e a fixed annual sum for the purchase and cancellation of
debt (Pitt's method, in intention), or by fixing the annual debt charge
at a figure sufficient to provide a margin for reduction of the
principal of the debt beyond the amount required for interest (Sir
Stafford Northcote's method), or by providing an annual surplus of
revenue over expenditure (the "Old Sinking Fund"), available for the
same purpose. All these methods have been tried in the course of British
financial history, and the second and third of them are still employed;
but on the whole the method of terminable annuities has been the one
preferred by chancellors of the exchequer and by parliament.

Terminable annuities, as employed by the British government, fall under
two heads:--(a) Those issued to, or held by private persons; (b) those
held by government departments or by funds under government control. The
important difference between these two classes is that an annuity under
(a), once created, cannot be modified except with the holder's consent,
i.e. is practically unalterable without a breach of public faith;
whereas an annuity under (b) can, if necessary, be altered by
interdepartmental arrangement under the authority of parliament. Thus
annuities of class (a) fulfil most perfectly the object of the system as
explained above; while those of class (b) have the advantage that in
times of emergency their operation can be suspended without any
inconvenience or breach of faith, with the result that the resources of
government can on such occasions be materially increased, apart from any
additional taxation. For this purpose it is only necessary to retain as
a charge on the income of the year a sum equal to the (smaller)
perpetual charge which was originally replaced by the (larger)
terminable charge, whereupon the difference between the two amounts is
temporarily released, while ultimately the increased charge is extended
for a period equal to that for which it is suspended. Annuities of class
(a) were first instituted in 1808, but are at present mainly regulated
by an act of 1829. They may be granted either for a specified life, or
two lives, or for an arbitrary term of years; and the consideration for
them may take the form either of cash or of government stock, the latter
being cancelled when the annuity is set up. Annuities (b) held by
government departments date from 1863. They have been created in
exchange for permanent debt surrendered for cance