§ Standing Order 167 relating to Private Business, read.
§ *THE CHAIRMAN OF WAYS AND MEANS(Mr. Emmott, Oldham) moved an Amendment to Standing Order No. 167, which, he explained, dealt with the payment of interest out of capital during the construction of railways. It empowered committees to allow the payment of interest during the construction of new lines under certain restrictions. The first restriction at present was that the rate of interest allowed by the committee should not exceed3 per cent. per annum. He proposed that 3 per cent. should be altered to 4 per cent., and he was prompted to that course by the alteration in the value of money. If hon. Members looked at the Bank rate they would see that during 1906 it averaged over 4 per cent. whilst during 1896 it averaged 2½ per cent. He did not think the Bank rate for any one year was any great criterion. For his calculation he had taken the four years 1892–3–4–5 313 and then the average of the years 1902 to 1905. While the average for the earlier period had been 2.51, the Bank rate for the later period had been 3.3. In addition, he had taken a typical gilt-edge stock—the London and North-Western Railway 3 per cent. debentures. In 1895 they stood at 120. He had reason to remember that because he was one of those who purchased some of that stock at that price. The value of that stock yesterday was 90. People who, like himself, bought that stock in 1895 at 120 were receiving £2 10s. for their money, but anyone purchasing now would receive £3 6s. 8d., or a difference of 331.3 per cent., and that was exactly the difference he was recommending the House to make in altering the Standing Order. The rate of interest sanctioned by that Order was originally 4 per cent., and it remained at that rate until 1896, when the rate of interest on money was extremely low and it was thought that it should be reduced to 3 per cent. But at the present time 3 per cent. interest was inadequate, and 4 per cent. would be a reasonable rate. One factor which weighed with him in suggesting the change was that promoters of enterprises which were not of a grossly speculative character were quite unable to obtain the money they wanted, although the enterprises for which it was required were reasonably sound. The House was not now discussing whether it was right or wrong to allow interest at all. In such a discussion he would find himself an opponent to allowing interest, because he regarded the payment of interest out of capital was equivalent to watering stock. He was not defending the principle underlying the Standing Order. All he said was that for the last twenty or thirty years the House had adopted that principle, and that if they were to continue that principle the interest allowed ought to be adequate for the purpose. In his opinion 3 per cent. was inadequate and 4 per cent. was a reasonable amount. In dealing with the Private Bill legislation he had been a little appalled at seeing how few new schemes were going through. Promoters were unable to get the necessary money at 3 per cent. Enterprises really required and reasonably sound failed for lack of capital. Committees of the House, therefore, should be allowed to sanction the payment of interest up to, but not 314 exceeding, 4 per cent. They should consider each case on its merits. To raise the limit to 3½ per cent. he did not think would be effective.
§ Amendment proposed—
§ "In line 11, to leave out the word 'three' and insert the word 'four.' "—(The Chairman of Ways and Means.)
§ Question proposed, "That the word 'three' stand part of the Standing Order."
§ SIR F. BANBURYopposed the Amendment. If the rate of interest were raised to 7 per cent. it would not attract more capital for new schemes. What was keeping new schemes back was the programme of hon. Gentlemen below the gangway on the Ministerial side. Investors were not philanthropists, and they were not going to invest their savings in concerns which might be interfered with by the House of Commons, and all the fruits of their labour swept away. The Chairman of Committees had said that railway companies desired the alteration of the Standing Order. He would like to know what railway company had asked for it. As a railway director he did not agree. So far as he knew, the amount of money to be raised for railway schemes was very small, and the companies who desired to raise the money did not at all desire the proposed change. Who had brought forward the change? He did not suppose it was the hon. Gentleman himself. There must be somebody behind him. The hon. Gentleman had said that if they passed the scheme, it would only be the maximum charge, and that Committees upstairs would be able to alter it. He had great faith in the Committees upstairs, but he thought that that was rather an obligation to put upon them. An ordinary Committee went on the Standing Orders, and if a clerk was asked whether 4 per cent. was always charged, and he replied, "Yes, that is the rate which has been charged for the last year or two," the Committee would at once say, "That is the proper rate which Parliament has determined upon." It was true that there had been a change in the value of money, but how long was it going to last? Were they going to make the alteration because there had been a rise in the value of money? Personally, he was inclined to 315 think that dear money would last for the next two or three years. He thought there were other circumstances to be considered. [An Hon. Member: A Radical Government.] No; he would not go so far as that; he always endeavoured to be fair. He did not quite agree with the interruption of his hon. friend. The rise in the value of money would not last. Was it not absurd to make an alteration which was of a very far-reaching character—because once made it could not be altered for ten or twelve years—simply on the ground that for two or three years there was a high bank rate? He would make the admission that the payment of interest out of capital was a wrong thing to do, and great authorities in the House for many years had refused to allow it. Could the hon. Gentleman tell him when the principle was first adopted? He believed it was a mistake to allow interest to be paid out of capital, because the result was that when the works were completed the cost of those works meant the sum paid for them plus the interest, and, therefore, to a certain extent the capital was overloaded as soon as the enterprise began to bear fruit. But he quite admitted, from his experience in the City, that if they wished to attract small investors they must allow them sonic rate of interest pending construction. He could only remember one big company, the Great Central, that had ever done it. When the Great Central came to London they raised £11,000,000. The hon. Gentleman had remarked that the ordinary stock of railway companies was paying, and that therefore the rate ought to be increased. But it did not always follow that railway companies raised money in the form of ordinary stock. The Great Central Company raised their £11,000,000 in three categories—debenture, preference, and ordinary stocks. That was the only company which he could remember that had availed itself of this particular clause. The real reason for the provision was that when a promoter was desirous of raising money for a new railway—as was done in the case of the Hull and Barnsley Company he believed; they availed themselves of this particular clause, but that was a new railway—theyused the clause because to invest 316 money and lose the interest during construction in the hope of being recouped when the line earned money was the proper business way of looking at the matter. But small investors, who ought to be encouraged, could not afford to wait for interest during construction, and therefore it was that the rate of 3 per cent. interest out of capital was permitted, and that had been the rate for the last ten years. Although he did not think it was a good thing, still he thought there was some necessity for it. But his contention was that 3 per cent. was enough for people to live upon for the time being. But it was not enough to attract the person who liked 4 per cent. Such a person said, "I believe the railway will be four years under construction; I cannot get more than 4 per cent. anywhere else; I know I can get this safely, and I shall run the chance of the railway turning out well." That was just what the promoter of shady enterprises wanted to encourage, but that was not what the House of Commons should encourage. He would really like to know what was at the bottom of the proposal. He was sure the hon. Gentleman would acquit him of any desire to make insinuations. They knew that the Channel Tunnel was under consideration. The right hon. Gentleman the President of the Board of Trade laughed. The right hon. Gentleman's experience, he admitted, was very great; but the right hon. Gentleman had not been in the City thirty-five years as he had. He could not help thinking that the proposal would give a very great boon to the promoters of the Channel Tunnel. The estimates of the engineers for it amounted to £16,000,000, but he had never known estimates of engineers which were not exceeded, and, therefore, they would be much more likely to raise £20,000,000 or £24,000,000—which, at the present moment, would be a practical impossibility. If anybody contemplated raising £20,000,000 in the next three or four years for a new enterprise this alteration would enable them to raise the money very much more easily.
§ CAPTAIN CRAIG (Down, E.)said he fully endorsed the observations of the hon. Baronet. The Chairman of Ways and Means had introduced the matter as 317 being simply the omission of one word, but the President of the Board of Trade would himself agree that the one word was worthy of weighty consideration from the financial point of view. He did not know whether hon. Members opposite had taken the trouble to inquire into the far-reaching effect of the proposal. He had taken the trouble to work out a calculation in connection with a scheme which had been completed for many years. He applied to it the 3 per cent. and the 4 per cent. rate for the purpose of ascertaining what would be the effect of the Amendment. He took the round figure £1,000,000, and after making all the necessary provision for payments during construction, he found that under the 4 per cent. rate all his money would have been expended, whereas under the 3 per cent. rate he got the same amount of work for £887,000, the actual saving being £112,628. Those were very striking figures. He had worked out the figures for the Channel Tunnel scheme, and he found that it would mean an annual charge of £112,620. The capital subscribed for new enterprises must be tempted, but his point was that it was unwise to tempt it by a high rate of interest during construction. He thought it would be wiser to adopt the policy of giving the poorer class of investors 3 per cent. during construction with the knowledge that at the end of that time the concern would be established on a much sounder basis. He wished to secure for small investors a sure and a proper return for their hard-earned savings. The large capitalists were guided by the best possible advice from the City and the large towns, and were able to look much further ahead and study the various large schemes of railway development, docks, or other commercial enterprises much better than the poorer class of small investors who generally invested on the strength of statements made in prospectuses. Those were the people who would have to bear the burden of the extra 1 per cent. now proposed. It would be better to have a fixed rate of interest applicable to all railway schemes. If the Committee to which a railway Bill was referred had the option of fixing any rate of interest between 3 per cent. and 4 per 318 cent. there would be the danger that a promoting company would obtain an advantage over a rival company by being authorised to pay a higher rate of interest than the rate paid by its competitor. He thought a strong case had been made out for sticking to the old bank rate, which he did not suppose anyone had ever found to be inconsistent with good business transactions, because it was based on good and sound finance. Why was the present Motion being made? What had given rise to it? A clear exposition of the effect it would have upon the money market had been given to the House. He did not go so far as to say that there were any Bills promoting bogus or shaky undertakings, but he was afraid that there must be some moving element which had impelled the taking of the course they were now discussing. He hoped that before the discussion closed some evidence would be forth-coming to show where that motive came from. Was this particular move to be adopted every session of Parliament? On the assembly of Parliament each year were they going to consider the price of Consols, the bank rate, and the state of the money market generally, and then alter the rate so as to suit that particular period? He thought they were proposing a very dangerous innovation. The greatest security which small investors had at the present time was not so much a high rate of interest as a certainty of return, and so long as they got that there would be very little grumbling about the rate. This proposal was only adding to the uncertainty of the investors' return, and the House ought not to meddle with the mattter unless a very strong case was made out. He was aware that this particular alteration was to be entirely devoted to the railway system, but that made it all the more serious because such huge sums would be involved. If it was proposed by the Motion to encourage the opening up of railways, canals, bridges, or tunnels, it was a futile way of going to work. The proposed system of book-keeping was not consistent with British caution in money matters. The hon. Gentleman seemed to think that 3 per cent. was too low, and that 4 per cent. was the proper rate. If he thought 3 per cent. too low, and genuinely desired to 319 raise it to anything like the bank figure, a figure consistent with the price of Consols and other Government securities, 3¼ per cent. would suit him just as well. He (Captain Craig) therefore suggested that 3¼ per cent. should be substituted for 4 per cent.
§ MR. GORDON (Londonderry, S.)said he really could not understand the object for proposing the change. What was the motive power behind the hon. Gentleman? If, for instance, the Motion had reference to the Channel Tunnel and the Channel Tunnel was ten years in course of construction, and during the whole of that period 4 per cent. was to be paid on the capital, it would mean that 40 per cent. would be paid away.
§ MR. EMMOTTexplained that there was no case in which anything like ten years had ever been allowed. The time was usually five years at the most, and the payment of interest for only half that period.
§ MR. GORDONsaid he had had some experience of railway Bills the promoters of which had come to the House for an extension of time, and the extension had been sometimes as great as the time they had got in the original Bill. If honest members of the public wished to take shares in companies they ought to be content to take a reasonable and fair remuneration for their money, viz., 3 per cent. during the time of construction. The public had a right to see that the work intended to be done was carried out as promptly as possible. Four per cent. could not be got on a reasonably safe investment. They could not get that rate of interest on a trustee security. If an investor got 3 per cent. from an undertaking during construction he ought to be amply satisfied. If the investor was going to be induced to put money in an undertaking because 4 per cent. was offered during construction and while not a shilling was being earned he thought it would be a dangerous experiment. It would be put into the glowing prospectuses which were brought before the public in order to induce them to put their money in concerns of that kind. If investors got 4 per cent. during construction they thought they would get a great deal more after the undertaking was completed and in working 320 order. It might afterwards be found that the undertaking did not earn any dividend for the shareholders. The House ought to pause before it agreed to the proposal. He had had some connection with the applications made to Parliament in regard to railway concerns, and he had never known a case in which any desire had been shown to exceed 3 per cent. People who took a true view of the financial situation would feel that the House was doing something to the detriment of the investing public if it exceeded 3 per cent.
§ *MR. LUPTONsaid it had always seemed to him that the proposal to pay interest on an undertaking while it was in course of construction was unnecessary. If an investor had £500 available for investment, and if he desired to invest it in a new railway and to have interest during construction, he ought only to invest £450 in such an undertaking, and retain £50 in his pocket. He would thus save £50 as the interest on his capital and perhaps it would be the only part of his capital he would save. If no interest were payable by the company out of capital the £450 would earn as large an income as the £500 if £50 were spent in interest during construction. He had always thought that the payment of interest out of capital during the construction of works was unsound business. It was a kind of finance which auditors would not allow in connection with any private enterprise. Parliamentary concerns were the only investments in which people could get interest during construction. It was a system which weighed with ignorant people who did not understand such matters. They invested in the undertakings thinking that when the work was completed similar interest would be continued. Much as he was impressed with the reasons put forward for the alteration, he thought, as business men, they should not encourage the class if investors who relied upon that inducement in the prospectus; those poor people ought only to invest in railways already earning a dividend. He agreed with the hon. Gentleman in viewing with alarm the lack of enterprise shown by the state of business before Committees of the House, but did not think the difference between 3 and 4 per cent. would remedy that. It was the 321 system of blackmail levied in connection with Second Readings which made promoters feel that it was exceedingly risky to come before, the House at all.
§ Question put.
§ The House divided:—Ayes, 58; Noes, 195. (Division List No. 44.)
323| AYES. | ||
| Acland-Hood,Rt.Hn.Sir Alex. F | Duncan,Robert (Lanark,Govan | Richards, T.F. (Wolverh'mpt'n |
| Anstruther-Gray, Major | Fletcher, J. S. | Roberts, Charles H. (Lincoln) |
| Ashley, W. W. | Forster, Henry William | Roberts, G. H. (Norwich) |
| Atherley-Jones, L. | Gibbs, G. A. (Bristol, West) | Roberts, S.(Sheffield, Eeelesall) |
| Aubrey-Fletcher,Rt.Hn.Sir H. | Gill, A. H. | Rutherford, W. W. (Liverpool |
| Balcarres, Lord | Glover, Thomas | Shackleton, David James |
| Barrie, H. T. (Londonderry, N) | Gordon, J. (Londonderry, S.) | Smith, F. E. (Liverpool, Walton) |
| Bowles, G. Stewart | Haddock, George R. | Snowden, P. |
| Boyle, Sir Edward | Hamilton, Marquess of | Summerbell, T. |
| Bull, Sir William James | Hodge, John | Thomson, W.Mitchell-(Lanark) |
| Carlile, E. Hildred | Houston, Robert Paterson | Valentia, Viscount |
| Cecil, Evelyn (Aston Manor) | Hudson, Walter | Walrond, Hon. Lionel |
| Channing, Sir Francis Allston | Law, Andrew Bonar (Dulwich | Ward,John (Stoke upon Trent |
| Cheetham, John Frederick | Lupton, Arnold | Wedgwood, Josiah C. |
| Corbett, A. Cameron Glasgow) | Macdonald, J. R. (Leicester) | Wilson, J. H. (Middlesbrough) |
| Cory, Clifford John | Moore, William | Wilson, W. T. (Westhoughton |
| Craig,CharlesCurtis(Antrim, S. | Morton, Alpheus Cleophas | TELLERS FOR THE AYES— |
| Craik, Sir Henry | Pease, Herbert Pike (Darlingtn | Sir Frederick Banbury and Captain Craig. |
| Cross, Alexander | Pickersgill, Edward Hare | |
| Douglas, Rt.Hon. A. Akers- | Randles, Sir John Scurrah | |
| Duncan, C. (Barrow-in-Furness | Rawlinson,JohnFrederick Peel | |
| NOES. | ||
| Abraham, William (Cork, N. E.) | Cotton, Sir H. J. S. | Hogan, Michael |
| Agnew, George William | Cox, Harold | Holden, E. Hopkinson |
| Alden, Percy | Cremer, William Randal | Hope, W. Bateman(Somerset,N. |
| Allen, A. Acland(Christchurch) | Crombie, John William | Horridge, Thomas Gardner |
| Allen, Charles P. (Stroud) | Crosfield, A. H. | Howard, Hon. Geoffrey |
| Armstrong, W. C. Heaton | Davies, W. Howell (Bristol, S.) | Hyde, Clarendon |
| Astbury, John Meir | Dewar, Arthur (Edinburgh, S. | Johnson, John (Gateshead) |
| Baker, Sir John (Portsmouth) | Dewar, John A. (Inverness-sh.) | Jones, Leif (Appleby) |
| Balfour, Robert (Lanark) | Dillon, John | Kearley, Hudson E. |
| Baring, Godfrey (Isle of Wight) | Donelan, Captain A. | Kekewich, Sir George |
| Barlow, Percy (Bedford) | Dunn, A. Edward (Camborne) | Kelley, George. D. |
| Barry, E. (Cork, S.) | Edwards, Enoch (Hanley) | Kennedy, Vincent Paul |
| Barry, Redmond J. (Tyrone, N. | Emmott, Alfred | Kilbride, Denis |
| Beale, W. P. | Eve, Harry Trelawney | Kincaid-Smith, Captain |
| Beck, A. Cecil | Everett, R. Lacey | Lamb, Edmund G. (Leominster |
| Bellairs, Carlyon | Farrell, James Patrick | Lamb, Ernest H. (Rochester) |
| Benn, W.(T'w'r Hamlets,S.Geo. | Fell, Arthur | Lambert, George |
| Bennett, E. N. | Fenwick, Charles | Lamont, Norman |
| Berridge, T. H. D. | Ferens, T. R. | Law, Hugh A. (Donegal, W.) |
| Bertram, Julius | Fiennes, Hon. Eustace | Leese,Sir Joseph F.(Accrington |
| Bethell, T. R. (Essex, Maldon) | Findlay, Alexander | Lehmann, R. C. |
| Billson, Alfred | Flavin, Michael Joseph | Lever, A. Levy (Essex,Harwich |
| Boland, John | Flynn, James Christopher | Lewis, John Herbert |
| Bramsdon, T. A. | Foster, Rt. Hon. Sir Walter | Lloyd-George, Rt. Hon. David |
| Branch, James | Fuller, John Michael, F. | Lundon, W. |
| Brunner,J. F. L.(Lancs.,Leigh) | Gardner,Col.Alan(Hereford,S.) | Macdonald, J.M. (Falkirk B'ghs |
| Buchanan, Thomas Ryburn | Ginnell, L. | Macnamara, Dr. Thomas J. |
| Buckmaster, Stanley O. | Goddard, Daniel Ford | MacVeigh,Charles (Donegal, E.) |
| Burke, E. Haviland- | Gooch, George Peabody | M'Cullum, John M. |
| Burns, Rt. Hon. John | Grant, Corrie | M'Crae, George |
| Burnyeat, W. J. D. | Gurdon, Sir W. Brampton | M'Hugh, Patrick A. |
| Burt, Rt. Hon. Thomas | Gwynn, Stephen Lucius | M'Laren, H. D. (Stafford, W.) |
| Cameron, Robert | Haldane, Rt. Hon. Richard B. | M'Micking, Major G. |
| Campbell-Bannerman, Sir H. | Halpin, J. | Maddison, Frederick |
| Cawley, Sir Frederick | Harcourt, Rt. Hon. Lewis | Mallet, Charles E. |
| Chance, Frederick William | Hart-Davies, T. | Marks, G. Croydon (Launceston) |
| Cherry, Rt. Hon. R. R. | Harvey, A. G. C. (Rochdale) | Marnham, F. J. |
| Cleland, J. W. | Harvey, W. E. Derbyshire, N. E. | Mason, A. E. W. (Coventry) |
| Clough, William | Hayden, John Patrick | Meehan, Patrick A. |
| Cobbold, Felix Thornley | Hedges, A. Paget | Menzies, Walter |
| Cogan, Denis J. | Hemmerde, Edward George | Micklem, Nathaniel |
| Collins, Stephen (Lambeth) | Henderson,J.M. (Aberdeen, W.) | Molteno, Percy Alport |
| Collins, Sir Wm.J.(S.Pancras, W. | Higham, John Sharp | Mond, A. |
| Money, L. G. Chiozza | Rea, Russell (Gloucester) | Thomas, David Alfred(Merthyr |
| Morse, L. L. | Rea, Walter Russell (Scarboro' | Thompson,J.W.H.(Somerset, E |
| Murray, James | Redmond, John E. (Waterford | Tomkinson, James |
| Myer, Horatio | Rees, J. D. | Torrance, Sir A. M. |
| Napier, T. B. | Rickett, J. Compton | Verney, F. W. |
| Nicholls, George | Robertson,Sir G. Scott(Bradf'd | Villiers, Ernest Amherst |
| Nicholson,Charles N.(Doncast'r | Robinson, S. | Wadsworth, J. |
| Nolan, Joseph | Robson, Sir William Snowdon | Walters, John Tudor |
| Norton, Capt. Cecil William | Roche, Augustine (Cork) | Wason, John Cathcart(Orkney) |
| O'Brien, Kendal(Tipperary, Mid | Roche, John (Galway, East) | Waterlow, D. S. |
| O'Brien, Patrick (Kilkenny) | Roe, Sir Thomas | White, Patrick (Meath, North) |
| O'Connor, James(Wicklow, W.) | Rogers, F. E. Newman | Whitley, John Henry (Halifax) |
| O'Connor, John (Kildare, N.) | Rose, Charles Day | Wiles, Thomas |
| O'Doherty, Philip | Runciman, Walter | Williamson, A. |
| O'Dowd, John | Samuel, Herbert L. (Cleveland | Wills, Arthur Walters |
| O'Kelly,James(Roscommon, N. | Shipman, Dr. John G. | Wilson, P. W. (St. Pancras, S.) |
| O'Shaughnessy, P. J. | Smyth, Thoma F. (Leitrim, S.) | Wood, T. M'Kinnon |
| Partington, Oswald | Spicer, Sir Albert | Young, Samuel |
| Paul, Herbert | Stanley, Hn. A.Lyulph(Chesh.) | TELLERS FOR THE NOES— |
| Pearce, William (Limehouse) | Stewart, Halley (Greenock) | Mr. Whiteley and Mr. J. A. Pease. |
| Price,Robert John(Norfolk,E.) | Strachey, Sir Edward | |
| Priestley, W.E.B.(Bradford,E.) | Strauss, E. A. (Abingdon) | |
| Radford, G. H. | Stuart, James (Sunderland) | |
| Raphael, Herbert H. | Thomas, Sir A. (Glamorgan, E. |
Motion made, and Question, "That this House do now adjourn"—(Mr. Whiteley)—put, and agreed to.
§ Word "four" there inserted in the Standing Order.