§ SIR HENRY WILLOUGHBYsaid, that assuming that it was not the wish of the House to continue the discussion on Indian affairs, he would at once proceed to call the attention of the House to some gigantic changes in the public stocks during the last two years, and would ask the Chancellor of the Exchequer for an explanation as to the purchase of £287,600 Three per Cent Stock, and £2,470,000 Exchequer bills, and as to the sale of £2,384,030 Three per Cent Stock, and £111,000 Exchequer bills, belonging to the trustees of savings banks, in the year from the 20th day of November, 1855, to the 20th day of November, 1856. In round numbers, in 1855 and 1856 £10,036,000 Exchequer bills had been bought, and £5,415,000 stock and £4,449,500 Exchequer bills had been sold. What was the meaning of these gigantic operations in the public securities? Every statesman who was an authority on finance, had declared that this House should watch with jealousy any changes in the public stocks, and the Government making such changes was bound 546 to explain the meaning and the object of it. Now, in the first three months of last year, namely, from January to April, 1856, £2,100,000 Exchequer bills were bought, and £2,380,030 stock were sold at the low prices of 85, 86, 87, 88, 89, 90, 91, in order to pay for the Exchequer bills. Stock rose in July, and £287,600 stock was purchased at the high prices of 95 to 96. This was a trust fund for the savings banks, the principle regulating which was laid down in the 2nd section of the 9th of Geo. IV., cap. 92—namely, that except what the depositors require, the produce was to be invested so as to accumulate at compound interest, not by the Chancellor of the Exchequer, but by the Commissioners for the reduction of the national debt. Now, the Act of 1818, 58th of Geo. III., chap. 66, sec. 1, declared that the Commissioners should act by a quorum of four. How, then, could the Chancellor of the Exchequer alone authorize such extensive stock-jobbings? What would be thought of a trustee of £10,000 who sold at 85, and then bought Exchequer bills, and, after a short period, reinvested at 95? One thing was clear—a few such transactions and the trust fund would vanish. They had recently heard of a great amount of savings-banks money having been lost, and it had been made a matter of speculation how that deficiency had arisen; but here, at least, we had one cause of deficiency. Sell stock at 85 to buy £2,500,000 of Exchequer bills, and reinvest at 95, and you would soon know what sort of a trustee you had got, for the fund would speedily cease to exist. The object of these transactions was to support the price of Exchequer bills; but what, in reality, was the effect of the operation upon the public dealer or bonâ fide holder? You sell stock and buy Exchequer bills; you raise the value artificially, until the bills are exchanged; the operations of this gigantic stock-jobbing cease, down to the Exchequer bills to a discount, and every bonâ fide holder is sacrificed. At this moment Exchequer bills were at a discount, having been at par and above previous to the exchange in June, and now every holder of Exchequer bills who must sell, would be a loser according to the amount of discount, which now was nearly 10s. per cent. Was this a creditable mode of using the £35,500,000 of savings-banks money? Had the Legislature ever contemplated any such stock-jobbing? Now, these transactions took place in the names of some of 547 the most influential persons in the kingdom—namely, the Speaker of the House of Commons, the Governor and Deputy Governor of the Bank of England, the Chief Baron of the Exchequer, the Accountant General, and the Master of the Rolls, who, by the first clause in the Act of 1818, were alone invested with the power of converting savings-banks stock into other stock; whereas the transactions to which he had referred, had been carried out by the Chancellor of the Exchequer upon his single authority, acting unjustly on the market for stock, and damaging a most important class of security, the Exchequer bills, so much so, that that class of security no longer held the position it once occupied in the public estimation. This system of chopping and changing, and dealing with the public funds, was one which, in his opinion, the House should, as a matter of necessity, put an end to. The nature of the transactions he had described was as clear as A B C, and he trusted the explanation of the Chancellor of the Exchequer would be equally so, that the public might know what had really been done, and what was the object of doing it.
THE CHANCELLOR OF THE EXCHEQUERThe hon. Baronet, in the speech he has just addressed to the House, has raised two questions for its consideration. The first is a question of general policy, and the other a question as to the discretion of the Government in an individual case, or rather a series of transactions extending over a limited time. I may remark in the first place, with regard to the question of general policy, that the Legislature when they appointed the Government central banker to the savings-banks, and placed in the custody of the Government the whole of the funds of those banks, deliberately conferred upon the Executive Government the power of varying the securities; that is to say, they gave the Government the power which is possessed by every other banker of dealing with the deposits placed in his hands in such a manner as may be most conducive to his own interests. The hon. Baronet does not and cannot pretend to say that the Government, in the eases to which he has adverted, have in any way exceeded their legal powers. [Sir Henry WILLOUGHBY: I deny that they have such powers]. Then I affirm, in the most confident manner, that legal powers exist for every act which has been done by me, and I also affirm that 548 similar acts have been done by my predecessors from the very first period when the savings-banks money was placed in the hands of the Government. I never heard before, that there was any doubt with regard to the legal powers of the Government. I believe such power exists, and I can confidently affirm that I have not exercised any powers beyond those exercised by my predecessors, and that in one particular case I have not gone to the extent of such powers. The ground upon which these powers were conferred upon the Government was that, as it became the holder of deposits for savings banks, and in that capacity was liable, from no mismanagement of its own, to some loss in certain states of the market, so it should possess the advantages which naturally belonged to those who administered what might be considered the affairs of a bank. I believe that I have acted in conformity with the law, and in accordance with the course pursued by my predecessors, and I conceive that, as long as the present law remains unaltered, it will be the duty of any person holding the office I have now the honour of occupying to make use of the large funds placed under his administration, in such a manner as shall be most conducive to the public interests, without in any way impairing the security of the savings banks funds. If, however, Parliament should think fit to take from the Chancellor of the Exchequer the power of varying the securities—if it chooses to say to him, "You shall not sell stock and purchase Exchequer bills,—you shall not sell Exchequer bills and purchase stock," his duty will be perfectly clear. He will merely leave the securities unchanged, and they will remain in the denomination in which the original investment was made. I have always understood that the powers to which I have referred were conferred with the express view that sales and purchases should be made for the public benefit. The hon. Baronet, however, calls the variation of the securities stock-jobbing, and says that I am a gigantic stock-jobber. It is very easy to give an ill-sounding name to an act done in what I consider to be the discharge of public duty; but if the power be vested in the Government, which I most confidently maintain is vested in them, the conversion of one security into another can only be effected by sale and purchase in the public market—the Stock Exchange. Under such circumstances, undoubtedly, the Chancellor of 549 the Exchequer becomes a stock-jobber: but I can hardly believe that the House will think a question of this magnitude is to be decided by a mere appeal to prejudice by the use of a term of this description. I am satisfied that they will look to the policy upon which the law is founded. Having given that explanation, I will add that, so long as the law remains unaltered, I shall consider it my duty to act upon what I believe to be its correct interpretation, and I shall continue to earn the reproaches of the hon. Baronet for being a stock-jobber, if it appears to me that the public interest will be promoted by the conversion of one form of security into another. If, however, at the recommendation of the hon. Baronet, the Legislature should think fit to alter the existing law, and deprive the executive Government of the power which it at present possesses, I shall readily acquiesce in that decision. At the same time, the House must bear in mind that they will, by making such an alteration, subject the public to certain losses which are at present avoided. I have not yet answered the question put to me by the hon. Baronet, with regard to certain purchases and sales of stock last year, but I will now proceed to do so. On the 20th of November, 1855, the balance in the hands of the Savings Banks Commissioners was £217,000. This amount was not in stock or Exchequer bills, but in money, which it was incumbent upon the Commissioners to invest. In the course of the following year, it became necessary for the Government to borrow £2,000,000 upon Exchequer bills, and I had to consider what was the most advantageous mode in which that loan could be effected, having regard to the state of the market and the funds in the hands of the Savings Banks Commissioners. The course taken was this. Stock belonging to the Savings Banks Commissioners, to the amount of £1,963,199 was sold, and it produced in money £1,763,320. The difference between the last sum and the amount paid for the £2,000,000 was taken from the cash balance. [Sir H. WILLOUGHBY: At what price was the stock sold?] I cannot tell at this moment; but I suppose at the price of the day. [Mr. AYRTON was understood to say that the price was 85¾.] Now, if instead of selling stock to take the Exchequer bills, we had applied the sum arising from the cash balances in the purchase of stock, and had not sold stock, the Savings Banks Commissioners 550 would have had £2,273,000 stock, instead of £2,000,000 of Exchequer bills. The annual interest on the £2,273,000 stock is £68,000, and the annual interest on the £2,000,000 Exchequer bills is £76,000, so that the savings banks fund has gained £8,000 a year, while the Government has avoided raising the interest, which it must have done, to put out £2,000,000 of Exchequer bills. [Sir H. WILLOUGHBY: At what loss of capital?] That would depend upon the state of the market. The question here, however, is as to the annual interest; and I maintain that the Savings Banks Commissioners gained instead of losing by that operation, and the Government, by avoiding the depreciation which would have resulted from bringing into the market so large an amount of Exchequer bills, were relieved from the necessity of raising the interest. Further, we had £2,273,000 less of capital stock, but as the Exchequer bills purchased for savings banks may be funded at the rate at which the sinking fund operates during the quarter in which the purchase is made, that £2,000,000 of Exchequer bills will give us £2,332,000 of stock, instead of £2,273,000, showing a gain of capital of £59,000 for the savings banks. I may observe that, although the Savings Banks Commissioners undoubtedly possess, by law, the power of funding Exchequer bills, that power, which has frequently been exercised by my predecessors in office, has never been resorted to by me. I think I have satisfied the hon. Baronet—[Sir H. WILLOUGHBY intimated his dissent]—or, at all events, that I have satisfied the House, that regarding these operations either as questions of capital or of interest, they have been advantageous to the country. The hon. Baronet has put a question to me with regard to an amount of £110,000. That was a sum of Exchequer bills delivered to the Paymaster General to be cancelled, in order to complete the amount required to be funded. I shall be ready, on every occasion, to give the fullest explanation with regard to any of those operations to which the hon. Baronet so strongly objects. I believe I have acted in strict accordance with the letter of the law, and in furtherance of its true policy, and I shall continue to do so. If it be the pleasure of Parliament, however, to take away the power I have referred to, I shall willingly submit, for I shall then be relieved from a very serious responsibility, and I shall no 551 longer be subject to the reproach of being a dangerous stock-jobber.
MR. GLYNsaid, although he did not agree in the view that the Chancellor of the Exchequer, in dealing with the savings-banks moneys, had gone beyond the power invested in him by law, yet he thought, considering the character of those funds, their immense magnitude, and the frequent opportunities that arose for dealing with them, it was necessary that something should be done by that House to regulate the use of those funds by the Government of the day. The Chancellor of the Exchequer had certainly proved that the operations which he had been called on to explain had tended to the advantage of the funds of the savings banks themselves. The question of the loss of capital would be a matter that would require to be settled by the House ere long. But he (Mr. Glyn) was convinced that in this country it would not do longer to leave £35,000,000 of money belonging to the savings banks to be dealt with by the Chancellor of the Exchequer in a way which was regulated by no definite rule, even though it might be in accordance with the law. He contended it was incumbent on the House to place the savings-bank funds on a different footing, and the only satisfactory way in which that could be done would be to declare the liability of the country at once in respect of those funds. He objected, at all events, to the Government playing with those moneys, unless they annually laid before Parliament a statement showing not only the amount sold and bought from time to time, but the reasons and policy which had led to the several transactions. He did not think the House would be performing its duty to the public until it established some restrictive rule with reference to this subject. He was not one of those who thought the power of dealing with the funds in question should be taken away from the Chancellor of the Exchequer altogether, and left in the hands of operators in the city; but he submitted that that power ought to be very much restricted, and the House could only do that by limiting the amount with which the Chancellor of the Exchequer should have the power of operating, and demanding from him an annual statement, such as he (Mr. Glyn) had suggested, as to the exercise of that power.
§ MR. MALINSsaid, that no doubt the Chancellor of the Exchequer had carried on these operations in a very skilful manner 552 as a banker, and therefore there was no reason to complain of him in that respect, But in another respect there was reason to complain of him, and he did not think the public at large were aware of the extent to which those stock-jobbing transactions, called, in common parlance, "rigging the market," were carried on. He was informed that on a late occasion it became obligatory on the Chancellor of the Exchequer to pay off £2,000,000 of Exchequer bonds. At that time—April and May last—a considerable sum in those bonds was held on behalf of the savings banks. Exchequer bills were then at a discount of 6s. 3d., and it being inconvenient for the Government to meet the payment, it became a great object to raise the price of them. The Chancellor of the Exchequer then appeared in the market, and proceeded to deal in Exchebills with such rapidity, that in a short time, instead of their being at a discount of 6s., they absolutely ran up to a premium of 6s. This turned out a very successful operation, for when Exchequer bills were at a discount, the holders sent them in for payment when the period for payment or exchange arrived; but when they were at a premium they sent them in for exchange only. But the question was, whether the Chancellor of the Exchequer of England was justified in going into the market and entering into those fictitious transactions in order to give an appearance of value to that which really had no such value. The transaction to which he (Mr. Malins) had referred took place in April and May last, a great number of persons had been induced to exchange their Exchequer bills because they were at a premium, and now that very morning it was announced that Exchequer bills, instead of being at a premium, were at 10s., or ½ per cent discount. He would ask the Chancellor of the Exchequer if that loss had not been brought about by those fictitious transactions on his part, and whether it was not, in fact, "rigging the market" when it was sought to give a fictitious appearance of a demand for that for which there was really no demand? He submitted, also, that it was a question worthy the serious consideration of the House whether the funds in question should be longer at the disposal of the Chancellor of the Exchequer after the transaction to which he (Mr. Malins) had called attention, in which the course of proceeding adopted by the right hon. 553 Gentleman, however laudable on the part of a banker, was most reprehensible in one who was acting as a trustee for the public. He should conclude by asking the right hon. Gentleman what amount of savings-bank funds was laid out in the purchase of Exchequer bills in April and May last, and the maximum or minimum price at which the exchanges were made?
§ MR. WEGUELINsaid, the investment in Exchequer bills of the savings-banks funds was one which it was quite in the power of the Chancellor of the Exchequer to make. It was, besides, the most favourable way in which the money could be invested, because it yielded the greatest amount of income, and he therefore saw no reason for accusing the right hon. Gentleman of having made a bad investment.
§ MR. MALINS(interposing) said, he did not accuse the Chancellor of the Exchequer of making a bad investment, but of deceiving the public.
MR. WEGUELIN resumedAs to the charge of deceiving the public, the public knew very well that when the agents of the savings banks came into the market they did so for the purpose of purchasing or selling funds for the savings banks, and therefore there could be no deception. The hon. Member (Mr. Malins) said the Chancellor of the Exchequer took part in the transaction to which the hon. Member had called the attention of the House for the purpose of enhancing the price of Exchequer bills at a particular time when such a course was most unjustifiable. But surely the Chancellor of the Exchequer, in the position in which he stood, had a right to consider what would be the best course for him to take on such occasions; for either a large amount of Exchequer bills would have been sent in for liquidation at a period when it might be most inconvenient to pay them, or the Chancellor of the Exchequer would have to raise the rate of interest upon these securities, which would cause an additional demand upon the public. He (Mr. Weguelin) contended, therefore, that the right hon. Gentleman was perfectly justified in investing the savings banks money in Exchequer bills at that time. With reference to the general question as to the policy of leaving the power in the hands of the Chancellor of the Exchequer in dealing with the funds of savings banks, he trusted that power would never be taken away from the Chancellor 554 of the Exchequer, because it was placed with him as a security for the public. The House ought to remember that the Chancellor of the Exchequer was very much in the position of "dummy" in a game of whist. He was always obliged to show his hand, and the dealers in stock lay in wait for him. The stock-jobbers, indeed, might be said to rush into the market to meet him, and therefore it was most desirable that he should have the power of dealing with the funds in question. He hoped the power would still be reserved to the Chancellor of the Exchequer, as it was desirable he should have the power of varying securities, inasmuch as he had no power to buy except he had money of the savings banks actually in his hands, or to sell excepting for savings bank purposes. He might change one security for another, but this could produce little or no effect on the money market. He was satisfied that it was for the public interest, and he did not think that any loss had been suffered thereby. It was true that there had been a large deficiency in the savings banks funds, but that was owing to the large amount of interest guaranteed some years—as much as £4 11s. per cent.
THE CHANCELLOR OF THE EXCHEQUERsaid, a question had been distinctly put to him by the hon. Member for Wallingford (Mr. Malins), and as the hon. Gentleman seemed to have misunderstood what he had said, perhaps the House would allow him, considering the serious charges which the hon. Gentleman had made, to explain the nature of the operation to which he had referred. The hon. Gentleman said that the purchase of Exchequer bills recently made by the Savings Banks Commissioner was fictitious, that it was not a bonâ fide transaction, and that the Chancellor of the Exchequer had been occupied in "rigging" the market. He would explain in a few words the precise nature of the operation. The Savings Banks Commissioners were the holders of Exchequer bonds to the amount of £1,750,000: £2,000,000 of Exchequer bonds became due on the 13th of May last, and they were paid off when they became due. The consequence was that the Savings Banks Commissioners found themselves in the possession of about £1,800,000. It became necessary immediately to invest that sum. It was actual money paid into their hands. There was 555 no question about varying the security or influencing the market by selling one species of stock to buy another. It was a simple investment of money in favour of the Savings Banks Commissioners. There were only two investments open to them—the one Consols and the other Exchequer bills. Looking at the state of the market, Exchequer bills being at a discount, and an advantageous security, it was determined to purchase Exchequer bills, and the hon. Member for Kendal (Mr. Glyn) had truly observed that any private banker, looking to his own interest, would invest in Exchequer bills rather than in Consols. The investments of the Commissioners became matters of notoriety; they were made by the Government broker, there was no concealment, they were simply advantageous investments of surplus money in their hands. These investments continued from the middle of May last until nearly the time fixed for the exchange of Exchequer bills, and incidentally there was this advantageous result, which he had distinctly contemplated, and which he was prepared to justify—that by raising the Exchequer bill market, by taking away the surplus Exchequer bills and diminishing the number sent in for exchange, so that it amounted only to £250,000, the necessity of raising the interest on the whole of the Exchequer bills was obviated. It was not possible to raise the interest on a part, and if it were raised only a halfpenny upon the whole it made a difference to the public of £150,000 a year. He maintained, in the most confident way, that the operation was advantageous to the savings banks and to the public, and perfectly justifiable on both those grounds.
§ MR. SPOONERsaid, he was sure that his hon. and learned Friend the Member for Wallingford (Mr. Malins) did not intend to charge the right hon. Gentleman with having done anything improper. All that he meant to say was that bonâ fide holders of Exchequer bills were prevented sending in for payments by the operation of purchases on behalf of the Savings Banks Commissioners, and that when the time was past the price of Exchequer bills immediately began to fall.
§ MR. SPOONERsaid, he was sure his hon. and learned Friend would at once withdraw that word. He (Mr. Spooner) 556 agreed with what had fallen from the hon. Member for Kendal (Mr. Glyn), that the power of dealing with funds of this magnitude was too large a power to trust in any one hand, and he understood the right hon. the Chancellor of the Exchequer to wish to resign the discretion which the law gave him. Nothing could be more dangerous than for the public to imagine that the Chancellor of the Exchequer or the Government had the power to raise or depress the price of public securities just as they pleased, and he trusted that this discussion would lead to a consideration of the point—whether the power should not be withdrawn.
§ MR. MALINSexplained that what he really meant to say was, that purchases of Exchequer bills were made with the object of raising the value of those securities at a particular time—an object which the right hon. Gentleman, with that candour which always characterized him, had clearly avowed.
§ MR. AYRTONexpressed a doubt whether it was intended, when the law was made, that the Chancellor of the Exchequer should have this discretionary power, except to benefit the savings banks. The nation was not altogether the banker of the savings bank, because their only claim was, upon the particular fund in the hands of the Chancellor of the Exchequer, and anything which diminished that fund diminished their security. By operations like this the Savings Bank Fund had diminished in capital to the extent of £1,000,000. At present they might gain in income, but they lost in capital. If the funds rose, the interest of Exchequer bills would fall, and if the Commissioners had to invest in Consols they would not be able to do so at the price at which they sold out, and there would be a loss of capital.
THE CHANCELLOR OF THE EXCHEQUERwas understood to say, that the Savings Banks Commissioners investing in Exchequer bills might at any time fund the money in Consols at the price in the current quarter in which the investment in Exchequer bills was made.
§ MR. AYRTONsaid, whatever the course of proceeding might have been, the result was that a deficit of £1,000,000 had fallen upon the savings banks. He hoped that this question would be gone into fully on a future occasion, and that a more satisfactory arrangement would be substituted for the present system.