HC Deb 10 March 1859 vol 152 cc1621-44

said, he rose to call the attention of the House to the late funding of Exchequer Bills, preparatory to moving, That in future no funding of Exchequer Bills, held by the Commissioners of Savings' Banks, be made without the special authority of an Act of Parliament. The words of that Motion were precisely identical with one of the Resolutions of the late Committee which sat last year, presided over by the right hon. Gentleman the Secretary of State for the Home Department. He brought forward the Motion with no object of making an attack on the Chancellor of the Exchequer. He might be told that it was in consequence of the Act of the late Government, who possessed themselves of a certain amount of Exchequer bills, that this measure of funding became almost a matter of necessity. The operation which had taken place was this. There had been a new creation of funded debt to the amount of £8,456,239, involving a permanent charge of £254,000 a year, in lieu of cancelled Exchequer bills to the amount of £7,600,000, involving an annual charge of £160,000. He was not going to lay any stress on this difference between the charge on the Exchequer bills as compared with the charge on the 3 per cent Stock, because he was aware that the real charge on the Exchequer was the amount which the Government was bound to pay to the depositors of the savings' banks, and, therefore, it might be said it was a matter of but little difference whether the interest was more or less; but he did think that it was a matter of very great importance that this House should well consider any question which involved an increase of the funded debt on the country. The ordinary mode of dealing with savings' banks deposits was this: it was presumed that the deposits were invested as soon as possible in Government securities. That was necessary in order to prevent the waste of any money lying idle in the bank of England in the names of the Commissioners of savings' banks; but when the deposits were invested in that manner there was not necessarily any increase in the total amount of the funded debt. Supposing that these deposits were to be required again by the depositors, then if the stock had been bought in the open market, the stock could be sold again in the same way, and thus a fund would be provided out of which they could be repaid, and afterwards the funded debt of the country would stand precisely in the same way as before the transaction. But mark the difference that took place, if, instead of purchasing stock in the open market, the deposits of the savings' banks were invested in Exchequer bills; those bills, after a certain lapse of time, were converted into stock, and by being funded these Exchequer bills were cancelled, but the stock remained as a permanent charge. He was quite aware that the indebtedness of the country, as regards capital, was not altered by the operation; the country was still indebted for the amount of the savings' banks deposits; but it did appear to make a great difference if the repayments when required had to be made by the sale of stock, instead of by the sale of Exchequer bills, as in that case the funded debt remained the same. Now, the amount of Exchequer Bills of which he had spoken was obtained in this way. It was perfectly competent for the Commissioners of savings' banks to invest in any Government security. If they invested in stock he had stated what was the effect; if in Exchequer bills—to those bills if held merely as a temporary investment he had no objection—but if, acting on the power granted by the Acts under which all the savings' banks were now constituted, the Government turned those Exchequer bills into stock, that clearly involved a permanent increase of the national debt. And it appeared to be most desirable that the House should watch with jealousy any increase of the funded debt of this country. Well, some of these bills had been bought in the open market; but a considerable portion of those so bought were bought with funds obtained by the sale of stock. It was during the time of the late Chancellor of the Exchequer—he believed in 1853 or 1854, during the late war—that the right hon. Gentleman found himself under what he probably considered to be a necessity to provide some fund which was not readily at his command in the ordinary course of the money market; and perhaps, indeed, the expenditure of the war was so enormous as to baffle every calculation. He took the power of obtaining money from this House. But there might have been difficulties in getting the money in the way he thought most advantageous to the country. He therefore took advantage of the provisions of the Act, and he sold about £4,000,000 of stock, and he bought Exchequer bills. The effect of that operation was that he took a certain amount of Exchequer bills out of the market, thereby tending to enhance the price of Exchequer bills, which were at a discount at the moment; and he was then enabled, by having a smaller amount of bills in the market, to replace those bills which he took out. He was enabled in some way or other to sell that amount of Exchequer bills. These bills, therefore, came into possession of the late Chancellor of the Exchequer, as Commissioner of Savings' Banks. purely by the sale of stock. It appeared to him (Mr. Hankey) that it would have been wise, if possible, to have avoided the necessity of funding those bills, and thereby of increasing the amount of the funded debt. He thought it would have been quite possible. There was no difficulty at the time of selling Exchequer bills. He did not mean to say that it would have been possible or prudent to have thrown any large amount of Exchequer bills into the market; but if those Exchequer bills had been disposed of by degrees the stock might again have been bought, and the result of that transaction would have been no permanent increase of the National Debt. The transaction was in effect nothing more nor less than a pure war loan. It was owing, probably, to that arrangement of the late Chancellor of the Exchequer that the present Chancellor of the Exchequer thought it expedient to carry out what he thought his predecessor would have done had he remained in office. He (Mr. Hankey) was quite aware that this was in strict conformity with the Act of Parliament. The Act of Parliament, for what purpose he could not divine, seemed to have given large powers to the Chancellor of the Exchequer with regard to funding Exchequer bills. It would be strictly in conformity with the provisions of the Act if the Chancellor of the Exchequer were to-morrow to find himself in this position, that in consequence of some sudden demand for money which raised its value, and placed Exchequer bills in the market at a discount,—it would he within the provisions of that Act for him to sell the whole of that £8,000,000 of the funded debt, and buy Exchequer bills, and therefore relieve the Exchequer bill market to that extent. The same operation might go on again, but limited of course by the amount of Exchequer bills to be bought in the market. It might go on for some time, and the result would be an increase of the debt, but made in a manner that appeared quite unnecessary. Including that £8,000,000, he believed that about £16,000,000 had been added within the last twenty years to the funded debt by such arrangements. He was not about to discuss at any length the provisions of that Act, though he believed there was a very strong feeling in the House that it would not be wise to continue them. He was not afraid at this moment of any abuse of that power by the Chancellor of the Exchequer; but he thought it a most unwise provision. It was a thing that Parliament ought to guard against under almost any possible eircumstances—an increase of the funded debt. That £16,000,000 involved an expenditure of upwards of £400,000 a year; and if even the whole of the Savings' Bank money were paid off by the sale of stock, the country would be left in this predicament, that it would be saddled with an extension of the funded debt to the extent of £16,000,000. He did not think that that was intended by the provisions of the Savings' Bank Act; but that the Commissioners of Savings' Banks were to place themselves in the position of the depositors themselves—be their representatives, in short—and as soon as possible invest the money in stock, and keep that stock in their names, the same as a banker would do to enable him to meet the requirements of his I customers. The Committee of last Session recommended in their Report that the funded debt of the country should not be increased by means of the money in the Savings' Banks. His right hon. Friend opposite (Mr. Gladstone) had laid it down as a principle that it was the duty of the Chancellor of the Exchequer always to take care that as much money as he could require was raised from the taxation of the year, and he hoped his right hon. Friend would support him in maintaining to the utmost the power of this House, and that the House would not consent to sanction, unless on occasions of great emergency, an increase of the funded debt. In bringing this subject under the notice of the House he was actuated by no party feelings whatever. His chief desire was to elicit the opinions of the House on the principles upon which the operations of savings' banks ought to be conducted; and if the house would agree with him in the Resolution he proposed, he believed the result would be to put an end to all such operations as he had now described.


seconded the Motion.

Motion made, and Question proposed— That in future, no Funding of Exchequer Bills, held by the Commissioners of Savings Banks, be made without the special authority of an Act of Parliament.


said, he must complain that the hon. Gentleman had employed terms in speaking of this question which were calculated to mislead hon. Members not very familiar with it. He had described this operation as if it were one fur increasing the National Debt. The real state of the case, tracing it from its commencement, was this:—The savings' banks were institutions into which individual depositors placed their money, and received from the managers a certain rate of interest. The managers of the banks retained a part of that money to meet current demands, and placed the remainder in the hands of the Commissioners for the reduction of the National Debt, from whom they received a somewhat larger rate of interest than they themselves paid to the depositors. Thus they got enough interest to repay the whole of the interest due to the depositors, the expenses of management, and to assist in keeping up a balance out of which to meet the drawing accounts. Having these monies in their hands the Commissioners for the reduction of the National Debt in their turn did precisely for the savings' banks what the banks had done for their depositors; that was to say, they retained a certain amount of the monies placed in their hands by the managers ready to meet the demands of individual savings' banks they invested a portion, and to provide the interest for them. They must a priori therefore make the best use of the balance they had in hand. But here the law stepped in, and to a certain extent prevented this by compelling them to invest their balance in certain securities—the public funds, which ordinarily paid a rate of interest rather below that which the Commissioners were bound to allow to the savings' banks. The consequence was the Commissioners suffered loss rather than made a profit by the transaction; but inasmuch as the security of the fund was guaranteed by the public any deficiency which occured, as a matter of Course, would fall upon the public. It should also be borne in mind that the Commissioners for the Reduction of the National Debt were liable to another source of loss. If demands came upon them in excess of the money paid in, they must sell stock to meet them. Those demands usually came when the price of stock was low, and, on the other hand, the money usually came in when the price of stock was high. Therefore the money received was invested in the funds when they were high, and the Commissioners had to sell out when the funds were low. It was clear, then, that upon the whole transaction, which was one conducted for the benefit of depositors, the Government subjected itself to risk, and even to a moderate extent, to the certainty of some loss; but it was willing to incur sacrifices in consideration of the desirableness of encouraging savings' banks. This being the case, if the Government found that they were holding the money in a way that occasioned loss to them, and that it was possible, without diminishing in one tittle the security of the depositors or the profits of the managers, to make use of it in a manner that would be for the advantage of the public, surely it would be unreasonable to debar them from doing so. The hon. Gentleman said, that the practice of holding Exchequer bills for a time and then funding them increased the debt; that it would be possible for the Chancellor of the Exchequer, if he thought it desirable to keep up the Exchequer bill market, to take £8,000,000 of these funds, invest it in Exchequer bills, and after holding them some time to fund them, and so add to the permanent funded debt of the country. But that seemed to him (Sir S. Northcote) to be an extraordinary proposition. Say that the funded debt amounted to a certain sum, whatever that might be, and it was proposed to sell out £8,000,000 of it, and buy Exchequer bills. By doing that they would diminish the funded debt by £8,000,000, and increase the unfunded debt. [Mr. HANKEY: No, no!] That was hardly so, because, according to his understanding of the matter, the sale of Consols would reduce the funded debt, and the subsequent funding of Exchequer bills would only amount to a replacement. But, passing to the Motion of the hon. Gentleman, he granted that was, as the hon. Gentleman had stated, one of the recommendations contained in the Report of the Committee on Savings' Banks which sat last year, but then it was not fair to omit that it was one only out of a considerable number, amongst which there were some that would mitigate to a certain extent the loss which the Go- vernment at present sustained. For instance, one recommendation was that it should be legal to use a portion of the funds so coming into the hands of the Government, by investing them in other securities than the funds—placing them, for instance, in the hands of the Public works Loans Commissioners, where they would realize a larger amount of interest, and he thought it was not exactly fair to take one recommendation alone and press it, when the whole matter ought to be considered and the opinion of the House taken upon the subject of the arrangements connected with the savings' banks. The hon. Gentleman had alluded to a doctrine enunciated by his right hon. Friend the Member for the University of Oxford, that you ought to levy as much money as you could by taxation; but as a countervailing principle he should also say that when they had to borrow they ought to do so as well as they could. The case they were then discussing arose, he believed, out of a considerable emergency. It was the emergency created by the Crimean war, and the state of circumstances was certainly difficult and peculiar. The borrowing took place to meet the demands occasioned by the war, and it was done with the sanction of Parliament; that was to say, it was found necessary in consequence of the extraordinary demands of the war to make further provision for the service of the year, and it was impossible, without breaking faith with those who had contracted for the loan previously raised to get money by further loan. It became necessary, therefore, to proceed by way of Exchequer bills. Two millions of Exchequer bills were issued, and they had now been funded; but it was substantially the same thing as if money had been borrowed on loan. The power, therefore, was one which enabled time Chancellor of the Ex- chequer, if he thought it desirable to borrow, to do so in the best and most economical way from the public, at no risk to the savings' banks, and with no addition to the debt of the country. It could not be denied that the interest of the Chancellor of the Exchequer was the same as that of the public, and that he would be guided by such principles as were conducive to the public interest. He trusted, therefore, that this Motion would not receive the sanction of the House.


said, he wished to express his thanks to the hon. Member for Peterborough (Mr. Hankey) for having brought this subject before the House. Let the House observe how the matter stood. If they wanted to raise £7,600,000 at this moment, they would have to create £8,000,000 of stock at 95. But in this transaction what had they been compelled to do? Why, they were obliged to create £8,469,237 of stock. Therefore, at the first blush of the transaction, the public, who had to supply all deficiencies, stood £469,237 worse than otherwise they would be. This mode of doing business was, in fact, a most ruinous one. In the first place, it concealed from the House the actual state of the public finances, because these Exchequer bills were bought and held by the Savings' Bank Commissioners during the Crimean war, when the price of stock was low, and had been converted at low prices when the price of stock was high. In 1844, the then Chancellor of the Exchequer (Mr. Goulburn), was compelled to engage in a similar transaction—that of buying Exchequer bills with savings bank's money, and the Government created £7,627,000 of stock. Since that time the system had been going on for a series of years, until, he believed, the funded debt had been increased by this means upwards of £16,000,000. He was surprised at the answer given by the Secretary for the Treasury to the charge of the hon. Gentleman opposite, that the conversion of Savings' Bank stock into Exchequr bills, and their subsequent conversion into the funded debt, might go on indefinitely. That was time truth, and he hoped the House would now take steps to prevent it, which might easily be done by an Act of Parliament, consisting of only two short clauses, limiting the conversion of Savings Banks' funds to what the interest of the Savings' Banks required, and to that alone. Under the provisions of the law, when the Commissioners of the Savings Banks got Exchequer bills into their possession, and wanted to fund them, they were bound to do so within three mouths, and the average of their price for those three months was to be the rate of the transaction. But this was a new device altogether, by which the Commissioners might hold those Bills for years, and saddle the country with a larger mass of funded debt than was at all necessary. He therefore called upon the House to put an end to this system, by which the Chancellor of the Exchequer, along with the Governor and Deputy Governor of the Bank, might, at their pleasure, so convert Exchequer bills into funded debt. He hoped the House would support the hon. Gentleman (Mr. Hanley) in his endeavours to put an end to this system, though he doubted whether the Resolutions which the hon. Gentleman proposed would be sufficient for the purpose, but that a short Act of Parliament, as he had suggested, would be found necessary. As matters stood, the Chancellor of the Exchequer could not only transfer the unfunded to the funded debt, but could actually create new debt without the intervention of Parliament, which had actually been done by former Chancellors of the Exchequer. He hoped the House would interfere to prevent such proceedings for the future.


Sir, the hon. Member for Peterborough has done good service to the House in calling its attention to the recent funding of Exchequer bills. I myself heard in the beginning of the Session that it was understood in the City that this operation had taken place. I therefore put a question to the Government on the subject, and found that the report was true. A return giving an outline of the facts was subsequently moved for, and is now in the possession of the House. The hon. Member has accompanied his statement with an abstract Resolution that in future no funding of Exchequer bills held by the Commissioners of Savings' Banks should take place without the special authority of au Act of Parliament. That Resolution he submits in consequence of the recommendation of the Committee on Savings' Banks which sat last Session, and which suggested that no sales, purchases, or exchanges of stocks or securities held by the Commissioners should be made, except as required for the purposes of the Savings' Banks themselves, and that no funding of Exchequer bills held by the Commissioners should in future take place without the special authority of on Act of Parliament. In consequence of successive issues of Exchequer bills, some of which took place during the late war, and all of which, let me observe, were made under the authority of an Act of Parliament, and therefore received the attention of this House at the time, the Exchequer bills on the 1st July last amounted to £20,889,000. The hon. Member for Peterborough (Mr. Hankey) in speaking of Exchequer bills, and their conversion into funded debt, talked of increasing the National Debt, and seemed to regard Exchequer bills as of a different nature in respect of public obligation from funded debt. It is quite true that, according to the theory of Exchequer bills, they are charged only upon votes in Supply, and they may be paid off at certain short periods; but we know that practically the Vote for the renewal of Exchequer bills is taken annually as a matter of course, that Exchequer bills are just as much a portion of the permanent debt as Consols, that precisely the same public obligation applies; and that, although there is a power of varying the interest, we should for all practical purposes regard Exchequer bills as being as much a portion of the National Debt as the Three per Cents. The amount of Exchequer bills on the 1st of July last was undoubtedly large, but it was not larger than the unfunded debt had been in previous times, even with the addition of £4,000,000 of Exchequer bonds. Let the House bear in mind, however, that a large portion of the Exchequer bills—namely, £7,600,000 were held by the Commissioners of Savings' Banks. Practically, therefore, they were withdrawn from the market—they were in the hands of the Government, and they did not influence the market rate of Exchequer bills. The Chancellor of the Exchequer, in the exercise of a discretion which he possesses under an Act of Parliament, and which had been often exercised in previous times, but not, I think, until last January since 1853, funded £7,600,000; and the point which I was desirous of hearing explained by the Secretary for the Treasury was what was the motive of funding that amount, because I am not aware that any advantage accrued either to the Government or to the Commissioners of Savings' Banks from that operation. The Commissioners held a large portion of stock; they also held a large amount of Exchequer bills; they could have sold either the one or the other according to the state of the market; and, therefore, although I do not dispute the legal power of the Chancellor of the Exchequer, and although that power had been exercised by many of his predecessors, including some of our best financiers, I do not clearly understand at present wherein the benefit to the Commissioners of Savings' Banks, or to the Government, consisted in the operation which took place. The Exchequer bills were at a premium of 37s. per cent., and therefore the Commissioners could, by going into the market, to a certain extent have realized their bills at a premium. If Exchequer bills had been at a great discount, there might have been a stronger primâ facie case for the exercise of the power possessed by the Chancellor of the Exchequer, but, seeing that the Commissioners held a large amount of stock—much more than sufficient to meet any demand by depositors—which they could at any time realize, and seeing that Exchequer bills were at a high premium in the market, I cannot understand, without further explanation, what was the motive of the Chancellor of the Exchequer in funding the entire amount of the Exchequer bills held by the Commissioners. The right hon. Gentleman, when addressing the House on the previous occasion, seemed to think that he was following out a policy which I had commenced during the war. It is true that during the war, when money was raised by the issue of fresh Exchequer bills, it was found advisable that some of them should be taken by the Commissioners of Savings' Banks. That I believed at the time was an operation advantageous to the Government, to the public, and not less so to the Commissioners; but I did net, while I held the office of Chancellor of the Exchequer, resort to any funding of Exchequer bills in the hands of the Commissioners, and I am not aware that anything occurred until January last to render such an operation expedient. It is one thing that the power exists, and another that it should be exercised without any apparently sufficient reason. With respect to the Motion of my hon. Friend, that is a general question, going beyond the particular operation under our consideration. This power exists at present by Act of Parliament, and I apprehend that the fact of the House acceding to this Resolution would not repeal the provision of the existing Act. It would merely amount to the expression of an opinion on the part of the House, and the Government would then find itself armed with a legal power, which in point of law it was justified in exercising, but would scarcely know whether its discretion was fettered by the Resolution of the House. On account of the form of the Resolution, I shall not be able to support the Motion. If the question were to be brought under the consideration of the House with a practical view, the proper course would be to bring in a Bill to repeal the provision I have alluded to, and deprive the Government of the power it now possesses by statutory enactment. But that raises the question as to the expediency of this power, and to decide that question we must look to the Report of the Committee of last Session containing the recommendation. The main object of that Committee was to investigate the administration of the savings banks, and incidentally the Committee considered the financial questions involved in the management of the money of the savings banks, and the powers with which Government is invested. Though I fully admit the value of the opinions of this Committee on the general question of the management of savings banks, I must, with great respect for the hon. Members who composed it, express some doubt as to the consideration they gave to the financial questions involved in their Report, and to show my reason for distinguishing between these two parts of the Report I would call attention to one remark made by the Committee, which seems decisive as to the fact that they had not carefully considered the financial part of the question. In page 6 the Report states that during the period from 1828 to 1844 there were large transactions in the purchase and sale of Exchequer bills by the Commissioners of the Savings' Banks, and then it goes on to say that it appears that the money of the savings' banks was frequently employed in the purchase of Exchequer bills, when they were at a discount, and that such purchases continued for a considerable period of time. I take it that the meaning of this part of the Report is that the Savings' Bank Commissioners abused their trust, because they bought Exchequer bills when they were at a discount. Now, it must be quite obvious that if the Savings' Banks Commissioners bought Exchequer bills when they were at a premium, they might have made a bad bargain for the public; but if they bought them at a discount, they bought them at a time when the purchase was most advantageous to the public. Therefore, that very circumstance, which this Committee point out as proving the disadvantageous nature of the transactions of the Commissioners and the abuse of their trust, is the clearest proof that they made an advantageous bargain, and understood better than the Committee the nature of their trust. I therefore think that the Committee did not very carefully consider the financial bearings of the question, and on that account am the less disposed to place any very great value upon their recommendation in respect to this part of the subject. Just let us look at the two branches of the recommendation of the Committee. They recommend that no sale or purchase of Exchequer bills, stock, or securities in the hands of the Commis- sioners, should be made except as required for the purposes of the savings' banks. Practically speaking, the Government is the banker for the savings' banks. The money paid over by the depositors in the saving's banks is employed by the Government as an independent banker. The Government is debtor to the savings' banks, and acting as a banker for them it is reasonable that it should have the power to vary its securities and to sell stock and buy Exchequer bills, or sell Exchequer bills and buy stock, according as the state of the market renders either operation advantageous. There is nothing out of the way of a banker in these two operations, and the recommendation of the Committee would deprive the Commissioners of the Savings' Banks of that power. It is also proposed that with respect to the funding of Exchequer bills the hands of the Government should be tied up. I am not prepared to say that there is any very great value to the Government in the possession of that power. It is possible, however, that circumstances might arise in which the power of funding Exchequer bills may be of importance. I confess it does not appear to me that it is a power liable to be serionsly abused. I cannot see any material difference between the funded debt and the unfunded debt. Some hon. Gentlemen seem to think that there is something more easy to discharge or light in pressure in the unfunded debt than in the funded debt. I apprehend that any belief of that kind is a complete delusion, and that the unfunded debt is just as much National Debt as the funded debt. Therefore this power, which sounds so alarming, of funding Exchequer bills does not very much frighten me in reference to its exercise; but whether that power is of any essential use to the Savings' Bank Commissioners or not, I think it most essential that they should have the power of varying their securities, and a satisfactory reason ought to be alleged why the Government, being the banker for the savings' banks, should not possess the ordinary powers of a banker to vary its securities, to sell stock and buy Exchequer bills, or sell Exchequer bills and buy stock. With respect to this ulterior power, I do not believe it is liable to any serious abuse. With regard to funding Ways and Means bills, no doubt that in that respect there would be a very serious abuse, and I quite agree that means ought to be taken for guarding against that misapplication of power. Practically the funding of Ways and Means bills does undoubtedly amount to a creation of funded debt without the authority of Parliament; but the House must clearly understand that when Exchequer bills are funded no debt is created without the authority of Parliament. Exchequer bills are just as much debt as Consols, and whether the form is transferred or not from unfunded to funded, the debt is still national, and as binding on the nation. The doubt, which I confess I entertain, is whether any advantage accrues to the public or to the Savings' Banks Commissioners from the power of funding Exchequer bills. Possibly some advantage may arise, and perhaps the Chancellor of the Exchequer will be able to state an adequate reason for the operation.


said, he would not hare troubled the House with any observations on this occasion had he not been a Member of that Committee, which was referred to in not very complimentary terms by the right hon. Member for Radnor (Sir George Lewis). The right hon. Gentleman thought that a Committee appointed to inquire into the application of the money of the savings' banks—to see whether that money was properly secured—had no business to inquire into the mode in which that money was invested.


said, he must beg the hon. Gentleman's pardon. He had never questioned the power of the Committee. What he said was that, judging from the Report, it appeared to him that the Committee had not inquired so carefully into one branch of the subject as into another.


said, he thought it was certainly within the power of the Committee to inquire into the way in which these funds were invested. Why, the Government was the banker of the savings' banks; and a very safe banker it had been. But the right hon. Gentleman forgot that one great question for that Committee to consider was, to what extent Government had tampered with the money, and whether successive Chancellors of the Exchequer had always placed the money entirely to the advantage of the savings' banks. He had not the official paragraph before him on which the right hon. Gentleman had commented, but the impression made upon his mind in Committee was this, that those changes in the securities which in themselves were legal, had not always been employed for the benefit of the savings' banks, but to aid a needy Chau- cellor of the Exchequer in his financial operations. That was the ground on which the Committee had recommended that some limit should be placed on the powers of the Commissioners for the Reduction of the National Debt; for those Commissioners meant, after all, nothing more than the Chancellor of the Exchequer. Now, he said it was the duty of the Committee to represent what was the view which they entertained upon that subject. They might, as the right hon. Gentleman had stated, have been totally undeserving of any attention on the part of the House; but they had only performed their duty when they had recorded their opinion as to the propriety of continuing the powers vested in the Chancellor of the Exchequer. He agreed with the right hon. Gentleman that the Motion before the House would not carry with it the weight which would be desirable. It would be a mere Resolution which no Chancellor of the Exchequer would be bound to follow; and the proper mode of effecting the proposed object would be to pass an Act of Parliament which, during its progress through the House, would afford an opportunity of fully discussing the whole question. He confessed it had always appeared to him to be a most objectionable arrangement that any man should have the power secretly, without the cognisance of the public, and without that notoriety which was essential for the credit of the country, of transferring the unfunded into the funded debt, and thus throwing a mass of funded debt upon the market without notice. That was a power which he had no doubt had always been conscientiously exercised by the Chancellor of the Exchequer, and which at times must be a source of considerable convenience to that Minister; but he did not think that convenience was a sufficient compensation for a proceeding of so irregular a character as that of entrusting any man with the power of secretly adding to the funded debt. He did not say that the transfer of Exchequer bills into Consols was an increase of the debt of the country; but it was, at all events, an increase of one portion of that debt without giving any notification upon the subject to the public. They had by that system a sort of mill into which Exchequer bills were thrown, and from which they came out funded debt, and that process could be carried on to any extent that might suit the convenience of the Chancellor of the Exchequer. He believed that, however honestly and scrupulously such a power might be exercised, it must by its indirect influence be injurious to the credit of the country.


The hon. Gentleman opposite has proposed a Resolution to limit, in a particular point, the powers of the Chancellor of the Exchequer as the guardian of a very large mass of public money placed in his hands, and to provide that no funding of Exchequer bills held by the Commissioners of Savings' Banks be made for the future without the special authority of an Act of Parliament. The discussion which I have heard leaves upon my mind the impression that, whatever may be the merits of the particular transaction under review, the reasons for adopting which have net as yet been fully stated, the whole subject is one on which it would be in expedient for the House to come to any practical conclusion, unless it were founded upon a more thorough investigation of the subject than has yet taken place. It is quite plain that the powers of the Chancellor of the Exchequer, as the keeper of the public money, are enormous. I don't hesitate to say that, in my opinion, they require review and reconsideration, and that in some important particulars they ought to be limited. Undoubtedly, however, if there be any one point of special danger to the public created by those powers, it is not that which is raised by the Motion of the hon. Gentleman; but it is the power which the Finance Minister possesses of creating new public debt by the funding of deficiency bills, or, in other words, of meeting deficiencies in the revenue of the country from year to year by the creation of new debt, without the authority of Parliament. That is an enormous power, and it is not merely speculative in its character; but it is a power which has been used in a manner highly detrimental to the public interest; and if the House is to go into the matter at all, it should direct its attention to that, which is by far the more serious part of the subject. With regard to the more limited question opened by the hon. Gentleman opposite, I agree that that also deserves the attention of Parliament, and that the state of things at present established by law is not altogether satisfactory. For the most part I concur in the views and observations of the right hon. Gentleman the Member for Radnor (Sir George Lewis.) At the same time, I think that the House has not had sufficiently under its view the various questions that are involved in these great monetary transactions of the Chancellor of the Exchequer. The Chance for of the Exchequer is the greatest banker in the country, and I believe, also, that he is the greatest operator on the Stock Exchange in London. I don't enter upon the question of whether that should be so or not. I believe that it would be injurious to the public interest that you should altogether deprive him of his power in this respect; but, undoubtedly, he ought to act under rules and on principles that have been maturely considered and deliberately adopted by the House of Commons. Instead of that, we have a system which has grown up from time to time in great degree by haphazard. The Chancellor of the Exchequer is frequently in a difficulty to know how far he is justified in using the powers with which the law invests him, and it would be greatly for his advantage, as well as for the satisfaction of the public, that it should be determined by the House in what manner, and on what principles, he was to proceed. But the chief object which I have in rising is to notice what has been said by my hon. Friend behind me, (Mr. T. Baring) on the subject of savings' banks funds, because we are at issue on a point which it ought not to be difficult to settle. My hon. Friend the Member for Huntingdon (Mr. T. Baring) thinks that the funds in the hands of the Commissoners of the National Debt are the funds of the depositors in savings' banks. In my opinion there cannot be a more gross delusion. They are not the funds of the Commissioners of Savings' Banks any more than £50 remaining in a banker's till belongs to me if I happen to have deposited £50 with him. It does not belong to me, it is his money, to use it as he thinks fit, subject to its repayment to me. To say that the depositors in savings' banks were to place their money in the hands of a public body, and were to be responsible for the prudent use or gross misuse of their funds by that body, would be doing them anything but a kindness. It would be impossible to lay down a rule that would be more ruinous to the depositors themselves. What do you do? You take the money of these depositors, and you give them the entire security of the public for their money. They cannot have a better security, and if you give them that they have no interest in the employment of the money; it does not signify to them if you fling it to the bottom of the sea. So long as the Treasury of the country is sound, it does not matter one rush what the Chancellor of the Exchequer does with the money. If he invests it well they are no richer, and if he plays all the tricks of the mountebank, or disposes of it with the artifices of the swindler, they are none the poorer. The depositors in savings banks have nothing to do with the question, and it is only weakening and impairing their position to make them depend upon the prudence of the Minister instead of upon the credit of the British public. I do not entirely follow the argument of the right hon. Gentleman the Member for Radnor (Sir George Lewis), when he says that there never can be an increase of the public debt from a transaction such as that which recently occurred. With regard to that transaction I give no opinion. I know no more than he the reasons which led the Chancellor of the Exchequer to adopt it; and I only speak, therefore, of the general principle. It does not appear but that there might be an increase of the public debt under the exercise of this power by the Chancellor of the Exchequer. If the Commissioners for the Reduction of the Public Debt are the holders of £1,000,000 in Exchequer bills, and the Chancellor of the Exchequer funds that £1,000,000 at a rate that will expunge the assets of the Commissioners to that amount, replacing them by £1,100,000 of stock, the first impression of the transaction is that it is a more matter of account, and that the public is neither more nor less indebted than before, because the £1,100,000 is a portion of certain assets, the property of the public themselves; and if the public are, on the one hand, creditors, they are, on the other, debtors to that amount. But contingently the transaction may add to the public debt; for whereas before, by means of the £1,000,000, the Chancellor of the Exchequer might have gone into the market, and, by selling that amount, made the public really debtors to the buyers by £1,000,000, he has now the power of going into the market and selling £1,100,000; therefore, to the extent of the difference of £100,000, there might be a creation of new debt by a transaction of this kind. I would suggest, whether it would not be useful, while leaving the Chancellor of the Exchequer the powers he now possesses, with regard to this exchange of securities—for that is really what is meant—to provide that all such transactions shall, as a matter of course, be brought under the review of a Committee of this House. I do not pretend that this should stand in the place of a consideration of further and fuller measures on the subject; but the House does entertain a certain amount of jealousy of these operations; in the City of London, also, the operations of the Chancellor of the Exchequer are regarded with considerable jealousy, because they interfere with the regular transactions in stock, and the House would be exercising its constitutional jurisdiction if, by some special organ, it assumed a periodical review of all operations of this kind. It is well worth the consideration of the House whether it should not make some provision that would prevent it depending on any individual Member inviting attention to the subject—whether there should not be some regular and fixed machinery by which operations of this kind could be brought under the consideration of Parliament, and regulated beforehand. It would be dangerous to say that the Chancellor of the Exchequer shall not exercise this power, because the advantage of an operation might be lost by the necessity of making an application to Parliament; but it is quite another thing to provide the means of a more rapid submission of the operation to the audit of the House of Commons.


said, he had brought this subject under the attention of the House when the hon. Member for Portsmouth (Sir Francis Baring) was Chancellor of the Exchequer. If the House did its duty, it would not allow this Act to remain on the Statute-book. Such powers ought not to be intrusted to any Chancellor of the Exchequer, and he had never known them exercised without the public sustaining a loss by it. He trusted, therefore, the hon. Member would withdraw his Motion, and bring in a Bill to repeal the existing Act.


said, that a statement had been made by his right hon. Friend the Member for the University of Oxford (Mr. Gladstone), in which he could not altogether agree. His right hon. Friend had stated, that in all those transactions no injury was done to the savings' bank depositors, and that they had no interest in that question. Now he (Mr. Henley) was perfectly ready to admit that the savings' bank depositors had the best possible security in the guarantee of the State, and that it did not matter to them how their money was disposed of. But his right hon. Friend should recollect that there was something besides the principal of those depositors involved in the matter, and that was, the interest which they received. A com- plaint had frequently been made by gentlemen representing the Government, that that interest was excessive; but such a complaint could not be put forward if the capital in that case were judiciously invested, and in that way the depositors had an interest in the mode in which the Chancellor of the Exchequer dealt with their money.


Sir, I will recall the attention of the House to the question really before it. I will not enter into collateral questions, which are, no doubt interesting, but really do not concern the Motion of the hon. Gentleman. His Motion is, "That in future no funding of Exchequer bills held by the Commissioners of Savings' Banks be made without the special authority of an Act of Parliament." For the last funding of such bills I am responsible, as it was done by my advice Consequently the hon. Gentleman asks the House to agree to what I must regard as a vote of censure notwithstanding his courteous expressions, for as the House is called upon to legislate in consequence of that operation it implies a disapproval of that operation. I have been called on by the right hon. Member for Radnor (Sir George Lewis) to state why the Government funded an amount of £7,600,000 in Exchequer bills. I will tell the House the reasons that induced me to take that course. In the course of the autumn my attention was very much called to this subject, by complaints on the part of the Commissioners of Savings' Banks that they were losing on the securities in their hands—that they did not receive that interest on them they would receive from another form of investment. It may be said that the Chancellor of the Exchequer and the Commissioners for the Reduction of the National Debt are the same parties, but that is not so. There are two accounts—one of the savings' banks, the other the general account of the country. Not wishing to see a loss regularly occurring in the savings' bank account, although it diminished the immediate charge upon the Exchequer, we avoided it altogether by changing the security. But, although that was a reason, I candidly admit it was not the only reason, which induced me to sanction tins operation. My attention was called to that to which no person in my position could be insensible,—namely, that a very delicate state of the Exchequer bill market might occur, in consequence of the great amount of Exchequer bills in existence; and I had to consider what might be the effect if a necessity should arise for placing so large an amount of Exchequer bills in the market. I naturally inquired what was the reason that the Savings' Bank Commissioners were in possession of so unusually large an amount of Exchequer bills as between £7,000,000 and £8,000,000. Perhaps the House would like to know how very rapidly that amount has accrued. At the close of the year 1854 the Commissioners held only £200,000 of Exchequer bills. It is very true that they had £1,600,000 of Exchequer bonds, which made altogether of unfunded debt in their possession £1,800,000. On the 5th of July, 1855, between bills and bonds the amount was £3,315,000. At the close of that year the amount was £4,886,000; and on the 5th of July, 1856, it was £6,875,000. The amount having reached between £7,000,000 and £8,000,000, it appeared to me that that was a very dangerous state for us to be placed in. The Exchequer bill market being naturally from the unsatisfactory character of the security a very delicate market in times of financial pressure, it appeared to us advisable to fund a portion of the Exchequer bills to prevent the possibility of our being compelled by the demands of the savings' banks to sell them in the market at a moment when there might be a great scarcity of money. Suppose such a state of affairs as prevailed at the end of the year 1857 had suddenly arisen at a time when the Exchequer bills were advertised for payment, the Minister would have found that the savings' banks could not give him any assistance, inasmuch as their resources would have been entirely absorbed and clogged by their holding these £7,000.000 or 8,000,000 of Exchequer bills. That state of things was very unsatisfactory, not only to the Chancellor of the Exchequer but to the Commissioners of Savings' Banks themselves. It was thought necessary to sanction a change which would put an end to that system, but that sanction was not hastily given. My hon. Friend the Member for Hunting-don talked of needy Chancellors of the Exchequer who availed themselves of these changes for their own benefit; but I would impress on the House, and remind that in this instance the change was made for the benefit of the savings' banks themselves, because the National Debt Commissioners, instead of holding a security which yielded them a less interest than they paid to the savings' banks, received for that a security which avoided a loss to the fund. And that is the real reason which prevailed with me in sanctioning the funding of this large amount of Exchequer bills held by the savings' banks. I believe I took a course very much for the advantage of the savings' banks, but in it the Government were really not at all interested, because these Exchequer bills were not floating in the market. They were practically in the possession of the Government. I was obliged to look to the circumstances which had arisen from this rapid increase of Exchequer bills in the hands of the Savings' Bank Commissioners, and it appeared that these circumstances had arisen in a very legitimate and proper manner. I do not for a moment question the propriety of the course which occasioned them, but they arose in consequence of a very exceptional and extraordinary state of things—namely, the occurrence of a war, to carry on which this House voted that the Chancellor of the Exchequer might raise money by the issue of Exchequer bills. Well, that transaction was closed. I looked upon the funding of these Exchequer bills as a virtual completion of the transaction and I have no hesitation in using a phrase used by the hon. Gentleman opposite,—no doubt it was the virtual completion of a loan which the country had obtained to carry on the war. But the transaction was completed legally, and also most satisfactorily to the Savings' Bank Commissioners. If the assertion of the hon. Member for Lambeth that Chancellors of the Exchequer have never interfered in transactions of this kind, except for their own benefit, be correct, I can assure him that at least this transaction was of no advantage whatever to the Government beyond the advantage that must always accrue when funds of this kind are in a satisfactory and healthy condition. This is the real reason why this funding took place, and I believe the operation was necessary, and strictly in consonance with the law. I will not touch the various collateral topics which have been introduced into this debate. I deprecate the adoption of this Motion. I think the subject could not be dealt with at all satisfactorily by acceding to it. But I am perfectly willing to admit, as I have admitted on a previous occasion that the state of our unfunded debt is by no means satisfactory. I do not think that Exchequer bills, as an instrument of security are adapted to the times in which we live. The shortness of their date, the possibility of a large amount becoming due upon them at a moment when there is a great strain upon the money-market, and even when there is a great panic in the public mind, is highly disadvantageous; and I think it quite possible that the wisdom of the Administration and of Parliament may some year or other substitute some instrument to carry on the conduct of our unfunded debt more effectively than by any instrument which at present exists. The whole subject of Exchequer bills is and has been for some time under the consideration of the Government, in consequence of the recomendations contained in the report of the Committee on public moneys. I regret very much that circumstances have prevented me from bringing any of the recommendations of that Committee before the House, but I hope I shall be very shortly able to do so. I can then speak more definitely than would be convenient at present on the subject of Exchequer bills. I hope that, for the reasons I have stated, the House will reject the Motion of the hon. Member.


said, so far from the Exchequer bill market being in a delicate state he found by the returns that when this transaction took place Exchequer bills were at a premium of from 34s. to 37s. But there was another point. The transaction took place in January. Parliament was to meet in a few days, and the question might easily have been left to its determination. When the Exchequer market was in a delicate state on a former occasion the then Government had funded £5,000,000 with the authority of Parliament, but the Exchequer bills on that occasion were not in the hands of the Government, but were purchased in the open market. The right hon. Gentleman stated that the Exchequer bills funded were in the hands of the Government, and his funding them therefore could make no difference to the money market. He had, however, greatly increased the permanent public debt by this measure. If they had not been converted he would have had to provide for interest the sum of £160,000 for the Exchequer bills, but the effect had been to swell that to £240,000 as the interest payable on the consols thus created. He had volunteered to make a sacrifice of the difference of the interest for the purpose of relieving the Commissioners; but in the long run the Savings' Banks Commissioners, being liable for the interest, would be in precisely the same condition. He defied any man to show that there was any saving to the Exchequer or the Savings' Banks Commissioners by this transaction. But there was this difference, that as long as they kept this obligation in the form of unfunded debt they must come to the House, year by year, for authority to receive the Exchequer bills, to discuss the question; whereas, when it was once funded, it was taken out of the cognizance of the House. Moreover, as long as the amount was in the shape of Exchequer bills, the Chancellor of the Exchequer could take advantage of the variations in the rate of interest in making his periodical exchanges, which he could not in the case of the funded debt. He denied that it was the same thing to ask the House for a loan as it was to ask for permission to issue Exchequer bonds. The amount of the Exchequer bills was stated by the right hon. Gentleman to be very large, but £20,000,000 of Exchequer bills was not a very large amount to be floating, the average of the last few years having been £18,000,000. He did not pretend to say that any immediate loss had accrued to the public from the operation to which the right hon. Gentleman had referred; though in its ultimate results the transaction might be attended with some loss.


said, he would withdraw the Motion.

Motion by leave, withdrawn.