Consol (bond)

Consol (originally short for consolidated annuities, but can now be taken to mean consolidated stock) is a form of British government bond (gilt), dating originally from the 18th century. The first consols were originally issued in 1751. Consols are one of the rare examples of an actual perpetual bonds: although they may be redeemed by the British government, this is unlikely to happen in the foreseeable future.

In 1752, the Chancellor of the Exchequer and Prime Minister Sir Henry Pelham converted all outstanding issues of redeemable government stock into one bond, Consolidated 3.5% Annuities, in order to reduce the coupon rate paid on the government debt.

In 1757, the coupon rate on the stock was reduced to 3%, leaving the stock as Consolidated 3% Annuities. The coupon rate remained at 3% until 1888. In 1888, the Chancellor of the Exchequer, George Joachim Goschen, converted the existing Consolidated 3% Annuities, along with Reduced 3% Annuities (issued in 1752) and New 3% Annuities (1855), into a new bond, 2¾% Consolidated Stock under the National Debt (Conversion) Act 1888 (Goschen’s Conversion). As part of the terms of the Act, the coupon rate of the stock was reduced to 2½% in 1903, and the stock given a first redemption date of 5 April 1923, after which point the stock could be redeemed at par value by Act of Parliament.

Consols still exist today: in their current form as 2½% Consolidated Stock (1923 or after), they remain a small part of the UK Government’s debt portfolio. As the bond has a low coupon, there is little incentive for the government to redeem it. Unlike most gilts, which pay coupons semi-annually, Consols pay coupons four times a year because of their age. As a result of their uncertain redemption dates, they are typically treated as a perpetual bond.

Given their long history, references to Consols can be found in many places, including literature such as Pride and Prejudice by Jane Austen, David Copperfield by Charles Dickens, Howards End by E. M. Forster, Vanity Fair by William Makepeace Thackeray, Of Human Bondage by William Somerset Maugham and The Forsyte Saga by John Galsworthy and in economics.