THE BANK OF ENGLAND. (Hansard, 1 August 1834)

§ Lord Althorp
stated, that it was his intention to explain the arrangement which was proposed to be made with the Bank of England for the purpose of paying one-fourth of the amount of the debt due from the public to that Company on or before the 5th of October, according to the terms of the Chatter. By the provisions of the Bank Charter, the Bank was entitled to receive this fourth part of the debt, amounting to the sum of 3,671,700l. in money; but it appeared to him that it would be much more advisable to make a proposition to the Bank, to receive its equivalent in public stock, than to pay the amount actually in money. If he had determined to pay the sum in money, it would have been necessary for him to go into the market for the purpose of raising the amount by loan. Now, he was quite certain that those gentlemen who knew anything of the state of the money market would agree with him when he said, that the effect of going into the market for the purpose of raising so small a sum as 3,000,000l. and odd, would be to throw the market into confusion, and to make the transaction unprofitable to the Government, and altogether disadvantageous to the public. For these reasons, he considered it to be much better to offer to the Bank of England a certain amount of stock in lieu of money. He believed that it was the wish of the Directors of the Bank that the money should be paid to them in the shape of an annuity, which should terminate simultaneously with their Charter,—namely, at the expiration of ten years. The effect of such an arrangement, if it were made, undoubtedly would be a great relief to the public at the end of ten years; but, on the other hand, the immediate pressure which it must produce on the revenue would far exceed that which would be created by paying the amount in the way he proposed. The proposition which he had made to the Bank Directors was, that, in lieu of the money due to them, they should receive an equivalent in the Three-per-cent Reduced Annuities, at the rate of 100l. stock for every 90l. The Bank, then, instead of a payment in money, would receive 4,080,000l. Three-per-Cent Reduced Annuities. The bonus which the Bank would get by this transac- 898 tion was one and a-half per cent.; and he believed that, if he had gone into the market, he could not have obtained the money on such good terms as he had obtained from the Bank; and, therefore, he thought the bargain was not a bad one. He thought it necessary to state further, that he had selected the Three-per-Cent Reduced Stock in preference to the Three-and-a-half per Cents., because the annuity chargeable to the public on the former was less than that chargeable on the latter. The noble Lord concluded by moving a Resolution to the following effect:—'That it is the opinion of the Committee that 4,080,000l. Reduced Three per Cents should be placed to the credit of the Governor and Company of the Bank of England, in payment of one-fourth part of the debt due from the public to the said Company, and that the same be added to, and form part of, the Reduced Three-per-Cent Annuities; and that the interest thereof be paid out of the Consolidated Fund.'

§ Mr. Goulburn
could not understand the policy of the arrangement which the noble Lord seemed so anxious to carry into effect, of paying off one-fourth of the sum which the public owed to the Bank. He could not understand why the noble Lord should propose to reduce the amount of the security which the Bank offered to the public precisely at the moment when the new arrangements made with the Bank of England tended to increase the amount of their circulating medium, by substituting their Bank paper in the place of private bank paper. That, however, was a matter which had been discussed and settled in the last Session of Parliament. But the present proposition of the noble Lord, instead of having the effect of lightening the burthens of the country, would increase them, and ultimately add largely to them. It would, in fact, create a permanent charge to the country of upwards of 400,000l. additional debt, and an annual charge of 12,000l. until that debt was paid. He certainly could not approve of the course which had been pursued by the noble Lord with respect to this business. According to the agreement made with the Bank, one-fourth of the debt due by the public was to be paid in money; and, under these circumstances, the step which the Chancellor of the Exchequer would naturally be expected to take, was to go into the market, and, by exciting 899 competition, obtain the money on the most advantageous terms. But, supposing that it was not possible for the noble Lord to get the money on better terms than he had obtained from the Bank, still, he would ask, why did not the noble Lord, having the funds of the Savings-banks at his disposal, allow them to benefit by the transaction in preference to the Bank of England? Believing that the arrangement proposed by the noble Lord would impose an additional burthen on the country, and also objecting to the mode in which the noble Lord intended to carry it into execution, he certainly could not give his assent to the resolution. The Members of that House were anxious to be thought friends to economy; but, in spite of their squabbling about giving 1,000l. a-year, more or less, to the Speaker of that House, or debating whether or not 100l. should be taken from the allowance made to the Commissioners of Excise, they might be assured, that they would be considered improvident administrators of the public funds if they permitted the Chancellor of the Exchequer, without any necessity, to add hundreds of thousands to the national debt.

§ Mr. Warburton
did not see any objection to paying off one-fourth of the debt due to the Bank, for the sum which remained constituted a sufficient security on the part of that body to the public. He did think, however, that the bargain made by the noble Lord was most improvident. He contended, that in consequence of that bargain, the country, instead of having only 100l. on which to pay at the rate of three per cent, would have 111l. on which it would be obliged to pay at that rate, though there could be no doubt that, if the noble Lord had gone into the money-market and made his bargain there, he would have found capitalists willing enough to lend him the money so that he would only have had to pay interest on 100l. instead of 111l. But this argument, it should be borne in mind, was founded on the supposition that the money-rate of the three per cents reduced stock was 90l.; yet they all knew that by the arrangement made between the Commissioners of Savings' Banks and the Commissioners for the extinction of the National Debt, the noble Lord was enabled to dispose of that stock at the rate of ninety-one-and-a-half. He thought that the Bank had proved too deep for the noble Lord.

§ Lord Althorp
said, that relying on the accuracy of his hon. friend's calculation, he believed his statement, that the effect of the bargain made with the Bank would be to make the country pay three per cent on 111l. instead of three per cent on 100l., to be correct. But his hon. friend was certainly mistaken in supposing that he (Lord Althorp) lost on both parts of the transaction; for the reason of his loss on the 111l. was, that he had taken the value of the three per cents at 90l. His hon. friend, therefore, had no right to calculate a loss on both sides, and it would be recollected by the Committee that he had stated, that he had given a bonus of one-and-a-half per cent to the Bank. The arrangement made with the Bank last year having been alluded to by the right hon. Gentleman opposite, he wished to explain the principle on which it was founded. It could not be denied, that so long as the country owed a larger amount of debt than was necessary to the Bank of England, the Government would be, when the Charter expired, more in the hands of that body than it ought to be. He had, therefore, always thought, that when the funds were high, as they were at present, it would be desirable to take advantage of that circumstance for the purpose of reducing the amount of the debt due to the Bank; and so far from thinking that the security offered by the Bank was in the least diminished by the subtraction of one-fourth of the capital, he should have liked to have paid off a larger amount, had he been able to make a bargain to that effect. In carrying out this arrangement, it would be impossible for the public not to lose to a certain amount in their annual payment; and the question now was, whether the mode he had adopted in paying this sum to the Bank was more disadvantageous to the public than necessary. The right hon. Gentleman had inquired why he had not applied the funds of the Savings' banks to this object. He certainly might have used the Savings' banks funds for that purpose, had he not applied them in a way which he considered more profitable. Having those funds at his disposal, he thought he might propose the reduction of the four per cents on advantageous terms, because he was prepared by the aid of the money belonging to the Savings' banks to pay off the dissentients; and the result proved that his judgment was correct. By 901 the reduction of the four per cents he had saved 50,000l. a-year, and by not employing the funds of the savings' banks in paying the quarter of the debt due to the Bank he had lost 12,000l. a-year. He could not coincide in the statement made by his hon. friend, that if he (Lord Althorp) had gone into the market he might have obtained better terms. He had made every inquiry in his power on the subject (the nature of the case not permitting him to make much public inquiry), and all that he had heard induced him to think that if he had attempted to raise the money, 89l. or 90l. for every 100l. stock would have been the best terms he should have been able to obtain. But even if he could have succeeded in obtaining 90l., he should not have been disposed to disturb the money-market by going into it for the purpose of raising a loan.

§ Mr. Warburton
admitted, that he had overstated the case against the noble Lord; but still he must say, that if the conversion had been made at the rate of 91l. 10s. instead of 90l., the public would have had to pay only three per cent on 109l. whereas by the bargain made by the noble Lord they would have to pay three per cent on 111l. He objected to the proposed arrangement, because it would make the public lose in two ways—first, by the payment of a high rate of interest, and secondly, because this payment, not being made on the principle of a terminable annuity, 100l. must be paid for every 90l., whenever it should be proposed to redeem the debt.

§ Lord Althorp
admitted, that whenever the debt was paid off, 100l. must be given for every 90l.; but he did not believe that he could have selected any other stock than that which he had chosen for this operation, without incurring at least an equal loss. If he could have converted the fourth of the debt due to the Bank into Terminable Annuities, without placing a heavy burthen on the public, he should have done so in preference to converting it into Perpetual Annuities; but an annuity, terminable, as had been suggested, at the expiration of ten years, would have pressed very heavily on the public, and disarranged the whole finance of the country, as he had always thought that it was not right to overburthen the existing generations for the purpose of relieving future generations: he should have acted contrary to every principle he had hitherto 902 professed, if he had proposed to place such additional charge on the people.

§ Mr. Thomas Attwood
did not see any great objection to the plan of the noble Lord, though he was afraid it would give the Bank even greater facilities than it at present possessed to play with the National Funds. He thought there should be a Board of Control, which ought to have a superintending power over the Bank, as the Board of Control so called had over the affairs of India.

Mr. Alderman Thompson
denied, that there were any grounds for alarm respecting the proceedings of the Bank. In answer to the hon. Gentleman who spoke last, he stated, that the House of Commons was the first Board of Control which could be established for the superintendence of the Bank.