HC Deb 04 March 1861 vol 161 cc1309-31

Order for Committee read.

Consolidated Fund and Exchequer Bills Acts considered in Committee.

(In the Committee).


I rise, Sir, to call the attention of the Committee to a subject which is undoubtedly an important one, but which, at the same time, I am afraid will not be found the most attractive of all those which might be submitted to its notice. It is to the present Legislative arrangements with respect to the instruments of public credit, called Exchequer bills, and to certain proposals which I am about to make for the purpose of altering, in some material respects, the footing upon which they are at present placed. For a number of years changes have been going forward in the monetary condition of this country which have very much tended to contract the market for bills of this description, the principal change being the great multitude of securities which now exist, and which are of such a nature as to complete successfully with Exchequer bills, and thereby narrow the demand for them. Of course it would have been open to the public to keep afloat in the market an amount of Exchequer bills equal to those which were formerly in use; but that could only have been done by raising the rate of interest to a point at which the employment of such bills would cease to be in any respect advantageous to the public. The consequence has been that their amount has progressively diminished; and to the cause of that diminution and the mode of improving their position, I shall now call the attention of the Committee. The Select Committee of this House which was appointed in 1857 directed its attention to this among other subjects, and in the fourth section of its Report it made some important recommendations, the principal of which was this—that Exchequer bills, instead of being continued to be voted as part of the Annual Supplies, and made chargeable on grants of Parliament for Supply services, should be transferred at once to the Consolidated Fund; and that, together with this change, they should likewise cease to be, so far as the corpus of the Bill itself, loans annually renewable, but should be made current for a period as long as might be convenient, or as long as the instrument itself might bear circulation without the necessity of being renewed. The first four of the Resolutions which I have laid upon the table are intended to give effect to the recommendations of the Committee. They are not, indeed, literally and absolutely bounded by those recommendations; because they contain proposals which, I think, may be regarded as developments and applications of the principle upon which the recommendations are founded. The subject of the fifth Resolution was hardly a matter within the original appointment of the Committee, but it involves in principle a return to what was formerly the practice of the State; and in that view I shall trouble the Committee with a few remarks on the subject.

With regard to the question of Exchequer bills, I hold that the public who are the borrowers, and the holder, who is the I lender to the public, have a common in- terest in these instruments. Speaking generally, the convenience of the borrower and of the lender are, though in different forms, one and the same. Whatever makes the bill a convenient security and gives to it steadiness in price, or invests it with all those features that make it a desirable security, is in the first instance for the interest of the holder of the Bill, because it follows that he is content to lend his money at a lower rate of charge. On the other hand, whatever tends to give unsoundness in these securities reacts on the public interest, because it makes the holder unwilling to lend his money except at a higher rate of interest. But over and above what affects the position of Exchequer bills in the market, there is a separate consideration, and one which principally attracted the notice of the Select Committee. The subject is one of a technical character, but I hope to make it intelligible to those who give me their attention. The Exchequer bills we are now dealing with are called Supply Exchequer bills. They are voted in Committee of Supply, and purport to be part of the Supplies of the year; and when they are presented for payment must be paid out of money that is already apportioned to the Supply, service of the year. The origin of this custom, which has now become a most inconvenient one to the regular progress of the public service, is to be found in the nature of the original instrument itself. When Exchequer bills were first resorted to they were simply instruments of credit issued in anticipation of the revenues granted by Parliament, but the collection of which proceeded slower than had been anticipated, and slower than the demands of the public service required. The practice in consequence was for the Exchequer to issue an engagement at short date which stood in lieu of, and was to be liquidated out of the Supplies voted by Parliament as they came into the Exchequer. So long as Exchequer bills were really and substantially issued in aid of the Supplies of the year, there could not be a more becoming or appropriate arrangement; but that has long ago ceased to be the case. Practically speaking, Exchequer bills have now no connection with the Supplies of the year. We look upon them as part of the unfunded debt of the country; and, as part of the unfunded debt we renew them from year to year without the slightest regard to what we ordinarily term Supply. This system is a very antiquated one—it is as inconvenient as it is antiquated, and the Committee is now asked to change the basis of the arrangement. We have just had a remarkable instance of the great inconvenience of the existing arrangement. Within the last week there has been an exchange of Exchequer bills, and that exchange has taken place under circumstances entirely unprecedented; for whereas Exchequer bills bear a low rate of interest we have been compelled to change them at a time when the rate of interest at the Bank of England, representing the general condition of the money market, is no less than 8 per cent. It was, therefore, to be expected that a considerable amount of Exchequer bills would be presented for payment, instead of for renewal, with a view to the more profitable investment of the money. But, in point of fact, only £1,000,000 out of the £6,000,000 which might have been presented for payment in March have been presented for that purpose; and, therefore, the holders of £5,000,000 have taken renewals for twelve months at the rate of 3 per cent, when commercial bills can only be negotiated at the rate of 8 per cent. But what I wish to call the attention of the Committee to is this—that we are not allowed to pay these bills out of the Consolidated Fund, but must pay them out of the money voted by Parliament for the army and navy and the civil service of the country. The consequence is that £1,000,000 must be deducted as the first step from these monies voted by Parliament. But how, then, are the various establishments to which I have referred to be supported? The system resembles one of double charge, and it is obvious there cannot be a more inconvenient arrangement. Parliament votes—say £40,000,000—for the Supply service of the country, but, besides supplying money to that amount, it sends out instruments involving engagements to the extent of £14,000,000 or £15,000,000, and makes that amount chargeable as to money voted for Supply. The consequence is that though it may be found desirable to withdraw the Exchequer bills altogether, it cannot be done, because they are payable out of the amount that is wanted for the army, the navy, and the civil service of the country. We are, therefore, compelled to re-issue them by a very complicated form, to the Paymaster, not because we want to send out Exchequer bills, but because the Paymaster wants money for the service of the country. The Select Committee recommended that we should remove this portion of the unfunded debt from any relation to the Supplies of the year as a system nominal, fictitious, and inconvenient. But there are other reasons that make it desirable to alter the basis of this arrangement. One of these is the extreme difficulty of reducing the amount of Exchequer bills when that becomes desirable. At the commencement of a war, for instance, when funded operations can only be conducted on a large scale it is necessary that the Government should have in its hands the power of issuing instruments of this kind at such times and in such quantities as may be found convenient; consequently, in time of war, there is generally a large amount of Exchequer bills afloat. But when we come back to a time of peace there is the greatest possible difficulty in reducing them; because, as I have said, there is no regular method by which the Government can cancel these Exchequer bills, because they are not liquidated out of the general funds of the country, but out of the means which have been devoted to another purpose. Consequently the bills themselves are not allowed to lapse, but a re-issue is necessary, whether that re-issue is on financial grounds desirable or not. The result of this proceeding has been that the law has provided a remedy which, I think, is of an exceptionable kind—that is to say, it has enabled the Commissioners for the Reduction of the National Debt, without the approbation of Parliament, to go through the process of what is called "funding Exchequer bills;" and, although that is a very defective arrangement it is, as the law now stands, the only means by which, under the existing machinery of our financial system, it is possible to effect any material contraction in the amount of Exchequer bills that may at any time come into the market.

Then, again, nothing can be more cumbrous than the present instrument at the command of the Finance Minister for meeting a temporary depression of Exchequer bills. Of course, with the great fluctuations of the money-market of this country —fluctuations which, I am afraid, are becoming not less but more considerable and rapid than at any former period—instruments of this kind must, like other securities, undergo great variations in price. But it is most desirable to give them as far as possible a character of steadiness Sometimes a pressure comes upon the money-market which is of short duration, but which tells first, and most severely, upon instruments of this class. Exchequer bills go to a discount, although it is very desirable to keep them afloat at or above par; for it is not to the credit of the State that they should remain current at a discount, or go to a discount of any considerable amount. But at the present time the only mode by which that pressure can be met is by raising the rate of interest on the whole amount of Exchequer bills that may be in the market; and if the pressure comes soon after they are issued, as the term for which they run is not less than twelve months, the only remedy is very costly to the public, and may, if the pressure ceases, have the effect of carrying the Exchequer bills, before the twelve months have expired, to a premium so high as to be equally undesirable with the discount to which they had previously sunk. As to the inconvenience specially felt by the public it may be stated as follows:—In the first place the holders of these bills are called upon, at the expiration of the twelve months, to come to the west-end of the town to present their bills, and to deposit them for examination. They remain out of their possession for some days; and then the holders return to have new bills presented to them. Any one conversant with financial matters must see that this is a very serious inconvenience to commercial men; and if so it is, likewise, a very great obstruction to the circulation of these bills, and reacts on the public interest in discouraging that circulation. I propose, therefore, following the recommendation of the Committee to do away with the necessity, and indeed with the opportunity for the annual renewal of the Bill itself—meaning by that not the obligation contained in the bill, but the mere piece of paper on which the obligation is expressed. We propose to substitute for the bill annually exchanged an instrument of permanent currency, that will carry attached to it a number of coupons entitling the holder to receive the interest at the proper time. These coupons will be renewed from time to time, but the bill itself will remain in the hands of the holder until it may be necessary to renew it—in the same manner that a country bank-note may be renewed through its being worn and no longer in a convenient state for circulation. It is of most importance that I should be clearly under- stood on this point. In giving permanency to the bill it is not intended to give permanency to the currency of the bill. The bill will run on from year to year without renewal, but the currency will be renewed from year to year as it is at present—that is, the holder will be entitled to claim payment exactly as now, but if he prefers to continue to hold his bill a fresh term of twelve months will then commence; and so on from year to year, toties quoties. To avoid the necessity of presenting the bill at the West-end we propose to intrust the whole of the money business connected both with the liquidation of the bill and the payment of interest and principal into the hands of the Bank of England. It will be transacted as part of the business of the National Debt, in the form and at the place most convenient to the holders of these instruments. In the same way the holders of these bills have materially suffered from the great ranges of fluctuation in their value. I do not know that it will be possible to effect any great change in this respect, but I am very confident that something may be effected. I wish the Committee to understand how extensive these fluctuations have been. They have not indeed been so great as the fluctuations in the prices of the funds, or so great as the fluctuations in the rate of commercial discount, but still they have been very considerable. I have in my hand a list of the maximum and minimum prices of Exchequer bills during the last twenty years. There are only five of these years in which the price of Exchequer bills has not fluctuated as much or more than 30s. The maximum fluctuation was in 1841, 21s.; in 1849, 26s.; in 1850, 18s.; in 1851, 23s.; in 1854, 24s. Those are the years of the smallest fluctuation. But there were several years in which they were above 50s. In 1845 the fluctuation was 59s.; in 1847, 57s.; in 1853, not less than 90s. In the fourteen months from October, 1847, to December, 1848, the fluctuation was not less than 98s. in the price of Exchequer bills. It is obvious that the range of this fluctuation is much connected with the facility or difficulty of applying the natural remedy—that of raising the rate of interest. If the rate of interest could be raised for a moderate period the bills could be more easily used, and the discount more readily checked. But if, on the other hand, the only way of interposing to prevent the discount is by the use of a measure that -will cost the public from £100,000 to £200,000, and which may end in leaving Exchequer bills as much too high with reference to the money-market as they were too low, then, of course, it is an instrument that must not be resorted to without very considerable deliberation.

I think the last objection I have to mention is this, that the écheance of the bill—that is, the date at which it is to be liquidated—is rather remote. In mercantile transactions a bill for six months is a very long bill; but Exchequer bills are Government bills running for twelve months. This is not in conformity with the ancient state of the law, for until the year 1838 Exchequer bills were presentable at an earlier period than at present. I now come to a proposal to enable the holders to claim payment at an earlier date. Before 1838 the state of the law with regard to the presentation of these bills conformed to the original theory on which their whole legal status was based. They were chargeable on the Supplies of the year following the year in which they were issued; and that being so, they might be presented for payment at any period following the 5th of April, that is to say, following the close of the financial year in which they were granted. This was not a convenient arrangement, for Exchequer bills might be presented at very different periods from the date at which they were issued. If they were issued on the 6th of April, they could not be presented for nearly twelve months. If they were issued on the 4th of April they could be presented after a single day. But practically the effect was this — Exchequer bills were issued at very various periods, and a number of them were payable at very short dates. I forgot to say when speaking of the Exchequer bills being presentable for payment I meant in payment of taxes; for their presentation for payment in cash could only take place at the end of a year—not before and not after. Until 1838 Exchequer bills might be presented in payment of taxes at any period after the 5th of April immediately following their issue, and if issued on the 4th of April they might be presented for payment in taxes on the 6th of April; and if issued on the 6th of April they would not be so presentable until the next 6th of April. In 1838 a different rule was substituted, and it was then established by Parliament that Exchequer bills might be presentable in payment of taxes at any period exceeding twelve months from the date of issue. This was equivalent, in point of fact, to destroying altogether the value of the privilege which the holders of Exchequer bills had enjoyed; because, inasmuch as every Exchequer bill was liable to be discharged in money at or after the expiration of twelve months from its issue, it was not very likely that the man who could receive his money in a direct payment on presenting his Exchequer bills would adopt the roundabout process of getting them paid by presenting them in liquidation of some claim on the part of Government for duties. What I propose is that during the last six months of the year for which Exchequer bills shall have currency by law, those Exchequer bills shall, at the option of the holder, be receivable in discharge of any claim for duties or taxes due to Her Majesty This is an important provision, and which I hope the Committee will adopt, though not without being fully alive to its nature and bearing. The effect of this, as we have now two issues of Exchequer bills in the year, will be as follows:—We issue Exchequer bills in the middle of March and again in the middle of June. The holder of the March Exchequer bills will be able to claim that they shall be received by the Government in satisfaction of any duties owing to the Government on and after the middle of September, and until the middle of March next, when the full twelve months will have elapsed. The holder of the June Exchequer bills will be able to make the same claim in the middle of December and at any period following the middle of December until the middle of the following June. The effect of this will be to give to these bills the character of six months' bills; and thus bankers and others who hold Exchequer bills of both issues—of March and of June—will have the power of liquidating a portion of those Exchequer bills once in every quarter. In March they may have their March Exchequer bills paid off in money, and in June they may have their June Exchequer bills paid off in money; and after the middle of September they may have their March Exchequer bills tendered and received in payment of duty, and after the middle of December and until the middle of the following June they may have their June Exchequer bills tendered and received in payment of duty in like manner. There is no doubt that the substitution of this arrangement for that now in existence is generally considered extremely desirable by those whose acquaintance with monetary matters makes them authorities on the subject. I mean to say that their opinion is that enabling Exchequer bills to be tendered at shorter periods from their issue than at present would be of very considerable value to the commercial world.

Then, the question to be considered is whether the change is attended with any prospect of inconvenience to the interests of the State? Have we, for example, any reason to fear that at periods when the revenue may be running short, the presentation of these bills in lieu of money may produce a pressure on our resources, and even put the Government in some danger with respect to the power of fulfiling their engagements? I shall be quite prepared to present to the Committee, if they should desire it, a statement, showing what was the practical working of the system at periods when Exchequer bills were presentable in payment of duty after a short period. About the conclusion of the war, and, perhaps, so late as the public of 1825, no doubt, considerable quantities were so presented; but I am not aware that there is on record any case of public inconvenience in consequence—I mean fiscal inconvenience in connection with the revenue, or the engagements to which the revenue was pledged. After a very considerable experience it may be said that there is no disposition, even when money may be scarce, to make such a use of the privilege as would be inconvenient to the public. In point of fact, there are certain natural limits within which the privilege can be used. For example, at present Exchequer bills are held, and they are likely always to be held, not quite exclusively, but almost exclusively in London, and they could not be presented on a very large scale for duty except in London or one or two other places. Then, again, there are certain duties only for which, from the nature of the business in connection with them, Exchequer bills could be tendered in satisfaction. They might be tendered, no doubt, in satisfaction of Customs' duties. But the amount of Customs' duty received in London was from £200,000 to £250,000 a week; and therefore the effect of an operation of this kind would be that, while it might be for a particular holder a most convenient arrangement, and thus tend to increase confidence in the bills, it would at the same time be extremely difficult to imagine a use of Exchequer bills in this Way on any scale so extensive as to produce inconvenience to the revenue.

But that is not the whole of the case, because I am not going to propose to take away the power now enjoyed, and necessary to be employed, of sustaining the Exchequer bills in the market by raising the rate of interest. I call the attention of the Committee to the provision I make by the second Resolution to the effect that the interest on the bills shall be payable by coupons half-yearly, instead of yearly—and that in every way is a most useful provision. At present there is great inconvenience in regard to Exchequer bills with respect to the payment of the income tax. The mode of dealing with Exchequer bills in the open market is by selling them with so much of the interest on them as was due up to the period of the year already elapsed. The interest is a penny or so a day, and, though the collection of the interest in that way is very easy and simple, any attempt to deduct the income tax from the interest so reckoned is, on the contrary, most inconvenient. The consequence is that the income tax is as the year passes continually disturbing the price of Exchequer bills and forming an element in their purchase or sale. It is impossible entirely to get rid of that difficulty. It applies in a degree to all public securities, but the difficulty is more than doubled with respect to Exchequer bills from the fact that the interest is paid only once, at the end of the year, and the income tax of the I whole year is deducted from that interest. Therefore, it will be an advantage to the holder that the interest should be paid half-yearly, for he then would not be so long out of his money as at present, and it would be a still greater advantage to the State. The power of raising the interest, by which, according to established practice, the Finance Minister is enabled to rectify the position of the Exchequer bills, will henceforth and entirely be exercised by raising the interest, not for an unexpired period of twelve months, but for a period of six months. The interest will be fixed from time to time. The minimum rate of interest will be guaranteed at the commencement of each year for twelve months; hut when the interest is raised the Chancellor of the Exchequer will be able to raise it for half a year, instead of the whole year. Under these circumstances the Chancellor of the Exchequer will be more free than at present to raise the rate of interest, and the average increase in the charge for interest will probably not be more than one-third what it is at present.

I have been obliged to trouble the Committee rather unmercifully with a number of these points of detail, because I hold it to be my duty not to study that which is agreeable and convenient as matter of rhetorical discourse, but to aim at conveying a clear and full statement of all the particulars that bear upon the discussion of a measure of very considerable importance. I shall be happy to give any supplementary explanation which any Member of the Committee may be pleased to ask of me, and in the meantime I have only to add that I propose to make a slight alteration in the wording of the last two Resolutions, with a view to greater clearness of expression and better order of arrangement.

Perhaps, however, before I sit down, I may be permitted to say a few words with respect to the notice given by the hon. Beronet the Member for Evesham (Sir Henry Willoughby). The hon. Gentleman has given notice of a sixth Resolution, to which it will not be possible for me to agree at the present moment; but which, on the other hand, I should be sorry to oppose, and which I hope to be able to induce him to withdraw, upon grounds of which, I think, he will see the sufficiency. His Resolution is intended to prevent the Commissioners of the National Debt from funding Exchequer bills without the consent of Parliament. To the principle of that Resolution I need not say I am entirely friendly, because in a Bill which I had before the House last year I included myself a provision for that purpose. But a provision which I may think very convenient in a measure relating to the general finance of the National Debt Commissioners would not be convenient in the measure now before the House. In point of fact, it is too much and too little. When we have to pass a Loan Act we do not provide in that Act what shall be the particular powers of those who are to deal with the loan in the public market, and the Resolution of the hon. Baronet ought to be embodied, not in a measure relating to what I may call the status of Exchequer bills, but in one relating to the powers of the National Debt Commissioners. The Resolution would be too narrow. The Bill which will be founded upon the Resolutions of this Committee will be limited to one description of Exchequer bills, those that are called Supply Exchequer bills—those that are habitually bought and sold in the open market; and it would be most inconvenient to mix up with Supply Bills, which are a security known to the public, legislation relating to other descriptions of Exchequer bills, the very existence of which as such is absolutely unknown to the public, but which are of great importance in regulating the financial transactions of the country. The other descriptions of bills to which I allude are Deficiency Bills, and Ways and Means Bills. My hon. Friend is aware that by far the most objectionable kind of funding power possessed by the Commissioners of the National Debt is the power of funding Deficiency and Ways and Means Exchequer bills, because the practical effect of its exercise is that deficiencies in the current revenue of the year are converted into part of the funded debt of the country without the knowledge or intervention of Parliament. It would never do to leave that power in existence, and at the same time to deal with a minor and less important power in a measure of this kind. But what I wish to do is to appeal to the hon. Baronet to reserve himself for another occasion. If there is a strong feeling in the House I should not much object to deal with his Resolution in a separate Bill, but I think we should wait until we are dealing with the general question of the finance of the National Debt Commissioners, which would be the appropriate time for discussing the proposition submitted by my hon. Friend. After a Government has proposed by Act to part with a certain power, the representative of that Government would not feel himself justified in using it, and certainly I should not think it right, after having asked Parliament to put this power away altogether, to put it in exercise without coming to Parliament beforehand. But that is a matter in which the hon. Baronet will exercise his own discretion, though, as I do not believe there is any practical difference in the Committee upon the point, I should be sorry to be obliged to put a negative upon his Resolution on account simply of its inapplicability to the present occasion. With these observations I have only to put into the hands of the Chairman the Resolutions of which I have given notice, and which are as follows:— 1. That it is the opinion of this Committee the principal monies of Exchequer bills is- sued undert he authority of Parliament, together with the interest thereon, which may become payable from time to time, shall be charged upon and paid out of the Consolidated Fund of the United Kingdom, or the growing produce thereof. 2. That the interest on such Exchequer bills shall, during their currency by Law, be payable half-yearly by coupons, and shall be paid at the Bank of England. 3. That an option shall be given at the expiration of each twelve months to the holders of Exchequer bills to be paid the principal monies of all Exchequer bills held by them, and such principal monies when paid shall be paid to the holders at the Bank of England; and that all Exchequer bills not so paid off from time to time shall have currency for the next twelve months following the date of such option. 4. That, when such Exchequer bills shall be paid off, the Commissioners of Her Majesty's Treasury may issue the like amount of Exchequer bills to replace the Exchequer bills so paid off. 5, That all Exchequer bills shall be receivable for Duties granted to Her Majesty during the last six months of each year during which such Bills shall have currency by Law.


said, in his opinion, one of the propositions of those Resolutions would add greatly to the convenience of the holders of Exchequer bills, and also save some expense to the Government, and they would not necessarily be called upon for the renewal of the whole amount. This was one of the propositions recommended by the Committee on Public Moneys which sat four years ago. He would ask whether the right hon. Gentleman would take an early opportunity of carrying out the recommendations of that Committee.


said, that the monetary interest in the City viewed the propositions of the Chancellor of the Exchequer as a great improvement on the present system with regard to Exchequer bills; but, at the same time, he thought he might venture to apply to the case a homely maxim, by saying that the Chancellor of the Exchequer "shut the stable door after the steed had been stolen." Nothing could be more useful than a review of the causes which had led to the depreciation of Exchequer bills. Perhaps the origin of the evil might be found in an error made so far back as 1853, when it was proposed to reduce the interest on Exchequer bills to a rate below that at which they would float in the market at a premium. One of the results of that mistake was that about £3,000,000 of Exchequer bills were presented at the Treasury to be paid off instead of renewal. Since that time there had been an increase of floating securities of another description, such as East India debentures and railway-debentures to a large amount, and the low rate of interest on Exchequer bills offered no inducement to parties to hold those securities as heretofore. A reasonable expectation might be entertained that, with the privilege now conceded of paying duties after six months in Exchequer bills, that security would again rise in the estimation of capitalists. When the present discouraging state of the money market should have passed away; and when that improvement had taken place they would no longer witness the mortification with which the Chancellor of the Exchequer had to acknowledge that so large an amount of Exchequer bills were presented for payment as to occasion inconvenience to the public. He believed the disposition of the monied interest was at all times to aid the Treasury and not at any time to distress the Government by presenting their Exchequer bills for the sake of gaining a few shillings. He was persuaded that, if the Chancellor of the Exchequer took care that the amount of Exchequer bills were not unduly increased beyond what the market could fairly bear, the Resolutions now before the Committee would open a new era in the history of public credit.


said, he had no doubt that the proposed changes would add to the popularity of Exchequer bills. One good effect of the measure would be, that in times of pressure or panic it would enable bankers to afford more accommodation to their customers by paying in Exchequer bills to the Treasury instead of cash. One question he should like to put to the Chancellor of the Exchequer. He had stated that at the end of six months, during the first year of their currency, Exchequer bills might be paid into the Treasury for taxes; but he had not explained in what position holders would be if, after the expiration of the first twelve months, they wished to pay them for taxes to the Government.


wished to ask a question of the right hon. Gentleman. It was proposed to give the holders of Exchequer bills an option to receive their money at the expiration of the year; would there be a corresponding right on the part of the Treasury to call in the Exchequer bills at the same period? Suppose the holders did not want to get their money, but wished to hold their bills, their doing so might be a disadvan- tage if the Government desired to call in a portion of them. The result would be that, at the option of the holders of Exchequer bills, the whole of the unfunded debt would be kept up from year to year. Inconvenience might also arise from a considerable portion being paid in at a particular period. Was it not possible that some arrangement should be made by which Government might at the expiration of the year of currency call in a portion of the Exchequer bills which it might be convenient to the Government to discharge instead of leaving the whole amount in the hands of holders? It was perfectly true that at present Exchequer bills were only held in London, and that the payments in respect to the Customs here were not large; but with this new privilege given to Exchequer bills it might become worth while at Liverpool and other large ports to hold them, and half a million of money might be paid in that form, which would lead to considerable inconvenience. Then, when they were paid in, what was to become of them? Was there to be a power of re-issuing them?


made an observation across the table which could not be heard:—but


said, in that ease his objection fell to the ground, and he had no further question to ask.


said, he thought the holders of Exchequer bills had a right to expect some benefit of the kind held out by their Resolutions at the hands of the right hon. Gentleman, for he believed no previous Chancellor of the Exchequer ever so much damaged the character of Exchequer bills as he had done in 1853, when he reduced the interest so low as 1d. Formerly the Exchequer bills were one of the most desirable securities a banker could hold. They were the nearest approach to a bank-note, with the advantage that it bore a certain rate of interest. The Resolutions would be regarded by the monetary interest as a boon; but he was at a loss to see the great advantage of the arrangement to the finances of the country. The Chancellor of the Exchequer thought that the Exchequer bills should no longer be taken as part of the charges for the year; but that was merely theoretically—for practically the Bills were never paid, and they were really a part of the permanent debt of the country. They were now to be placed on the Consolidated Fund; and, were, there- fore, not nominally but avowedly part of the permanent debt. It was true that the holder had the power to demand payment at the end of twelve months; but again practically this would be checked by the Chancellor raising the rate of interest; or if the repayment were actually made, a similar amount of bills could be re-issued. He objected to a permanent addition to the national debt with out the express consent of Parliament. He agreed with the hon. Baronet the Member for Evesham (Sir Henry Willoughby) that it was very necessary to place on record the opinion of the House that these Bills should not be funded. It was perfectly true that the Chancellor of the Exchequer did not intend to fund last year; but he might alter his mind in six or twelve months, and he hoped the hon. Baronet would not withdraw his Resolution. It did not matter that the Resolutions only proposed to apply to Supply Bills. They might deal with the Deficiency Bills afterwards. It was a very strong measure to fund Deficiency Bills, and he did not think the Chancellor of the Exchequer would propose to do so; but some measure of the kind might be resorted to unless it were forbidden by Act of Parliament. The Chancellor of the Exchequer said that Exchequer bills would be kept up at their price, because they would be payable as duties, and the amount in the market would be pro tanto reduced; but, formerly Exchequer bills were kept up by the variations in the rate of interest which, he thought, was the only legitimate way of meeting the case. If a large portion of the bills were to be paid in as duties it would 'affect the Supplies for the year. As far as the public were concerned, the matter would be very nearly as broad as it was long, and to the bankers Exchequer bills would be a convenient security in which to invest their money. But he had expected that the Chancellor of the Exchequer, when making any alteration with reference to Exchequer bills, would have abolished the absurd rule, according to which interest on them, unlike all other securities, was computable de die in diem. Not only was this productive of inconvenience in rendering an increase in the rate of interest, whenever such took place, applicable to very large sums; but the very least addition that could be made—that of a farthing daily—amounted in the year to 7s 6d.; whereas it was obvious that an increase of 2s. or 3s. would be sufficient. He could not believe that there was any additional facility in calculating interest at a daily instead of a yearly rate; at least he was certain that the latter was generally employed by those familiar with banking business.


said, he should not have taken the liberty of adding a Resolution to those proposed by the Chancellor of the Exchequer, if he did not believe that it went to the very marrow of a question which the right hon. Gentleman had approached with his usual ability—the best mode of sustaining the credit of Exchequer bills;—and the whole of the five Resolutions of the right hon. Gentleman wont to that point. He thought, however, that the Resolution he proposed to add touched more deeply on the question of the estimation in which Exchequer bills were to be held than all the rest of the Resolutions. It was quite true that the credit of Exchequer bills received a sudden blow by changes in the rate of interest; but the market was much more prejudicially affected by the operations on a great scale carried on in complete privacy by the financial Minister of the day. Those operations were carried on in complete secrecy, and it appeared to him that until they passed a measure enacting that all Government transactions in Exchequer bills should take place in the public market, and in the face of day, they would accomplish little or nothing. As far as the Resolutions were founded upon the Report of the Committee of Public Monies, he entirely concurred in them. Mr. Goulburn, who, according to his judgment, was an honest Chancellor of the Exchequer, placed on the table, so long back as 1844, a paper showing that silently and secretly, by the action of the Government, Exchequer bills to the amount of £7,000,000 had been converted from unfunded into funded debt. The House of Commons knew nothing about it; but year after year this change from unfunded to funded debt took place. The last two operations were the transfer, in 1853, of a sum of £383,000 Exchequer bills to the funded debt when Consols were 99¾, and that of a sum of £791,000 when they stood at 97¾ but the House of Commons knew no more about it till the periodical returns were issued than the greatest stranger to financial operations. Who could doubt that these transactions struck at the very foundation of the credit of Exchequer bills? Therefore, he trusted that the right hon. Gentleman would say he would deal with that matter in a measure during the present Session. If he could receive an assurance of that nature, he should be delighted to withdraw his Resolution; because he admitted at once that the question cut very deep— much deeper, perhaps, than the Committee was aware—because he could show that the funded debt of the country had been greatly increased—not merely changed from unfunded to funded debt, but positively increased—by the operations which took place in 1838, 1839, 1840, and 1841, in which the additions were respectively £600,000 in 1838, £500,000 in 1839, £500,000 in 1840, and £600,000 in 1841, so that the House of Commons of that day was placed in the ludicrous position of having nearly £2,000,000 of public debt created without their knowledge. What could they do, he asked, when such circumstances as those were possible, to sustain the credit of the Exchequer bill market, unless they struck at the very root of such transactions? What had been done in former years might be repeated in 1861, and what he wanted was the introduction of a very simple measure, which would relieve the system of one of its greatest difficulties. He wished to know, also, to what extent coupons were to be added to the Exchequer bills, and on whom, in the case of forgery, the loss would fall; and how the £1,000,000 Exchequer bills to be consolidated were to be dealt with. The Consolidated Fund was such a mythical thing that one hardly knew what it meant, and a great deal of misconception existed about it. He did not agree with his hon. Friend (Mr. Hankey), in hoping that the computation of the interest of Exchequer bills would be altered from the present mode, which was very convenient when there was a large sum out at short dates. He hoped, however, that the right hon. Gentleman would give him an affirmative answer upon the more important question as to whether he would bring in a measure to the effect that Government should not fund any Exchequer bills without the previous consent of Parliament.


hoped some distinct understanding would now be arrived at by the House with regard to this subject. He entirely agreed with the hon. Baronet (Sir Henry Willoughby) that nothing so much affected Exchequer bills, and, indeed, all public securities, as concealed operations; and that the funded debt of the country should not be increased without the express consent of Parliament. With regard to the calculation of interest, knowing that in every other species of security a per annum calculation was practicable, he thought it might easily he effected in the case of Exchequer bills. He was anxious to express his opinion that to Mr. Masterman, the late Member for London, they were indebted for some of the best suggestions on the subject now before the Committee. He would also observe that the right hon. Gentleman the Chancellor of the Exchequer had this Session introduced two measures which were calculated to effect a great reform in the public business, and that these financial improvements were appreciated in the proper quarter.


said, that he had to express his great gratification at the general approval of the substance of his Resolutions by the Committee. He had been asked by the hon. Member for Lambeth whether he intended to give effect to the recommendations of the Committee on Public Monies? He had the pleasure of stating to the House on a previous night that the Bill was in preparation which would give effect —-not absolutely to the whole of the recommendations of that Committee, but to the more important ones. With reference to the relative merits the per diem and per annum computation of the interest on Exchequer bills he was fully open to conviction, but hitherto he had not been able to ascertain what the general wish was. That was the first time he had heard the question introduced, and if it were shown that it was the general wish he should have no difficulty in making a provision in the Bill, to alter the mode of computing. His hon. Friend the Member for Yorkshire (Mr. Cayley) had asked how would the holder of an Exchequer bill stand with respect to the right of offering his bill in payment of taxes after the expiration of twelve months? The general effect of the change would be, not exactly, but in a considerable degree, to convert this instrument, at the option of the holder, from a twelve months' into a six months' instrument. The holder would become after six months—that is, in the middle of September—entitled to tender his bill in payment of taxes, and would continue so entitled until the expiration of twelve months —that is, till the middle of the following March. At the expiry of the twelve months he would have the option of taking his bill in money; if he did not take money, then a new term commenced exactly the same as the former. It would thus be capable of liquidation through the medium of taxes at the expiration of six months; of being presented for money at the expiration of twelve; but at the commencement of every new year it would be capable of commencing its course afresh. The hon. Member for Stamford (Sir Stafford Northcote) had asked whether, as the holder of the bills had an option of tendering them, there would also be a corresponding option on the part of the Government of calling in those Exchequer bills? He (the Chancellor of the Exchequer) did not intend to include in the Bill any proposition of that kind. It would be very much at variance with the mode in this country of contracting public loans of another description. It was a constant part of the practice of foreign Governments in raising money; but he thought the machinery necessary for determining what portion of the bills should be actually liable to liquidation at the option of the Government would not be satisfactory to the public, and he did not sec that there was any strong financial reason for such a provision. His hon. Friend feared there might be inconvenience from those bills being paid for revenue in considerable amounts; but he begged him to observe that at the same time that the Government gave to the holder the power of tendering them for revenue at the expiration of six months, they not only reserved the whole power now possessed of inducing the holder to continue to hold them by raising the rate of interest, but, if necessary, greatly increased the efficacy of the instrument by enabling the Finance Minister to raise the interest for the unexpired part of the six months—that is, for three months instead of nine. Thus there would be a threefold power—the power of reissue, by arrangement with the Bank of England or otherwise; the power of allowing the bill to become extinct if the public convenience allowed it; and likewise the power, which was the only one now enjoyed—and a cumbrous one it was —of keeping it afloat by raising the rate of interest. With respect to what the hon. Alderman (Alderman Salomons) remarked as to the injury done to Exchequer bills in 1853 by reducing the rate of interest, the fact was, the two things came closely together, but he did not think the facts had been quite accurately stated. He admitted that the effect of reducing the rate of in- terest from 1½d. a day to 1d.—for the whole question was whether the rate should be 7s. a year higher or lower—was to produce a diminution out of all proportion to what could be supposed. But still it did not cause the presentation of a single bill for payment. It was on the 15th of September that the March bills were reduced to 1d. a day, and on the arrival of March not a bill was presented. He granted that in June £3,000,000 were presented for payment; but there had been a most extraordinary and important change in the state of the money market between March and June, marked by the regular and progressive decline in value, not only in Exchequer bills, but in other public securities, and among other changes a great rise in the rate of discount at the Bank in June. But that was a history to enter into which would require a great deal of detail. However, he might say that the usual amount of unfunded debt before 1838 was from £24,000,000 to £30,000,000 of Exchequer bills; and it was at the period after 1838 that the greatest reduction took place, because it was then reduced from £24,000,000 in 1839 to £18,000,000 in 1842. It continued £18,000,000 to 1853, and then, for the moment, it was reduced by the presentation of £3,000,000 for payment; but those £3,000,000 were issued in January, 1854, and it was the fact that no great change took place in the amount of Exchequer bills between 1842 and the outbreak of the Russian war. He quite agreed with the observations of the hon. Baronet (Sir Henry Willoughby) with regard to the funding of Deficiency Bills and Ways and Means Bills, and he had attempted to embody his views on the matter in a Bill of last year. He could not, however, give any positive pledge as to the time when he might be able to deal with the matter; but he was entirely of the opinion which he had expressed many years ago, that those were powers which ought to be taken away; and that being so, the hon. Baronet ought to retain his right to press the subject if he thought him (the Chancellor of the Exchequer) slack. Again, he desired to express his acknowledgments to those Gentlemen who had spoken, for the favour with which they had received his propositions.


having read the Resolutions;


said, that he proposed that the fourth and fifth Resolutions should be transposed, and verbally altered; and the Resolutions thus amended, were severally put from the Chair and agreed to, as follow:—

1. Resolved, That the principal monies of Exchequer Bills issued under the authority of Parliament, together with the interest thereon, which may become payable from time to time, shall be charged upon and paid out of the Consolidated Fund of the United Kingdom or the growing produce thereof.

2. Resolved, That the interest on such Exchequer Bills shall during their currency by Law be payable half-yearly by coupons, and shall be paid at the Bank of England.

3. Resolved, That an option shall be given at the expiration of each twelve months to the holders of Exchequer Bills to be paid the principal monies of all Exchequer Bills held by them, and such principal monies when paid shall be paid to the holders at the Bank of England; and that all Exchequer Bills not so paid off from time to time shall have currency for the next twelve months following the date of such option.

4. Resolved, That during the last six months of each year for which any Exchequer Bills shall have currency by Law, such Exchequer Bills shall be receivable for Duties granted to Her Majesty.

5. Resolved, That, when any Exchequer Bills shall be paid off or received for Duties, the Commissioners of Her Majesty's Treasury may issue the like amount of Exchequer Bills to replace them.


said, that after the explanations of the Chancellor of the Exchequer, he would not move the additional Resolution that stood in his name, namely:— That the Commissioners for the Reduction of the National Debt shall not fund any Exchequer bill or bills without the consent of Parliament previously obtained for such funding.

House resumed.

Resolutions to be reported To-morrow.

On the Motion that the House go into Committee of Supply,