Small Change: Charity & the National Debt

Barbara Rich
22 min readJun 3, 2018

On Monday 9 January 1928 an anonymous wealthy founder and his (or less probably, her) appointed trustee, the merchant bank Baring Brothers, signed documents to create a trust called The National Fund. The Fund was constituted by the anonymous founder’s gift of £500,000 (probably equivalent to £28.63m [1] now) made up of £338,909 cash and £160,969 in investments, and was intended to be kept invested until it was large enough to pay off the National Debt — i.e. the total quantity of money borrowed by the government of the UK through various means. In January 1928 the National Debt stood at £7.52bn[2], having sharply risen tenfold[3] between the beginning of the First World War in 1914 and its end in 1918. The gift of £500,000, although a large sum of money for the day, therefore represented a mere 0.0066%[4] of the debt.

Ninety years later, the National Fund, now a registered charity, has increased in value to £475m, whilst the National Debt currently stands at £1,783.5bn[5]. The National Fund represents 0.025% of this, an increased percentage since 1928, but still trivial in comparison to the scale of the National Debt in its entirety. With no apparently foreseeable possibility of growth sufficient to pay off the National Debt, the Fund is in “legal limbo”, accumulating income and capital value, but spending nothing other than on its own administration.

On 22 May 2018, the Attorney General, who represents the public interest in the due administration of charity, filed a claim in the High Court, seeking a decision as to what is to be done with the fund in order to bring this legal limbo to an end. The public statement of the same day from the Attorney General’s office makes it clear that he will argue that the National Fund should be contributed towards paying down the National Debt, as this is “in keeping with the fund’s fundamental intention”.

This is an interesting legal and public affairs story, and the articles about it which have appeared in the media, some of which have attempted to give the story a political edge, do not give a complete picture of the past and possible future of the Fund, a gap which I attempt to fill in this post.

Foundation of the National Fund

The Charity Commission’s public records include an extract from the founding trust deed of 9 January 1928. It directed the trustees to invest the Fund and to accumulate and invest all the income and profit of the original investments and ultimately to pay everything to the National Debt Commissioners, to be applied by them in reduction of the National Debt. The specific words which define when this payment was to take place are:

The date of application shall be the date fixed as such by the trustees as being the date upon and after which effect can be given to the desire of the founder of this trust that the National Fund shall be retained and accumulated until either alone or with other funds then presently available for the purpose it is sufficient to discharge the national debt provided that if in the opinion of the trustees at any time or times national exigencies shall require and the trustees shall determine that some part of the National Fund shall be forthwith applied in reduction of the national debt the trustees shall have power to give effect to that determination by transferring and paying that part to the National Debt Commissioners to be so applied by them provided further that it shall be the duty of the trustees to keep in hand until the date of application a substantial part of the National Fund to the intent that effect shall ultimately be given to the desire of the founder of this, as herein expressed.”

In other words, national emergency apart, the Fund is to be preserved intact for as long as possible until it is sufficient to discharge the National Debt — an aspiration of some optimism at the date of the Fund’s constitution, and which would have required either (1) extraordinary investment performance and/or (2) dramatic reduction of the level of the National Debt and/or (3) substantial additional contributions to the Fund in order to have any hope of fulfilment.

In order to enlarge the possibility of such investment performance, the trustees of the National Fund were allowed to invest in investments of any nature, and not limited to those which were permissible investments for trustees[6]. They were also permitted “to use it in any trade, business or adventure, or in any way in which moneys are for the time being commonly applied by financiers in the City of London”- wording which suggests the founder may have been familiar with such activities. As authorised trustee investments at the time were largely limited to various forms of government-backed debt, restricting the trustees’ investment powers would very likely have added to the improbability of the Fund ever reaching its objective. On 6 June 1939, shortly before the start of the Second World War, Labour MP Frederick Bellenger questioned the then Chancellor of the Exchequer, Sir John Simon, in the House of Commons on “whether it was in the national interest to permit the National Fund to remain in the absolute control of a private banking institution” and was told that this was an express condition on which the then government had accepted the anonymous founder’s gift.

The trustees also had the power to accept further gifts to the National Fund on similar conditions to those set out in its trust deed, and did so, to a book value of £544,000, almost exactly as large again as the original fund. Not all of these gifts were anonymous: the Times and other newspapers carried a story (£) on 28 May 2018 identifying some of the known donors, including Scottish shipping magnate Sir Alexander Park Lyle, who contributed £10,000 in 1929, and identifying a strand of Scottish Presbyterianism among the named donors.

Some donors to the National Fund illustrated in the Times article of 28 May 2018

There is something strikingly self-effacing about the idea of the National Fund and its creation. An anonymous donor, a trust with a purely functional and impersonal name, and an invisible and intangible object unlikely to be fulfilled in the donor’s lifetime all combine to delineate a conspicuous “absence of vanity” project, although the project itself is grandiose. This personal invisibility contrasts with some would-be charities intended only “to gratify the vanity of testators who have no claim to be immortalised”, such as those I discussed here, or, echoing the Scottish provenance of a number of the National Fund donors, that of the McCaigs of Oban. A Miss McCaig, the last survivor of nine siblings, died in 1913, directing her executors to convert the McCaig Tower, a sort of amphitheatre which had been built by her late brother on a prominent outcrop of rock in Oban, into a private enclosure, containing bronze statues of herself and her parents and brothers and sisters “with suitable inscriptions” arranged in a circle on a balustrade. In 1915, the Court of Session in Scotland refused to accept that this gift from motives of personal and family vanity would be valid. In sparing the citizens of Oban from this distinctive addition to the landscape, Lord Salvesen drily commented:

“The prospect of Scotland being dotted with monuments to obscure persons who happened to have amassed a sufficiency of means, and cumbered with trusts for the purpose of maintaining these monuments in all time coming, appears to me to be little less than appalling”

As indeed it would — his words conjuring up a disturbing image of a sort of tartan version of North Korea.

In the absence of knowledge, there can only be speculation about the identity of the founder of the National Fund, and about how the wealth that he or she gave away had been acquired, and what motivated the gift. In 1919, Stanley Baldwin, then Financial Secretary to the Treasury, and later Prime Minister, had written to the Times, anonymous apart from the acronym FST, but later revealed in 1923 by Conservative Central Office as the author of the letter, to declare that he had decided to release £120,000, which he calculated to be a fifth of his personal fortune, “and present it to the Government”, suggesting that other members of the “wealthy classes” should do likewise, thus exemplifying a revival of the victorious wartime spirit of “unity and fellowship” and placing “love of country before love of money”.

Perhaps the founder of the National Fund had, like Baldwin and his family of Worcestershire ironmasters, profited from business during the First World War. Perhaps, like countless other families, sons of the founder’s next generation who might otherwise have inherited had died in the war, either in known circumstances or among the hundreds of thousands of those missing in battle and unidentifiable from their remains. The Times story of 28 May 2018 reported that many small donations were made by former soldiers or bereaved families, and quoted social commentator Peter York saying:

“Giving money to help the nation is wonderful but it’s like dying on the Somme. It’s very difficult to imagine now”

The Tomb of the Unknown Warrior in Westminster Abbey with the wreaths laid on it in 1920

Perhaps the anonymity of the founder of the National Fund was also in keeping with part of the mood of the time? The symbolic but anonymous figure of the Unknown Warrior, an unidentified casualty taken from a battlefield in France, was buried with full military honours in Westminster Abbey in 1920, and a sense of national debt for the sacrifice of life during the First World War was prominent in public consciousness in the decade following the 1918 Armistice. At about the same time as the National Fund was created, in January 1928, Sir Edwin Lutyens’ design for the Thiepval memorial to the missing soldiers of the Battle of the Somme, one of the largest of many public memorials in cities and on former battlefields that had been created in the years since the war ended, was submitted to the authorities in France and construction began later that year.

Sketch from Lutyens’ plan for the Thiepval Memorial to the Missing of the Somme 1928

The National Debt and the National Debt Commissioners

Although the founder’s motive for anonymity is speculative, the First World War and its consequences, including the tenfold expansion in the size of the National Debt, influenced both the management of the debt by politicians and officials of the Treasury and Bank of England, and public perception of it. The National Fund was created towards the end of what has been described as “one of the most difficult periods” (1900–1932) in the long history of the National Debt, and a period in which the fiscal and monetary strains of the war were pivotal.

“After the war, the increased Debt had to be serviced from an economy undergoing severe structural strains as it struggled to adapt its production to changed markets. An expanded electorate, with new expectations, looked for increased government spending when there was little buoyancy in tax revenues. The legitimacy of the newly incurred Debt and the distribution of the servicing cost came into question, stretching the nation’s willingness to pay for its service almost to breaking point.”[7]

Promotion of the post-war Victory Loans, which raised £475.9m for the Treasury in Trafalgar Square in 1919

In his book on the management of the UK National Debt between 1900 and 19232 Jeremy Wormell describes its size and structure since the Armistice as “above all, a political question”. In peacetime between 1815 and 1914, government finances had been run on the basis of aspiration to debt repayment, even if it involved raising taxes, as being integral to the country’s credit internationally, and “as in so much, immediately after the Armistice the yearning for pre-war conditions was powerful.” In the post-war decade however, the debt remained unreduced in size, although diminishing as a percentage of GDP, in spite of various political gestures towards reduction, and with a marked difference between the published and actual volume of repayment. One unrealised but widely-debated proposal of the early 1920s was for a one-off levy on capital to repay or reduce the National Debt, one of the arguments in favour of it being “the moral advantage of being paid mainly by those who were too old to have fought, thus going some way towards equalising the cost of the war in its widest sense.”

The National Debt Commissioners

In 1786 Parliament had passed the National Debt Reduction Act, described as “an Act for vesting certain Sums in Commissioners at the end of every Quarter of a Year, to be by them applied to the Reduction of the National Debt”, and under which Commissioners were appointed ex officio. The concept behind this legislation was the maintenance and management of a sinking fund which would enable the effective reduction and eventual eradication of the National Debt.

James Gillray’s cartoon of 21 April 1786 showing King George III and Queen Charlotte being handed moneybags from a wheelbarrow by Prime Minister William Pitt

The statutory functions of their modern successors as Commissioners for the Reduction of the National Debt are now carried out within the UK Debt Management Office, although little remains of their original function of debt reduction as there are no longer any subsisting sinking funds for repayment. Their history and current role, which includes the administration of gifts made by the public, are described on the website of the UK Debt Management Office.

The trustee of the National Fund provides regular reports to the Debt Management Office, as the terms of the trust are that the fund should eventually be paid to the National Debt Commissioners.

Other contributions towards repayment of the National Debt

The National Fund may be the most substantial and continuing fund dedicated towards repayment of the National Debt, but it is not unique. The questions in the House of Commons from Labour MP Frederick Bellenger to Sir John Simon on 6 June 1939 referred to “two other funds of this nature”, but without any details of their size or duration. They may have been Lord Inchcape’s 1928 Elsie Mackay fund and Lord Dalziel’s 1936 will trust of £400,000, both referred to in the Times article of 28 May 2018.

In addition to the donors who made gifts to the National Fund, there have been other free-standing gifts and trusts for the same purpose.

The National Debt Commissioners are responsible for administration of gifts made by people in their lifetime and in their wills for the specific purpose of reducing the National Debt. As explained on the website of the Debt Management Office, these gifts are processed through the Donations and Bequests Account, maintained at the Bank of England since its creation under s8 of the National Debt Act 1823, and their cash proceeds used to purchase and periodically cancel existing gilt-edged stock from the market, thus reducing the amount of debt outstanding accordingly. UK Government bonds received as a gift to the nation are cancelled in the corresponding amount. Any gilt may legally be bought for subsequent cancellation, but the present policy is to apply sums for debt reduction to the purchase of the highest-yielding gilt on a relative value basis.

The most recent published report of the Donations and Bequests Fund shows that during 2016–7 the account received £180,393 of gifts from the public, but the figures fluctuate greatly from year to year.

In the summer of 2013, many newspapers reported on the story of a Miss Joan Edwards, a retired nurse and midwife from Bristol who had died in September 2012 at the age of 90, leaving an estate of £520,000 and a will containing a gift to

“whichever government is in office at the date of my death for the government in their absolute discretion to use as they may think fit”

The solicitors who she had appointed as her executors in fact paid the money in 80/20% shares to the two political parties (Conservatives and Liberal Democrats) then forming the coalition government in office. The solicitors, who had also been responsible for drafting the will, claimed that this had been her intention when the will was drafted (although without explaining why, in that event, they had not drafted the will to reflect that intention in the first place, or taken any steps to have it rectified so as to do so). When the story of the gift having been made to the two political parties emerged, with resulting criticism of them for having accepted it, they agreed that the funds should be paid to the Treasury and applied to the reduction of the National Debt. It is, of course, perfectly possible to make a gift to a political party — even, in ideologically incoherent fashion, to the Communist Party[8], but it is not the same thing as making a gift to the government, as this story illustrates.

Part of the Daily Mail’s coverage of the story of Miss Joan Edwards’ gift to the government in her will

Correspondents to the Financial Times following its coverage both of Miss Edwards’ will and of the discussions about the future of the National Fund then taking place between its trustee, the Charity Commission and the Attorney General provided the further background information that patriotic gifts did not originate in the aftermath of the First World War, but had their roots in the “don patriotique” — voluntary donations made by tax collectors or “farmers”, who were subsequently guillotined in the French Revolution, and that in England during the Napoleonic Wars patriotic gifts raised more than the newly introduced income tax.

The National Fund now

The recent accounts of the National Fund are published on the Charity Commission’s website. They illustrate both the size and the current inutility of the fund. In accordance with its trust deed, all of its income is accumulated, and it incurs expenditure only on investment management and trusteeship, as the occasion for payment has not yet arisen.

Extract from the National Fund’s published accounts for y/e 5 April 2017
Analysis of administration costs for the National Fund from its published accounts for y/e 5 April 2017
Value of the National Fund over time since 1997 in £m

In the most recent annual report the trustee says, in relation to the element of public benefit which is a legal requirement for charities

“The National Fund continues to provide significant benefit to the public of the United Kingdom, by forming a financial resource which would be able to reduce the National Debt in the event of a financial crisis urgently requiring such a reduction; and which may in future be sufficient, either on its own or combined with other assets held for the same purpose, to discharge the National Debt in its entirety”

The report also refers to the future of the fund and says:

“The Trustee is in dialogue with the Charity Commission and the Office of the Attorney General regarding the Future of the National Fund. At this stage it is felt that the most likely outcome will be that the Fund will be liquidated and payment made to the National Debt Commissioners although the timeframe for this is not known. If this occurs then the Fund will be de-registered as a charity and will cease to exist.”

This repeats similar wording in previous years’ annual reports. In August 2013, following the news stories about Joan Edwards’ will, the Financial Times (£) reported on the National Fund and quoted the then trustee, Barclays, saying:

“We’ve been working ever since we became the trustee to change the original objects, which say the funds can be used only to pay off the entire national debt. We are working with the Charity Commission and the Attorney-General’s Office to look at how best to take the fund forward”

Both this newspaper story and one which appeared in the Guardian on 22 May 2018 attributed to the trustee a positive aspiration for permission to use the Fund to make charitable grants, but if this ever was the trustee’s position, it is not its current position.

David Ainsworth, editor of Civil Society News, has also been active in bringing the story of the National Fund to light, and in promoting steps for some active use to be made of the fund, for example as a grant-making body to smaller charities.

The discussions between the trustee, the Charity Commissioners and the Attorney General have now led to the Attorney General’s application to the High Court.

The Attorney General’s application to the High Court

Part 8 claim form issued on 22 May 2018 seeking determination of questions relating to the National Fund

The Attorney General’s office has kindly sent me a copy of the claim form issued in the High Court on 22 May 2018 (above).

As it shows, the Attorney General is the claimant in the application to the High Court, and Zedra Fiduciary Services (UK) Ltd (the new name of Barclays Fiduciary Services), which is the corporate trustee of the National Fund is the defendant. Part 8 claims such as this claim differ from part 7 claims (the form of claim that used to be known as a writ), and are used when there is no dispute of fact but only a legal question to be resolved by the court. Although part 8 claims can have an element of opposition between parties for whom the outcome will make a personal difference, this particular claim is not of this type. The point of the claim is to seek an authoritative answer from the High Court to the questions formulated in the part 8 claim form. These questions are a framework to explore what can and should be done with the National Fund, and to raise all possible legal arguments before the court makes its decision. The questions in the claim form ask the High Court to consider the exercise both of its and the Charity Commissioners’ powers to change the objects or purpose of a charitable fund, and/or, less radically, to make managerial alterations to the administration of the fund. The claim form also refers to the Court’s power under s73(1)(a)(ii) of the Charities Act 2011, to make any provision for a scheme which might go beyond the powers the Charity Commission would otherwise have. The defendant, the trustee of the National Fund, has no ownership interest in the Fund, and is only concerned to comply with its duties as a trustee.

The Attorney General, Jeremy Wright QC MP appeared on BBC Radio 4’s Law in Action programme on 5 June 2018, and in answer to questions from the programme’s presenter, Joshua Rozenberg, said:

“I hope … that this money can be dispensed in a way that’s as close as possible to the intentions of the original donors. We know that we can’t use that money to pay off the National Debt in its entirety . . . but we can, I think, get close to the intentions of the original donors and that’s not just my view that this is the desirable way forward, it’s also the view of the trustees of the Fund and indeed of the Charity Commission as well.

The evidence that we will put before the Court demonstrates that this Fund will never pay off the National Debt . . . but we can, I think, meet the broader objectives of the Fund, which were to pay down the National Debt, so that’s the application that we make.

There are those who would say “let’s find another way of dealing with this money that would benefit all sorts of other people”, but I think it is important, and I say this in my role as guarantor of the interests of charity more broadly, that when people give money for a particular purpose, that they feel as though that purpose will be honoured, that we will not be seeking to spend the money in a way that they hadn’t envisaged and didn’t set out as their intention.”

Changing a charity’s objects cy-pres

As a charity, the National Fund has no perpetuity period or expiry date, unlike a non-charitable trust. This raises the possibility of a charity fund becoming obsolete or, as here, its purposes arguably becoming incapable of fulfilment. These circumstances are dealt with by the law of cy-pres, a Norman French word which is part of a phrase meaning “as close as possible”, and which provides a way of giving charitable trusts continuing relevance and useful purpose in a changing world. Trustees of a charity have a duty under s61 of the Charities Act 2011 to secure the effective use of property for charity by taking steps to enable it to be applied cy-pres where the case permits and requires this. The occasions where this might be required are currently defined by statute: section 62 of the Charities Act 2011.

What the High Court might decide

Under s62 of the Charities Act, the High Court will have to consider first whether a cy-pres occasion has arisen. The National Debt still subsists, and the National Fund is still growing. But is it the case that the original purpose of paying off the National Debt cannot be carried out, or not according to the directions given and to the spirit of the gift? (s62(1)(a)(ii) of the Charities Act 2011). Or that the original purpose of paying off the entire National Debt has ceased to provide a suitable and effective method of using the property available by virtue of the gift, regard being had to the appropriate considerations? (s62(1)(e)(iii) and s62(2) of the Charities Act 2011). The “appropriate considerations” are (a) the spirit of the gift and (b) the social and economic circumstances prevailing now.

Both of these threshold occasions for applying property cy-pres — the second much wider than the first — seem relevant here. It must be unlikely that anyone would dispute that perpetual sterility with a continuing burden of administration costs is not a desirable future for a very large charitable fund. And even if it were possible to pay off the National Debt in its entirety at once, would this be desirable? The economic consequences, including the instant redemption of all government stock, would be severely disruptive.

This leads to the second question: how should the National Fund be applied cy-pres, or its managerial directions changed?

Although the language and concept of cy-pres means finding a substitute purpose which is as close as possible to the one that has failed, there is scope for latitude in this exercise. Here, the purpose which is, at first glance, obviously as close as possible to the original purpose of the National Fund is its payment as a contribution, however insignificant in scale, to the National Debt. It is clear from his published statement, that this is the position for which the Attorney General will argue. But it is clear from the founder’s deed of trust that he did not wish the Fund to be used to make trivial contributions to paying off the National Debt. There may be scope for argument that applying the National Fund to charitable purposes which meet needs that would otherwise be funded by the state, or which do so at present out of funds provided by the state, would be a proper cy-pres application of the fund. Or perhaps a gift to charities which have some connection to the legacy of the First World War — those which help ex-servicemen, or maintain graves and memorials, might be the right answer. There is also the possibility that question 3 on the claim form will permit a scheme for payment of the National Fund in reduction of the National Debt even if the court has found that no cy-pres occasion has arisen.

One journalist described the application to court as “the government … trying to take control of [the National Fund]” but this is not a fair description. The Attorney General is representing the public interest in charity, rather than the government of which he is part, and seeking a legally orthodox answer to a legal question. Shadow minister for civil society Steve Reed, who has taken an interest in the issue at the prompting of Civil Society News, was quoted in the Guardian on 22 May 2018 as saying

“This £475m would be a tidal wave of support for small charities, but it’s a drop in the ocean compared to the national debt. In fact, the national debt is rising so fast that by the end of the same day this payment is made towards it, the debt will have risen by nearly the same amount. This government never misses a chance to sideline charities. Here’s a real chance to do some real good but the government is threatening to do nothing instead.”

This comment acutely describes the problem of scale which besets any decision about the future of the National Fund, but completely obviates the importance of the wishes of the anonymous donor who created it in the first place. And adds political “spin” to what is fundamentally a non-political legal issue, although it is impossible to avoid politics in discussing the National Debt. But he is not the first Labour MP to have questioned the public interest in the National Fund as it is constituted: on 6 June 1939 Frederick Bellenger MP asked Sir John Simon whether he thought:

“that the accumulation of tremendous funds of this sort until they reach the magnitude of the National Debt must be against the public interest?”

Sir John Simon replied, when pressed with the public interest question:

“It does not seem to me that any question of the public interest arises. I can conceive that in some distant future the issue might arise, but this is not a very ancient fund, and I do not think we should be justified in disregarding [the condition for investment by private trustees].”

That “distant future” has now arrived. The problem of scale makes it easy to see why a proposal to use the National Fund to benefit small charities might appear more attractive than contributing what is no more than “small change” to the National Debt. But cy-pres itself is a law of “small change” in a different sense, because it requires adherence as closely as possible to the intention of the original donor.

It remains to be seen how large or small a change the “small change” of the National Fund will make.

I originally posted this commentary on 3 June 2018, and updated it on 5 June to add the Attorney General’s comments broadcast on Joshua Rozenberg’s BBC Radio 4 programme Law in Action on 5 June 2018. My commentary is based entirely on material in the public domain and I have no current or previous professional involvement in the application to the High Court.

I will post further commentary once the hearing has taken place and judgment has been published.

[1] Simple purchasing power value given by this calculator

[2] As measured here

[3] This and other background reference material from The Management of the National Debt of the United Kingdom 1900–1932 — Jeremy Wormell (Routledge Explorations in Economic History) (2000), and Martin Slater: The National Debt — A Short History (2018)

[4] The Attorney General’s announcement says the fraction has never risen over 0.066%

[5] As measured here

[6] The permitted investments at the date of creation of the National Fund were set out in s1 (now repealed) of the Trustee Act 1925, and largely consisted of various forms of national debt, such as the parliamentary stocks or public funds or government securities of the United Kingdom, or colonial government or municipal/utilities undertakings debt

[7] Jeremy Wormell: The Management of the National Debt of the United Kingdom 1900–1932

[8] In Bacon v. Pianta (1966) 114 CLR 634, a man left the whole of his estate “to the Communist Party of Australia for its sole use and benefit.” The gift failed, for technical not ideological reasons.



Barbara Rich

English barrister & mediator — specialising in disputed succession & decision-making for people who lack mental capacity