The Bank of England and the government covered up the failed World War One war loan scheme to avoid damaging the patriotism and national morale of the country, it has been revealed.

To fund the First World War, the UK government needed to raise the equivalent of a full year’s GDP, which totalled to around £350m.

Its first effort to raise capital in the bond market was a spectacular failure – the 1914 war loan scheme attracted only a very narrow set of investors and raised less than a third of its target, and subsequently, the Bank of England was asked to help find the rest.

The truth about the First World War loan scheme has only just recently come to light
The truth about the First World War loan scheme has only just recently come to light

Now, current bank employees have discovered what happened from old bank ledgers.

Less than 100,000 people invested, with half of them donating £200 or less, the Bank Underground blog reveals.

Analysing statistics based on a representative sample from all over Britain, a regional study found that 3.4 per cent of investors were based in the East Midlands.

Significant investors in the Midlands included Bass, Ratcliffe and Retton, or Bass Brewers, from Burton, who contributed £10,000 – which equates to around £1,059,552.08 today.

The research shows that ‘sacrifice’ and patriotism alone were not sufficient to attract the required funds. The British government’s initial efforts to pay for World War One failed to such an extent that the Bank of England had to secretly fund the shortfall.

The government raised just £91 million from the public, less than a third of the £350 million target. The results are early findings from a major project on World War One finance, co-led by researchers at Queen Mary University of London and the Bank of England.

According to QMUL researcher, Norma Cohen, the truth of the loan failure would have led to a collapse in the price of outstanding war loans which would have ultimately endangered future capital raising.

"Had it come to light, it would have been a propaganda coup for the Germans," she said. "The great patriotic project to pay for the war was mostly a myth."

The government and the Bank of England had to move quickly to secretly plug the gap. The Bank’s chief cashier, Sir Gordan Nairn, and his deputy, Ernest Harvey, took loans in their own names.

To hide the fact that the Bank was forced to step in, the bonds were classified as holdings of ‘Other Securities’ in the Bank’s balance sheet. To multiply the secrecy, Sir Gordon later formally swore a statement that all £350 million had been "applied for".

Sir Gordan Nairn's statement from the Bank of England
Sir Gordan Nairn's statement from the Bank of England

Richard Stone, vice-president of Burton Civic Society, said Burton did very well at fund raising in the First World War.

"The contribution made by Bass, Ratcliffe and Gretton is indeed considerable, even for a wealthy company.

"Along with other brewers, wartime brought difficulty with scarcity of labour and a shortage of barley as land was taken over for growing foodstuffs. Taxation on beer was also increased to cover the cost of war.

"That said, I’m not surprised. Company director Robert Ratcliff was MP for Burton and John Gretton, chairman of Bass, Ratcliff and Gretton, was also an MP.

"Both men were colonels in the 2 Volunteer Battalion North Staffordshire Reserves, a unit based in Burton that as mobilised when the war began. Colonel Ratcliff saw action in Flanders, so at the top level the company were involved politically and actively.

"Burton did very well at fundraising for a variety of causes in World War One. Burton Mail ran its own appeal; as did the major and the local Red Cross Branch."

The Bass Brewery was founded in 1777 by William Bass in Burton. The main brand was Bass Pale Ale, once hailed as one of the highest-selling beers in the UK.

By 1877, Bass became the largest brewery in the world, with an annual output of one million barrels.

The pale ale was exported throughout the British Empire, and the company’s distinctive red triangle became the UK’s first registered trademark.

World War One, also known as the First World War or the Great War, was a global war originating in Europe that lasted from July 28 1914 until November 11 1918.

Over 70 million military recruits, including 60 million Europeans, were prepared in one of the largest wars in history.

Altogether, over nine million combatants and seven million civilians died as a result of the war, including the victims of a number of genocides.