MR. GIBSON BOWLES
said this was one of the most important Resolutions the Committee had to consider, and he could not allow it to pass without some further information than that which had been accorded by the Budget speech of the Chancellor of the Exchequer. In that speech the right hon. Gentleman stated that he proposed to increase the fixed charge for the debt from £23,000,000 to £27,000,000, and the charge being increased had necessitated this Resolution. The right hon. Gentleman had by that speech left the House under the impression that by increasing the fixed charge to £27,000,000 he was, in reality, increasing the new Sinking Fund, which was the balance left after all the charges on the fixed charge had been paid. It was true that the permanent charge was increased, but the Sinking Fund was not increased. There were two Sinking Funds, the old Sinking Fund, which was the balance of realised revenues over expenditure, which went automatically to the reduction of the National Debt, and the new Sinking Fund, which was a fixed charge for the reduction of debt. Out of that fixed charge was paid the interest of the Funded Debt and the Unfunded Debt, the charge on terminable annuities, and the charge for the management of the Debt itself. When those charges had been provided for, what remained formed the new Sinking Fund. As the debt had been largely increased, 451 the fixed charge had been increased by £4,500,000, and in order to have the Sinking Fund as it was, and no better, it was necessary to increase the old Sinking Fund by £4,500,000, but it had only been increased by £4,000,000. This was a most serious matter. There was an unlimited loan to be raised for Irish landlords, and there was a Transvaal loan, and a further loan of £30,000,000 for the Transvaal, for which this country would be morally responsible inasmuch as it was a liability of a Crown Colony. Besides this the liability in the way of debt placed upon this country was becoming appalling. The increase had been stupendous within the last six months, and he submitted it would be a most imprudent thing to allow the new Sinking Fund to be diminished by an insufficient addition being made to the fixed charge for the Debt. He did not wish to labour these points but they were most important. Debt was far worse than taxes, and when they considered the claim between the Sinking Fund and taxation, the first thing any financier would do, who looked to the future as well as the present, would be to see that the Sinking Fund was ample for the Debt. If he was right in the view he took the old Sinking Fund suffered, which in itself was an additional reason for safeguarding and strengthening the new Sinking Fund. He had found, seen and felt every reason to congratulate the right hon. Gentleman on his Budget, but he deeply regretted that the right hon. Gentleman did not take off 3d. from the Income Tax instead of 4d. and strengthen the new Sinking Fund by the amount received from the other 1d. Our liabilities increased every day, and as they increased prudence dictated that the Sinking Fund should be strengthened. It was the corner stone of our credit and the great source on which we had to rely in times of emergency when expenditure was forced upon us. He earnestly asked the Chancellor of the Exchequer and the Committee to consider this matter.
§ MR. SYDNEY BUXTON
asked to be allowed to endorse what had fallen from the hon. Member opposite, namely that it was the duty of the Chancellor of the Exchequer and the House to maintain at the highest point the provision for the reduction of the National Debt.
§ MR. SYDNEY BUXTON
The Chancellor of the Exchequer merely cheered that statement, but he would have much preferred the right hon. Gentleman to act up to the views he appeared to hold. The fact that the fixed charge was to be £27,000,000 instead of £27,500,000 made a serious inroad into the Sinking Fund. As the hon. Gentleman who had just spoken had pointed out, while we were reducing our debt very rapidly a short time ago, it had been shown how very quickly we got into difficulties, and that therefore in times of peace we should retain a very large Sinking Fund. The House when listening to the Budget speech of the right hon. Gentleman was under the impression that the right hon. Gentleman was going to do a great deal to strengthen the Sinking Fund to still more largely diminish the debt, but the right hon. Gentleman had reduced the fixed charge for that purpose by £500,000, his reason for so doing being that by the reduced interest paid on the debt they were saving about £1,250,000, but the right hon. Gentleman must take into consideration that the debt had increased from £630,000,000 to £760,000,000 and that that reduction in the interest made a very slight addition indeed to the Sinking Fund for the reduction of a debt of £760,000,000. They could hardly expect the Sinking Fund to be maintained at the figure at which it ought to be maintained if these proposals by successive Chancellors of the Exchequer to reduce the amount annually applied to the reduction of the debt were allowed to go without protest.
§ MR. COHEN (Islington, E.)
confessed to a feeling of disappointment at the moderate amount assigned by the Chancellor of the Exchequer for the redemption of debt. He hoped the right hon. Gentleman would be able to satisfy the Committee as to his intentions with regard to the extinction of the abnormal amount of Unfunded Debt. Unfunded Debt, in the form of Treasury Bills and Exchequer Bonds, was by no means the most economical way of raising money 453 for the Exchequer. The most advantageous, and he believed the safest, way for the finances of the country to be conducted was to reduce the Unfunded Debt as much as possible. He was surprised at one of the contentions put forward by the hon. Member for King's Lynn. Nothing could be more dangerous than the delusion that this country had in any way assumed responsibility, moral or otherwise, for Crown Colony debts. The liabilities of this country were sufficiently gigantic without it being supposed that we were directly or indirectly responsible for the liabilities of Crown Colonies.
§ MR. BUCHANAN (Perthshire. E.)
said that some time back, in response to a question, the Chancellor of the Exchequer stated that he could not then indicate his intentions as to the redemption or the extension of Exchequer Bonds which would mature in August. Since then the right hon. Gentleman had appeared to indicate a possibility of some of those Exchequer Bonds being renewed when they became due in the currency of the present year. He hoped he would now be able to inform the Committee how much, if any, of those Bonds were to be paid off and how much would be renewed. On the general subject of the Resolution, there was hardly any more important subject connected with public finance than the question of debt. If that question was important in ordinary years it was still more important this year. This was the first Budget after a great war, in the course of which the National Debt had been enormously increased and the national finances seriously dislocated, and the Committee had a right to expect that the Chancellor of the Exchequer, in accordance with the anticipations of his predecessor, would have indicated the financial policy of the Government, particularly with regard to the paying off of the enormous war debt. Instead of that, the right hon. Gentleman had not looked beyond the present year. The only proposal he had made was that the permanent fixed charge should be raised from £23,000,000 to £27,000,000. Included in the permanent fixed charge was to be the whole of the war debts that had accumulated in the last three years, the interest on which amounted to 454 £4,500,000, while the increase of the permanent charge was only £4,000,000. Even allowing for £1,250,000 due to the reduction of the interest on Consols, the permanent charge for the diminution of the debt had been increased by only £750,000. He thought that was in no way an adequate method of dealing with the enormous accretion of debt. He doubted, moreover, whether it was wise financially to mix up the war debt with the ordinary debt of the country. The Committee were now asked to set aside £27,000,000 for the debt charge out of a net expenditure of £144,000,000. In 880–1 the net expenditure was £71,500,000, of which the debt charge was £28,000,000, or a percentage of thirty-six against a percentage this year of about twenty. Taking the national income in the same two years as being twice the yield of the Income Tax, the debt charge this year was only 1.5 per cent. of the national income, as against 2.3 per cent. twenty years ago, when the country was much poorer. The Chancellor of the Exchequer had a great opportunity of having the country and the House of Commons with him in making a serious effort to deal with the great increase in the National Debt and the enormous burden entailed thereby on the finances of the country He believed the country would have been content with a smaller reduction of taxation if it had been satisfied that by bearing the burden a year or two longer it could have made a substantial and permanent reduction of the debt.
§ SIR JOHN GORST
said he should have been willing to join in the protest made by hon. Members if he thought the Chancellor of the Exchequer had done that which they assumed he had done in connection with the Sinking Fund. He understood the Chancellor of the Exchequer in quite a different sense. There was only one way to pay off debt, and that was by raising more taxation than was wanted for interest on debt and Supply services. Although last year £27,500,000 was set aside for the Debt, out of that sum only £5,750,000 had been actually applied to paying off the Debt, while all the rest went to interest and other charges. In the present year it was proposed to set apart £500,000 455 less, namely £27,000,000, and of that sum £6,600,000 would go to the payment of the Debt. Therefore, nearly £1,000,000 more than last year would be paid this year towards the reduction of the Debt although the amount voted was £500,000 less. The Chancellor of the Exchequer said that £4,000,000 would be paid off the Debt from other sources, and that during the next three years he expected £10,000,000 from the Transvaal loan, and therefore during that period the debt would be reduced by £34,000,000. He estimated that the amount out of the permanent charge of £27,000,000 would be about £9 000,000 in five years applied to the extinction of the Debt. The new Sinking Fund was liable to this weakness, that every year more and more of this fixed charge went to the payment of principal and less to the payment of interest, and that weakness was foreseen when Sir Stafford Northcote initiated the Sinking Fund, for it was then prophesied that no Chancellor of the Exchequer would be able to withstand the temptation to make raids upon the Sinking Fund. Since that time the Sinking Fund had been raided twice. [An HON. MEMBER: Three times.] If the Chancellor of the Exchequer in the course of the next few years endeavoured to provide too large an amount for any one year a future Chancellor of the Exchequer would be sure to raid the Fund again. He thought that for a certain length of time Parliament would stand paying £9,000,000 a year off the National Debt. He did not, however, think that any House of Commons would consent to bear a very large burden of taxation in order to pay off the National Debt at an accelerated pace. Did the House suppose that the people would consent in future years to have £27,000,000 taxation put upon them in order to pay off the National Debt. He did not think they would ever consent to such an arrangement.
§ MR. EDMUND ROBERTSON (Dundee)
said that when a Bill such as this originated in a Resolution in Committee he understood that the rule was that such Resolution absolutely governed all subsequent stages of the Bill. The point in this Resolution was whether the sum 456 of £27,000,000 was large enough or not. Many hon. Members thought it ought to be larger, and if he moved an Amendment it would probably be to make it £28,000,000. Whether they could do that now or not, he did not know, and he was not aware whether, if this Bill passed, such a Motion could be moved at all. If they could not do this the discussion was in the air. He wished to know whether an Amendment could be moved having for its object an increase in the amount, and whether, after the Committee had fixed £27,000,000 in Committee, it was possible to have a larger sum proposed.
I do not think a larger sum can be proposed either now or in Committee. The effect of it would be that it would require more taxation to provide it, and that can only be done on the initiative of the Government. If I were to permit a Motion to raise the amount from £27,000,000 to £28,000,000 the extra amount would have to be found by extra taxation, and that cannot be proposed except by the Government.
§ MR. M'KENNA (Monmouthshire, N.)
said the point they were considering now was not what would happen five years hence but whether they were making sufficient provision for the Sinking Fund this year. It had been said that although the total sum devoted to payment of interest and redemption of debt had been reduced, more would go this year towards the redemption of debt than last year. That was quite true, but it was the whole principle of the fixed debt charge that every year a larger amount should go in reduction of debt, and it was because of that principle that the House had established the fixed debt charge. What the right hon. Gentleman the Member for Cambridge University overlooked was that since the fixed debt charge was put at £23,000,000 they had added £150,000,000 to the National Debt. All those calculations about what might happen thirty or forty years hence were entirely beside the question. When Sir Stafford North-cote put the fixed debt charge at 457 £28,000,000, the debt was nearly what it was to-day, and it was estimated that if the payments were kept up the debt would be extinguished in fifty years. Thirty years have now elapsed, and the debt stood where it did when the fixed debt charge was first introduced. The question was, were they now making sufficient preparation in order to pay off the Debt. He asked the Chancellor of the Exchequer to take certain considerations into account. An increase of the Debt in case of a war in the future would take place far more rapidly than in the past. If a European war broke out the cost had been estimated at £1,000,000 per day. In the South African War they spent £1,500,000 a week, and in the case of a European conflict on a great scale it was not too much to say that the burden upon this country would be £5,000,000 per week. It was absolutely I essential that in order to be able in case of emergency to raise this vast sum their credit should be good. When Consols were up to 100 it would be time enough to say whether the right hon. Gentleman might not be putting greater burdens on the taxpayers for the redemption of the Debt than was actually necessary. At this moment however he could not say that. It was specially necessary that we should pay off debt at this time, because the Chancellor of the Exchequer was bound in the near future to go to the public to raise further loans in respect of the Irish Land Bill, and he would have to pay larger permanent interest for those loans simply because he was not able to get Consols back to par. When Consols went above par it might become necessary not to make too large purchases in one year in the market. No doubt if Consols went to 114, the figure which they reached some years ago, it might be necessary to reduce the amount of the purchases in the open market, but there was no such excuse at present; and the Chancellor of the Exchequer would be well advised in spending as many millions as he could to force back British credit to the point at which it stood before the war, when the Government could borrow at something under 2¾ per cent.
The right hon. Gentleman was not following on the lines of the precedents which had been created by his 458 predecessors. There was an alteration made in the Sinking Fund in 1889 by Mr. Goschen, as he then was, when the interest on the debt was reduced from 3 per cent. to 2¾ per cent. At that time the saving to the Exchequer was no less than £1,500,000 owing to the reduction of interest. Mr. Goschen gave £1,000,000 of that to the taxpayers and added £500,000 to the Sinking Fund. At that time there was an actual deficit for the year, and Mr. Goschen was not remitting taxation to the amount of £10,000,000 as now, but he had to impose additional taxation to the extent of £1,000,000. If he had taken the whole £1,500,000 for the benefit of the taxpayers he would not have had to impose so much additional taxation. The Chancellor of the Exchequer at present was under no such temptation as Mr. Goschen. On the contrary, the right hon. Gentleman had to make a Sinking Fund for an additional debt of £150,000,000, and all that he had done was to give £250,000 more than Mr. Goschen gave. At that time Mr. Goschen was paying off the debt at the rate of £7,500,000 a year, whereas the utmost the Chancellor of the Exchequer could do this year was to pay off £6,600,000. The next precedent was to be found in the action of the Chancellor of the Exchequer in 1899. Then the Chancellor of the Exchequer reduced the Sinking Fund. But he took the Opportunity of converting a large block of Consols into terminable annuities in order to take temptation out of the way of his successors who might be induced to raid the Sinking Fund, and accordingly he created an annual charge of £1,200,000 which was taken out of the power of being raided. The Sinking Fund had been suspended during the whole course of the war, but these terminable annuities had been continuously paid off, and £1,200,000 had been annually spent in redemption of debt in spite of the suspension of the Sinking Fund. These were the two most recent precedents. The right hon. Gentleman had not acted on similar lines. He had taken this annual saving of £1,250,000 on interest, and he had given back only £750,000 a year out of it. That was all he had done this year in order to meet an additional debt of upwards of £150,000,000. He urged the 459 right hon. Gentleman to drop the figure of £27,000,000, and to go back to the original figure adopted by Sir Stafford Northcote of £28,000,000 until the time came when he had got all the benefits which he promised himself in the course of the next five years. Until that time he should make the necessary sacrifice in order to restore British credit to the point at which it stood when Consols were at par.
§ SIR ROBERT REID (Dumfries Burghs)
said he agreed that there ought to be a greater reduction of the National Debt, and a larger sum of money set aside each year for the purpose, because our liabilities and debt had greatly increased, and seemed to be rather in the way of increasing than diminishing. There had been added this year a liability of £35,000,000, and they were not told that that was to I be the last, or anything like the last, sum they were to be expected to find for the Transvaal. He wished to emphasise the point which the Chancellor of the Exchequer himself admitted a few moments ago that the idea of paying off the National Debt in fifty years by continuing to appropriate £6,000,000 a year was a complete delusion. There were sinking funds and sinking funds in this country. The first and most notable one was when the younger Pitt was going to pay off the National Debt in a short time by means of a sinking fund. There was one connected with the name of Sir Stafford Northcote in 1877 which had done good service and for which the memory of that Chancellor of the Exchequer ought to be held in veneration. He expected to pay off the debt in fifty years. Of course the thing was absurd. There were two things to prevent it. The first was the actuarial process by which it would be paid off if the people were willing to permit it, and it consisted in a progressive increase of the sum of money which each year was appropriated to pay off the remainder of the debt. Everyone knew that after a certain sum of money had been appropriated each year the country would not stand more being paid off that year, and the Chancellor of the Exchequer seized the opportunity of relieving the country of taxation by making a raid on the Sinking Fund. The second thing was, that the idea postulated another 460 contingency, namely, that the country would keep out of all foreign wars and complications. As soon as a great war or exceptional trouble arose the Sinking Fund was at once suspended. It was a complete delusion—he thought the Chancellor of the Exchequer had admitted as much this afternoon—to say that the National Debt would be extinguished in fifty years. It was a pity that a person so free from this kind of delusion should have given the least countenance to the idea that this sum of money would pay off the National Debt in fifty, 100, or 150 years. It was an actuarial calculation having no relation to the actual facts, and it would be a great mistake if the people came to the conclusion that they were to get rid of their National Debt so soon. It did not become him to say how the National Debt could best be got rid of. The National Debt could be treated in a more satisfactory way if we refrained from increasing it, and we would not refrain from increasing it unless we adopted a more statesmanlike way of dealing with affairs, external to this country, than we had done in the last few years.
§ MR RITCHIE
said he thought he had made it clear in his Budget speech that he did not suppose that we were not going to pay off the debt in fifty years. As he had been for many years at the Local Government Board he was familiar with what he then used to impress upon borrowers—namely, that the local authorities should set aside every year a certain sum to pay off in a limited period the money which they borrowed, usually a maximum of sixty years. He only gave it as an illustration of his argument that by putting aside an annual sum and treating it in that way, we would extinguish the debt in fifty years, thus doing more than was insisted on with regard to local debts. He had made an actuarial calculation to that effect, and he could assure the hon. and learned Member that he would find, if he investigated the subject, that what he had said was correct. It was, of course, unreasonable to suppose that the taxpayers of this country would continue to pay annually such a sum as would extinguish the debt in fifty years. No Chancellor of the Exchequer would ever ask the taxpayers to pay many millions for the purpose of relieving posterity 461 of all share of the obligations undertaken by previous generations largely for the benefit of future generations. He was glad that the hon. and learned Member had said that he, as Chancellor of the Exchequer, could never imagine that such a process as that was ever in the least likely to be carried out. There were two propositions advanced. One was that the Sinking Fund ought to bear a fair proportion to the Debt; and the other was that we should not in doing this entail upon the taxpayers an undue obligation beyond their powers. Now, he entirely agreed with both these propositions; and he had been guided by the considerations laid down in them. His right hon. and learned friend the Member for Cambridge University had described in clear and forcible language what should be done, and he should only be too happy to leave the matter as the right hon. and learned Gentleman had stated it, for nothing could be more accurate. But he might describe once more what it was that he proposed to do. His predecessor left a fixed debt charge of £23,000,000. In addition to that there were £4,500,000 of interest which was not brought in on the fixed debt charge, but which the Committee would recognise ought to be brought in. That brought the sum up to £27,500,000. But it was impossible for him to overlook the fact that his right hon. friend and predecessor did intend—and so stated to the Committee and with the approbation of the Committee, and he had left a memorandum to that effect in his office—that when the interest became reduced to 2½ per cent. the £1,250,000 which was saved in the matter of interest should go to the taxpayers. He was, consequently, perfectly justified in deducting from the £27,500,000 the sum of £1,250,000, which was the saving in interest—leaving a sum of £26,250,000. But he had added to that £26,250,000 a sum of £750,000, making a total of £27,000,000. He candidly admitted that that addition, in itself, if they had only the circumstances of the present year to consider, would not have been, in his opinion, sufficient for the purpose of extinguishing the new war debt of £160,000,000. But when it was said that we had nothing to do with what might happen during the next four or five years, and that all that we should have to do was to 462 consider the present year, he entirely disagreed with his hon. friend. A Chancellor of the Exchequer who fixed the amount of the annual charge without regard to what was going to happen in the next four or five years, would be doing wrong. Surely the hon. Gentleman opposite would acknowledge that it was unwise to alter this annual charge more often than was necessary. The hon. Gentleman gave three illustrations of a raid having been made on the Sinking Fund. He himself thought it was desirable that, on the one hand, they should not make the amount of it too burdensome on the taxpayers, and at the same time should fix it at such a sum as would not justify the Chancellor of the Exchequer in the next three or four years making a raid upon it. As his right hon. and learned friend the Member for Cam bridge University said, they knew that there was to come this year, out of the loan just so successfully floated, to the Exchequer between £3,000,000 and £4,000,000 from the Transvaal. There was a dispute between them and the Transvaal Government as to the exact amount, but £10,000,000 would also come out of the New Unguaranteed Loan on 1st January next, or whatever might be the date at which it was floated, and £10,000,000 in each of the succeeding two years. It would be absurd for them, in fixing the debt charge, to have no regard whatever to these facts. The result of his arrangements would be that although they only added £750,000 this year to the Sinking Fund or fixed debt charge, in three or four years after this a sum of over £1,000,000 sterling, now included as interest in the Fixed Debt Charge, would cease to be paid when the capital was returned from the Transvaal In other words, that sum of over £1,000,000 would pass at once from the interest-bearing portion of the fixed charge to the debt-bearing portion of the fixed debt charge. The result would be that by the time the money was paid over to them he anticipated that the debt-paying portion of the fixed charge would amount to about £9,000,000—a larger sum than was ever known in the history of this debt charge—or 1.25 per cent. of the outstanding debt, a percentage which 463 had never been approached in previous experience and might never happen again.
§ MR. RITCHIE
Yes, it might be raided again, but if, as the hon. Gentleman desired, the debt charge was increased by the equivalent of a penny on the income tax this year, it would amount to £12,000,000 by that time, and a raid would have certainly to be made on it four or five years hence, and most probably it would be made at a shorter period than that.
§ MR. RITCHIE
If it was going to be made anyhow, let us have no fixed charge at all. He agreed with the hon. Gentleman that, when Consols were low, it was very desirable that the Government should become purchasers in order to raise the price in the market; but though that was true, the hon. Gentleman must also remember that the Sinking Fund was infinitely more operative now than it used to be; that was to say, when Consols were much below par we were with a given sum of money extinguishing a far larger amount of debt than we were able to do before, with the same amount of money. The hon. Gentleman said that when Mr. Goschen readjusted the debt charge there was a deficit of £1,000,000; unlike himself, who was in a position to remit taxation. But what was the burden of taxation on the people at that time as compared with now. The 15d. Income Tax was an enormous burden, and even after his remissions taxation remained at a very much higher figure than at the time to which the hon. Gentleman referred. He was as strongly in favour of maintaining the Sinking Fund, and at a proper proportion to the Debt, as the hon. Gentleman was. But in considering this matter he was bound to take into account what was to happen in the next three or four years, and the large amount of debt that was being paid off. He should have other opportunities 464 of discussing this matter more in detail, and he would confine himself now to saying that the Government were perfectly justified in the course they were taking. The hon. Gentleman had asked a question as to what the Government were going to do in regard to the Floating Debt. He entirely agreed that it was extremely desirable that we should reduce the Floating Debt, which bore a very considerable rate of interest, and that was what he most desired to operate upon, when he had the means at his disposal; but what he should do he was not at the present moment prepared to say. He hoped the hon. Gentleman would take it from him that he was fully alive to the need for reducing the Floating Debt and by as large an amount as possible, taking all other things into consideration.