Buck stops here as Britain finally clears wartime debts to the US

UNCLE Sam is satisfied, for Britain has finally paid its due.

About 45.5 million was yesterday transferred from the Bank of England into an account at the US Treasury, the final payment on a multi-billion pound debt racked up during and after the Second World War.

Over a period of 56 years, Britain has repaid more than 3.5 billion to the United States, its closest ally.

The US provided warships and munitions as well as vital loans and crucial lines of credit, which allowed the country to rebuild its shattered economy during the post-war years.

According to figures released by the Treasury, Britain borrowed a total of $4.3 billion from the US and will have repaid a total of $7.1 billion at an interest rate of 2 per cent per year.

The annual payments, which have been made every New Year's Eve since 1950, except on six occasions when the nation was in financial strife, are the equivalent of each of Britain's 29 million taxpayers contributing 1.55 each.

A taxpayer working from the age of 18 to 65 during the post-war years will have contributed 72.85 to clearing the nation's war debt.

The debt was run up in two ways. When Britain stood alone in Europe against Nazi Germany, the prime minister, Winston Churchill, famously said to the US: "Give us the tools and we will finish the job." In public it was a bold statement of defiance, while in private, Churchill knew the only hope of victory was with US involvement.

The US was reluctant to enter the conflict, but agreed to the Lend-Lease agreement, in which it provided Britain with ships and munitions, often not in the best of condition, and asked only that Britain pay one-tenth of the production costs of the equipment, with money lent by the US.

Although the relationship changed when the US entered the war in December 1941, at its conclusion, it was agreed Britain would repay $586 million, the equivalent of 145 million at the 1945 exchange rate.

After the war, Britain was a financial ruin and the US also lent the government $3.75 billion. Repayments were agreed at a rate of 2 per cent in 50 instalments from 1950, but Britain was allowed to defer payment for a year depending on financial circumstances.

However, JM Keynes, the British economist, at the time believed the US was behaving badly. He said it should write off the money as a gift or at least make the loan interest-free.

Anne Moffat, the MP for East Lothian, who asked a parliamentary question about the loan after being pressed on the subject by an interested constituent, said she was surprised Britain was still paying the US 60 years after the end of the Second World War.

She said: "It seems to be a dark, well-kept secret."

There are those, however, who believe Britain got a good deal and was correct to continue to make payments over the decades instead of paying the loan off. Dr Tim Leunig, lecturer in economic history at the London School of Economics, said Britain would have been "a nutter" to pay the loan off early.

He said: "The Americans gave us an excellent deal in two senses. First of all 2 per cent has always been a very low rate of interest. Second, to lend to someone in wartime is very risky. We might have lost, then the US would have lost the lot. If we had applied to Barclaycard they would have rejected us as a bad risk. It was a genuinely good deal."

The final instalment - of 11.6 million - was also paid yesterday towards 600 million borrowed from Canada.

Last night, a Treasury spokesman said: "Britain always repays her debts."