Sinking Funds

Sinking Funds are formed by setting aside revenue specially for the repayment of national debt. Walpole introduced the first (1716). In 1786 Pitt, misled by the arguments of one Dr. Price, devoted £1,000,000 annually to purchasing Government stock, to be held by commissioners who were to reinvest the interest similarly. Thus, it was argued, the fund would increase at compound interest. This, however, kept the debt unreduced and so forced up the rate of interest on fresh loans, and was stopped in 1829. Since then attempts have been made to reduce the debt directly out of surplus revenue (as by Sir S. Northcote in 1875), but it is generally held to be unadvisable to accumulate a fund for the purpose, as the temptation is so great to use it otherwise in emergencies.