This paper argues that UK WWI fiscal policy followed the ‘English method’identified by Sprague (1917) and his discussants, and revived by the US tofinance the Korean War (see Ohanian 1997). During WWI, UK fiscal policyadopted the “McKenna rule” named for Reginald McKenna, Chancellor ofthe Exchequer (1915-16). McKenna presented his fiscal rule to Parliamentin June 1915. The McKenna rule guided UK fiscal policy for the rest ofWWI and the interwar period. We draw on narrative evidence to show thatmotivation for the McKenna rule came from a desire to treat labour and cap-ital fairly and equitably, not pass WWI costs onto future generations, andcommit to a debt retirement path and higher taxes. However, a permanentincome model suggests the McKenna rule adversely affected the UK becausea higher debt retirement rate produces a lower consumption-output ratio.Data from 1916-37 supports this prediction. ∗ The views in this paper represent those of the authors and are not necessarily those ofthe Federal Reserve Bank of Atlanta, the Federal Reserve System, the Reserve Bankof New Zealand, Norges Bank, or their respective staffs. We thank Ellis Tallman formany useful comments and Kateryna Rakowsky for research assistance. A version ofthis paper is forthcoming in the Papers and Proceedings of the American EconomicReview.