See here for damaged/mutilated notes: http://www.bankofengland.co.uk/banknotes/damaged_banknotes.htm
As for paying out in gold; read here: http://www.bankofengland.co.uk/banknotes/about/history.htm
As for paying out in gold; read here: http://www.bankofengland.co.uk/banknotes/about/history.htm