged by Mr Farrer, even if the whole of the National Debt cannot now be fully extinguished (or probably never will be!).

Your problem might not involve a £600m trust fund and an argument with the Attorney General, as Mr Farrer’s Trustee faced, but we have a breadth of expertise to support you through whatever challenges you may be facing, including, charitable law, contentious probate and litigation. We’re here to help, get in touch.

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