WAR LOAN (REDEMPTION) BILL. (Hansard, 2 March 1910)

§ Sir F. BANBURY
I wish to ask a question with regard to a very peculiar provision in the Schedule of this Bill. Paragraph 4 says:— If any person credited in pursuance of the foregoing provisions with money payable to him on the redemption of War 899 Stock does not claim his money before 31st May, 1910, the money shall be invested forthwith by the Bank in Two and a Half per cent. Consolidated Stock at the price of the day in the names of the respective stockholders. Never in our history has a similar provision appeared in any Bill dealing with the redemption of a part of the debt of the country. The War Loan was introduced ten years ago by the then Chancellor of the Exchequer, and £30,000,000 were borrowed under its provisions. Under that Act the State guaranteed to pay on 5th April, 1910, to the holders of that stock their money in full, but instead of fulfilling its obligations the Government now say that unless before 31st May, less than two months from the date of redemption, the owners have applied to the Bank of England for it, their money will be invested in Consols. Everyone conversant with business in the City or with the investment of money knows that the ordinary investor is very careless about the different dates of payment in connection with the stock which he holds. It will not happen to people in the City; they will know exactly what has taken place, and will claim their money; but in a large number of cases the widow, the lady investor, and the small investor generally will not know what is going on. Until the time for the dividend comes round and they find they have no dividend, they will take no steps to claim their money; and then instead of getting their money, they will get a certain amount of Two and a Half per Cent. Consolidated Stock. I think I can guess the reason, but I can see no justification whatever for this proposal. People may be abroad or ill; their stock may be in the hands of three or four trustees, one or two of whom, whose signatures would be necessary, may be abroad; but without saying a word to the people the Government are going to invest their money in Consols. I believe this is the reason for the proposal. The Government have suspended the Sinking Fund. The right hon. Gentleman told us last July that if the Sinking Fund were stopped Consols would go down. I believe he is going to take advantage of the fact that many people are not as wide-awake as they ought to be in order to use their money to support the market by buying Consols instead of paying out the cash. When the House goes into Committee on this Bill I shall move the omission of this Sub-section. I 900 do not think the Government can have considered what they are doing. It has never been the custom of this country to break faith with the people who have lent them money. I maintain that this will be breaking faith with them, because it will be taking advantage of the fact that many people are ignorant that the loan is being converted.

§ Mr. HOBHOUSE
The hon. Baronet has made a mountain out of a molehill. As soon as the provisions of this Schedule were known in the City I took an opportunity of inquiring what was the opinion of persons there upon this proposal, and I am led to believe that there is no feeling of dislike, resentment, or opposition to it in any part of the market. The hon. Baronet suggested that there was some such feeling.

§ Sir F. BANBURY
No.

§ Mr. HOBHOUSE
Then he was speaking only for himself, and not on behalf of the City of London as a commercial community.

§ Sir F. BANBURY
I was speaking on behalf of the investors as a whole.

§ Mr. HOBHOUSE
The hon. Baronet has suggested that this is an unprecedented course. It is nothing of the sort. Lord Goschen, when Chancellor of the Exchequer, had a precisely similar provision in the National Debt Redemption Act of 1889. I will read the Section, and the House will see how closely the words of the present proposal follow the words of Lord Goschen's provision. The present Bill says:— If any person credited in pursuance of the foregoing provisions with money payable to him on the redemption of the War Stock does not claim his money before 31st May, 1910, the money shall be invested forthwith by the Bank in Two and a Half per Cent. Consolidated Stock at the price of the day in the name of the respective stockholders."
The Section in the Act of 1889 runs as follows:—
"If any person credited in pursuance of this Act with money payable to him on the redemption of stock does not claim that money before 1st October, 1889, the Treasury shall in the prescribed manner give him in exchange for the stock an equal nominal amount of Two and Three-quarter per Cent. Consolidated Stock.… 901 There is no difference at all. The intention in both cases is that if the stockholder for one reason or another does not claim his money from the Bank, instead of the money lying in the coffers of the Bank in an unreproductive form, it shall be invested for the owner, and that the interest on it shall accrue to his credit, so that he may not suffer—not from his negligence or carelessness, but from his ignorance of the transaction which has taken place. There is no thought at the back of the mind of the Government, as suggested by the hon. Member, of affecting the price of Consols. The suggestion was made not by us but to us, and it is for the convenience of those persons who for one reason or another may not be in a position to claim their money by the date named.

§ Sir F. BANBURY
Would the right hon. Gentleman give the date when Lord Goschen issued his circular, and the date when he terminated the option?

§ Mr. HOBHOUSE
The Bill passed on 11th April, 1889, and the time of expiry was 1st October.

§ Sir F. BANBURY
That is six months.

§ Mr. HOBHOUSE
Is our proposal in any way more objectionable?

§ Sir F. BANBURY
Yes; the longer the time, the more opportunity there is for the holders to know what is going on.

§ Mr. HOBHOUSE
Certainly; and the longer the time for the money to lie unreproductive. Under our proposal, at the end of two months the holder will begin getting his interest, while in the other case he would not get it for six months. The hon. Baronet will be within his rights in moving the deletion of this paragraph in Committee, but, as far as my information goes, he will obtain no backing in such a course from the community which he represents politically in this House. I trust that this explanation is satisfactory, and that the House will support the Bill in this particular.

§ Mr. AUSTEN CHAMBERLAIN
Before the Debate which took place on the last Bill had entered on its more exciting stage, I was endeavouring to elicit some information from the Chancellor of the Exchequer. I referred to what occurred in the last Session of Parliament. I was speaking from memory, and without the opportunity at the moment of being able to consult the OFFICIAL REPORT so as to 902 read to the House the exact words of either myself or the Chancellor of the Exchequer.
The Chancellor did not remember the circumstances exactly, but he was good enough to say that I was generally accurate in these matters, and that my memory was generally only too good. I have now got the actual passages. I would venture to point out that when they are read it will be found that the course which the Government has pursued is not only incompatible with their intention—as I suggest—but is actually at variance with statements that they made to the House. On May 20th last, in the course of the discussion on the Budget Resolutions, I said: I want to ask the Chancellor of the Exchequer a question. In his Budget statement he incidentally mentioned that he had carried forward from last year to this year something like £7,000,000 of Sinking Fund money. I went on to say: I accept the passing phrase of the right hon. Gentleman in which he said that the condition of affairs (in the last year, 1908) did not make it expedient to expend money in the reduction of debt in the last half of last year. That is a statement that I am unable to understand.… Surely Consols were low enough last autumn, and the Chancellor of the Exchequer could not have expected that he was going to drive them lower still. Perhaps I was wrong then. In any case they are low enough now. Why (I asked) did he think he would have the opportunity of laying out his money this year (1909) better than in the closing months of last year? I will undertake to say that he cannot be buying Consols, on an average, cheaper after the last financial year than he could have bought them during the last financial year. The question I sought to put to him was this:— What was the reason for carrying forward this very unusual sum, and what were the circumstances which rendered it inexpedient to expend the money last year? In the previous year the carry forward was about £1,000,000. We find last year the carry forward was £7,000,000. My request was for information why this very large sum was carried forward. Here is the Chancellor's answer:— The right hon. Gentleman has asked me about the retention of this money. The real reason is we were buying War Loans. Then he went on to give the explanation to which I have already referred:— It is to be redeemed next year at par. We were paying 101 or 102 for what we could get at par, and what we would have to pay at par in 1910. Therefore as we get nearer 1910, as the right hon. Gentleman knows, these things drop to something nearer par because everyone knows perfectly well that they can be bought out in 1910 at par, and therefore they would not be prepared to put the same figure on it as at an earlier period. That is the real explanation. 903 That was not the real explanation, because the Chancellor of the Exchequer has now informed us that he had ceased to buy War Loans in December, 1908. By the published statement of the payment made of the Reduction of Debt it is to be seen that the Government never had paid more than 100 for War Loans, and that they had not in fact been paying 101 or 102. In any case they had ceased purchasing War Loans and they were purchasing Consols. We were told that was not the case, and that they did not hold the money over in order to buy War Loans, because in fact they were not buying them. Not merely had they not bought any since Christmas, but from April onwards, as the Chancellor of the Exchequer told us to-day in correction of his figure of yesterday, they had purchased only £300,000 of War Loans in all, and the whole of the rest of the £7,000,000, or the major portion of it, I presume, went in Consols. The Chancellor of the Exchequer, though he very fairly accepted my recollection, seemed to doubt whether I had referred to chapter and verse. I have by these passages, I think, justified what I said, and I think the Chancellor himself must have found out after this statement was given to the House that he had been misled—had forgotten what was taking place. The House ought to have had his correction at the time, and it ought not to have been left to us to have to elicit it merely by chance so long after the mistake was made.
I make one other observation as regards the value of the purchase. The War Loan was carrying 2¾ per cent., Consols were carrying 2½ per cent. In the consideration of the price you have to take that into account. If you buy War Loans you save the higher interest. Of course, that depends upon the price you buy them, and the price is determined by that very fact that they are carried for a short period at a higher rate of interest, and that the nearer the time they are redeemed the nearer they come to par. I think I have justified the statement made earlier in the day. I cannot explain or reconcile the explanation given by the Government—given, I have no doubt, in perfectly good faith at the time it was made.

§ Mr. LLOYD-GEORGE
I am obliged to the right hon. Gentleman for recalling the references, but I do not think they altogether bear out the interpretation placed upon them by him. What I seem to have 904 said was that we were buying War Loans by means of the £7,000,000. That is perfectly correct. We were buying War Loans up to the end of December. But we could not have spent the whole of that sum between December and March profitably, and the right hon. Gentleman would know that. To buy large quantities of stock, whether it be War Loans or Consols, would be to simply send up the market against ourselves. Therefore we could not possibly have expended profitably that sum of money between those times. The real question is whether we have spent that money to the best advantage and for the interests of the taxpayers of this country, and I think if the right hon. Gentleman will go through the list and see our purchases he will assent that the National Debt Commissioners have spent that money undoubtedly economically, and very much to the advantage of the taxpayer. He will find that we avoided purchasing such quantities as would put up the market to our detriment. If we had spent the whole of the £7,000,000 between December and April we should have simply put up the market against ourselves, whereas by spreading it over a much larger period we were enabled to purchase at such a rate and to make the money go very much further than it would have done. That is really what happened. The right hon. Gentleman says that the higher rate of interest upon the War Loan is what the investor would look at when he was buying that War Loan, and when he was deciding whether to purchase War Loans or Consols. That is not so. They have always to take into account the nearness of the time of redemption. These are very important elements. The right hon. Gentleman emphasises one element, but a much more important element in sending up the price of War Stock he omitted—the prospect of the Government entering the market as competitors for the purpose of purchasing stock.
There are three elements, and the right hon. Gentleman has only mentioned one. We have to take all these things into account. I am certain in regard to this—it was worked out to-day by able officials—that we benefited to the extent of 4s. 6d. per cent. in changing our method of purchase in December, 1909; dropping our policy of purchasing War Loans and entering the market to purchase Consols. Really, I should have thought the right hon. Gentleman would rather have commended our policy in that 905 respect, instead of standing pedantically by any kind of policy of redeeming a War Loan purely because it was coming into the market in April, 1910. We made up our minds to spend the money in the best way posible, and in a way, I am certain, that would be done under the Trustees Act by those who bought on behalf of private individuals. We have done it profitably, and in the most businesslike way, and I do not see how we could have spent it more profitably or more in the interests of the taxpayer.

§ Mr. JOHN WARD
The discussion between the two Chancellors of the Exchequer, and the Gentleman that I think imposed this War Loan at the first, and the Gentleman who is redeeming it by this Bill, is no doubt very interesting. But I was wondering, Mr. Speaker, whether it includes the possibility of referring to the circumstances that made this Loan and its redemption at the present time necessary. We are now discussing a Bill for the purpose of finding £21,000,000 for the purpose of squaring an account connected with the war, which, after all, I believe most of us, including some Members of the Opposition, are now satisfied was one of the most disgraceful occurrences—

§ Mr. SPEAKER
That is outside the question. It has nothing whatever to do with this Bill.

§ Mr. JOHN WARD
On a point of Order, Mr. Speaker. I wish to know if it is possible, when discussing a measure for paying certain debts, to consider whether these debts should have been incurred?

§ Mr. SPEAKER
To that question I should say, certainly, no. The debt has been incurred, and the question is whether you are going to pay it or not.

§ Mr. JOHN WARD
If we are not able, in considering the way in which the loan should be repaid, to discuss the circum stances under which it was obtained, I think the Government would have been better employed in bringing in a Bill for fixing it pro rata upon those whose con duct made the expenditure necessary—

§ Mr. SPEAKER
That is not relevant.