STATEMENT BY MR. McKENNA.

HC Deb 21 June 1915 vol 72 cc949-1004

The CHANCELLOR of the EXCHEQUER (Mr. McKenna)

I beg to move, "That the Treasury may borrow, in such manner as they think fit, on the security of the Consolidated Fund—

1. (a) any sums required for raising the supply granted to His Majesty for the service of the year ending the thirty-first day of March, one thousand nine hundred and sixteen; and
2. (b) a sum not exceeding two hundred and fifty million pounds in addition; and
3. (c) any sums required for cancelling any securities issued under the War Loan 950 Act, 1914, or any Treasury Bills issued under any Act relating to ways and means, which the Treasury may, for the time being, be authorised to cancel;

and, in connection therewith, the Treasury may—

1. (a) arrange for giving an option subject to such conditions and on such terms as the Treasury determine, to any holders of consolidated two-and-a-half per cent. annuities, or two-and-three-quarters per cent. annuities, or two-and-a-half per cent. annuities, or three-and-a-half per cent. War stock and War bonds issued under the War Loan Act, 1914, to take new securities in lieu of those annuities, stock, or bonds, and may create securities for the purpose; and
2. (b) charge on the Consolidated Fund the principal and interest of any securities so created and any expenses incurred in respect of any such borrowing or exchange of securities; and
3. (c) charge on the Consolidated Fund any additional remuneration to the Bank of England in respect of any sums raised or securities issued either under the War Loan Act, 1914, or in pursuance of this Resolution."

I rise to move this Resolution enabling me to introduce a Loan Bill. On the 17th of November last my right hon. Friend the Minister of Munitions (Mr. Lloyd George) introduced a Loan Bill for £350,000,000. Large as that sum was, and notwithstanding other methods of borrowing which have been adopted, the time arrived when the necessity for a further loan became apparent. As soon as that necessity was established, the Committee will agree, I am sure, that it was in the public interest to come to a prompt decision. It is most undesirable to have a big Loan hanging over the market. It is far better, even at the risk of some inconvenience, to take an immediate decision to bring out the Loan forthwith. The House has already given leave to take both stages of the Resolution to-day, so that the Bill may be introduced at once. By adopting this course, if the House sanction the Resolution, the Bank of England will be able to issue the prospectus for the Loan to-night, and applications can be received to-morrow. In introducing this proposal, I shall have to use the language of commerce, the language of business. I shall have to talk of rates per cent., and of detailed matters of business of that kind, which may leave upon the minds of those who listen to it the idea that the greater political considerations behind have been overlooked. I hope, however, that the Committee will read into every sentence I use that there is behind all these business arrangements an urgent appeal to the patriotism of the country to make use of its gigantic financial resources in enabling us and our Allies to carry on the War to a successful issue. What is the ground for an immediate issue of a Loan? Let me give the Committee very briefly two or three figures. Up to the end of March last—that is to say, at the close of the last financial year—the realised deficit, which means, of course, the amount by which our expenditure exceeded our revenue, had reached a total of £334,000,000. Since the 31st of March down to Saturday last, the 19th of June, there has been a further realised deficit of £184,000,000. The two deficits together give us a total of £518,000,000, which is the amount which has to be made good by receipts, other than revenue. We have made provision so far to meet this deficit by various borrowings. The first War Loan, in November last, was for £331,000,000. We have issued Exchequer Bonds to an amount of £48,000,000, and we have further sold Treasury Bills to a total of £235,000,000. Those three items together give us a total of borrowing amounting to £614,000,000. From this total, however, an item, in these days a comparatively small item, of £16,500,000 has to be deducted for Exchequer Bonds, raised to meet part of a loan for the South African War, which have been paid off. There is, therefore, a balance of receipts from borrowings amounting to £597,448,000.

The Committee will remember that the total realised deficit up to last Saturday was £518,000,000. There would seem to be a surplus of £80,000,000 still in hand. There are, however, two facts which we have to take into account before we can properly regard this surplus of £80,000,000 as money which we can freely spend for the purposes of the War. In the first place, the State has now very considerable liability to the Bank of England. Supported by a Government guarantee, the Bank of England has made advances to accepting houses and others, to enable them to meet bills and other liabilities, in the manner prescribed by my predecessor last November. The Minister of Munitions stated the liability at that time as £120,000,000, and he estimated that before the end of the War the liability would be reduced, by payment of bills and debts and otherwise, to £50,000,000. As a matter of fact, I am in the fortunate position of being able to say that the liability is already well under £50,000,000, and in that fact we have the strongest testimony to the measures adopted by my predecessor at the time of the crisis last August. We propose to take over this liability by repaying to the Bank the amount lent against those bills. The policy of the Government ought to be to reduce those debts, direct and indirect, to the Bank of England, so as to leave the Bank as free as possible to carry out its time-honoured duty of watching over the Exchanges and protecting the country's gold reserve. When this and other liabilities to the Bank have been paid off, the large apparent surplus will be, to a great extent, extinguished.

The second factor which we have to bear in mind as a justification for an immediate Loan is in the daily excess of expenditure over revenue. If we assume that the revenue came in at an equal rate day after day during the year the daily revenue would be £732,000. The expenditure today is very nearly £3,000,000 per day, and the expenditure is rising. We have, therefore, to make provision for a deficiency which now is already upwards of £2,250,000 per day, and which, as the-months go by, must approach, if not surpass, £2,500,000. With these facts confronting us, unless we issue a Loan, the only method we could adopt to pay our way would be by the continued and indefinite issue of Treasury Bills. We have already adopted that method to the extent of borrowing £235,000,000. There are objections to any indefinite issue of that kind of security. In the first place, Treasury Bills have a habit of falling due, and they are most likely to fall due, not to be renewed, at the very time when, owing to the financial conditions of the moment, it might be most inconvenient to buy them out. In the second place, by means of Treasury Bills, we borrow bankers' money and not public money. I know that the distinction between bankers' money and public money is a distinction which may be somewhat fine. After all, bankers' money is public money with one remove, but there is a very real difference between the fact of borrowing from the public and borrowing from the banks. If the public bought Treasury Bills, and would be certain to renew them when they became due, we should be willing to go on borrowing on Treasury Bills throughout the War. But neither of these conditions exists. We want the public to lend the money, and we want the money lent in a way which will not oblige us to repay during the course of the War. Those are the advantages which a Loan offers. In the first place, a Loan does not fall due, at any rate, at a very early date; in the second place, if you borrow public money by means of a Loan there is a tendency—I will not go higher—to reduce expenditure and consumption, because of the effort of the investor to pay for his holding by saving; in the third place, largely due to that reason, but also for other and more technical reasons, the issue of a large Loan has the effect of assisting our foreign exchanges. For these reasons the Government decided upon the issue of a new Loan.

What are the terms proposed? We propose that the loan shall be issued at par, and shall carry interest at 4½ per cent. We propose that the State shall have the right to repay the Loan at par in 1925, or at any subsequent date. But we propose, also, that the lender shall be entitled to have his money back in 1945. The Loan is, therefore, repayable in ten years, and must be repaid in thirty years. The instalments for the Loan will cover a period from application up to the 26th October, and the first full half-year's dividend will be paid on the 1st December. These are the main simple features of the Loan, which, I hope, will recommend themselves to the Committee. The first question which may be asked is: why issue at so high a rate of interest as 4½ per cent.? Those who put themselves back nearly twenty years, and remember Consols standing at 114, at that time would have looked forward to an issue at 4½ per cent. as an impossible dream. Those who, twenty years hence, look back at this Loan at this price will, according to whether they have subscribed or not, regard it as a golden or a lost opportunity. But the Government has to face the situation of to-day, and there are two great facts which we cannot ignore. Those who think that 4½ per cent. is too high or extravagant a rate of interest must first of all remember that the old War Loan at its present price, allowing for interest and the value of redemption, pays the investor no less than 4¼ per cent., and that Loan is standing at a discount. The second great fact we have to remember is that we require not five, ten, fifteen, fifty, or a hundred millions, but many hundreds of millions. [An HON. MEMBER: "How many?"] It becomes obvious—I think it must become obvious—that if, on the old War Loan, the investor can already get rather better than 4¼ per cent., you could not expect that a new issue by which it is hoped to raise many hundreds of millions could be floated at less than 4½ per cent. Needless to say the Treasury cannot like issuing a Loan at a high rate of interest, and we are fully aware of all the objections, not only on the ground of the liability to meet the interest, but also on the ground of the effect upon other securities, of issuing a new Loan at a high rate. But the overwhelming and cardinal fact is that the State has to raise the money, and it is no good putting forward terms which would leave in doubt the successful issue of the Loan.

Those are the first features, but there are several other factors of very great importance which I wish to bring to the notice of the Committee. As I have just said, the effect of the issue of a 4½ per cent. Loan is to depreciate the price of other fixed interest bearing securities, and foremost in our minds amongst those securities must be the old War Loan. [An HON. MEMBER: "And Consols!"] I will come to everything in turn. Foremost, at any rate, I think in most people's minds, will be the old War Loan. Five or six months ago the public were appealed to to subscribe their money to the State. The effect of this issue at 4½ per cent., when the old War Loan was issued to pay only 4 per cent. interest, enhancement of price included, and now at its depreciated price pays only 4¼ per cent.—the influence of this issue on the old War Loan must be to send it down further in price unless something is done to help the holders. I hope it will stand for ever as a maximum of all British Governments that this country will never leave its creditors in the lurch, and that those who lend their money on the faith of British securities may rely on it that every effort will be made to see them through. We propose to give new rights to the holders of the old War Loan. I will state what those rights are in a moment. Before I do so, I want to mention another security—Consols. The case for Consols is not quite the same as the case for the old War Loan—we speak of the Loan of November last as the old War Loan—but the case of the Consol holder is nevertheless very strong. Most of us forget that upwards of £90,000,000 of Consols were issued to pay for the South African War. Another factor we must not overlook is that the depreciation, almost to the point of unsaleability, of Consols, is not in the interest of the commercial community as a whole. I do not speak only of the holders, but the ruin and bankruptcy which a heavy sudden drop of Consols entails are evils which it is the interest of the State to avert so far as possible. We propose, therefore, to give to the Consol holder a similar opportunity of retrieving his position as we are giving to the old War Loan holders. I should add, in order to make the circle complete, that we do the same for the holders of 2½ per cent. and 2¾ per cent. annuities: thus all the creditors of the United Kingdom are remembered and something is done to help them.

Mr. LOUGH

Does that apply to Irish Land Stock?

Mr. McKENNA

No. That is not our debt; it is guaranteed debt. Irish Land Stock is held under entirely different conditions. What are the terms that we have to offer to the ordinary investor? We say: If you bring £100 we will give you £100 of new War Loan, at par, carrying interest at 4½ per cent. To the holder of the old War Loan we say: If you bring £100 and invest in this new War Loan we will take your old War Loan at par and convert it into new War Loan of a like amount. We will take it at par—that is at £95, the price of issue—and convert it from a 4 per cent. Loan into a 4½ per cent. Loan. Note how that works out. Let it be understood that when I speak of £100 I am only taking £100 as a unit. What is true of £100 is true of £5, and it is true of £5,000,000, but for the sake of calculation and readily to understand the proposition I take £100 in each case as the unit. The holder of £100 of stock of old War Loan subscribed for the stock at £95. We say to him: If you bring your £100 of the old War Loan, for which you paid £95, and £5 more, making £100, with that £5 you shall convert you £100 of old War Loan into £100 of stock in the new War Loan. It requires, perhaps, a little calculation upon a piece of paper for anyone to work out what it means, but anyone who does so will find that this is an offer which gives saleable rights to the old War Loan holder, so that any holder who has not an amount of money to subscribe to the new War Loan will be able to sell part of his old War Loan, and with the money so acquired convert the balance of the old War Loan.

Consols to-day stand at what is called the minimum price—that is 66½. If the restriction upon dealing at any price below the minimum price were removed, I am afraid Consols would not stand at that figure. They would be many points below 66½ But, after the issue of this Loan, which gives 4½ per cent. interest, Consols, if left to themselves, must inevitably fall still lower. We say, then, to Consol holders: If you apply for £100 of the new Loan—here, again, I take the same unit of £100—we will allow you to convert £75 of Consols into £50 of new War Loan. I must make that a little clearer. Anyone who desires to convert his £75 of Consols will be able to exchange it for £50 of new War Loan. Those who make the calculation will readily appreciate what that means.

Mr. JOYNSON-HICKS

It means 66⅔.

4.0 P.M.

Mr. McKENNA

The hon. Member is right. It means that we make Consols exchangeable at the price of 66⅔. The condition of the Consol holder getting this advantage is that he should apply for the new War Loan. Just as in the case of the old War Loan, we relieve the Consol holder of the stock which he would inevitably have to write down, and which would probably be almost unsaleable, and we give him in exchange a new and highly marketable security, the price of his Consols for the purpose of exchange being reckoned at 66 and two-thirds. To the 2½ per cent. annuitants the price is £78 for £50 of the new War Loan, and to 2¾ per cent. annuitants £67 for £50 of the new War Loan. There is one other condition which I must mention in connection with this conversion, and that is that application must be made before 30th October of this year. What will be the effect of this conversion? There are now held, otherwise than by Public Departments, Consols amounting to between £300,000,000 and £400,000,000. If the Consols were all converted it would mean an application for at least £400,000,000 of the new War Loan, because Consols can only be converted if the holder applies for the new War Loan in a proportionate amount. In the same way, if the conversion is made of the old War Loan into the New, an application for some hundreds of millions of the new stock would be made. We do not expect—we cannot anticipate—that all the holders of Consols and all the holders of old War Loans will convert. Many will not think it worth while. A good many, in spite of every facility, will think it is a transaction too difficult to undertake, and some persons may not be able to find the necessary money. There is an element of uncertainty as to how many holders of old War Loan and Consols will convert. That element of uncertainty makes it unwise, imprudent, to fix a limit to the amount of the Loan.

We are not asking for any definite amount. The only limit will be the limit in the Resolution to meet the expenditure of the year. We could not say we wish to raise £300,000,000 or £400,000,000, because either of those sums might prove to be insufficient to meet the demands of those who desire to convert. Consequently, novel as this feature is of raising a Loan without a definite limit, in the circumstances it is far more prudent to adopt that method. In this conversion we are giving to old stock holders what is technically known as an uncovenanted benefit. In this new issue we propose to give to subscribers a covenanted benefit. We undertake that in any new issue made in this country for loan for purposes of this War, other than, of course, for Treasury Bills or short-dated Loans, we will take the stock of this War Loan for cash at par. That means that in any future Loan, owing to the protraction of the War, should it become necessary to pay a higher rate of interest than 4½ per cent., the holder of this stock should be entitled to the higher rate. He shall be put in the position as if he were subscribing for the new Loan for the first time.

I think the Committee will agree that these terms are generous, and that, if a proper appeal is made to the country, they ought to be effective in raising the money we require. I have no doubt that when considering whether they should or should not invest in the last Loan many persons, in whom the business faculty was perhaps over developed, hesitated, with the idea that if they waited a little there would be another issue at a higher rate of interest, and that they could do just as much service to their country by lending the money when it was next wanted as they could do at the moment. Those prudent people on the last occasion made a mistake, because they have been watching their money for the last six months and not getting anything like the rate of interest on it that they could have got on the Loan, and when the new issue comes we put the old subscriber back in the favourable position of new subscribers. But, as regards future Loans, the argument for waiting is absolutely gone. Now is the moment! Who can say that ever any Minister will stand at this box again and offer the public a chance of subscribing at 4½ per cent. on the credit of the United Kingdom. If our requirements become greater and we have to borrow at a higher rate, subscribers will get the advantage. If things go favourably with us—pray God they may—and another Loan should be required it would not be at this rate, and, therefore, I appeal with some confidence to the investor to take advantage of the opportunities afforded to him and to subscribe freely and liberally to the needs of his country. This is a great national appeal for a great national purpose.

I have spoken so far of the terms and conditions of the issue of the Loan through the Bank of England. The minimum subscription will, as usual, be £100. [HON. MEMBERS: "Too high!"] I have spoken of the issue through the Bank of England. The minimum subscription will, as usual, be £100, but in our present proposal we do not confine ourselves to that issue. We propose three methods of issue to meet every class and every person: first of all, through the Bank of England, in the way that everybody already understands; secondly, in order to meet the needs of the small investor, we propose to provide for the sale of £5 bonds or £25 bonds through the Post Office. The bonds will carry precisely the same rate of interest, precisely the same advantages as to conversion which attach to the issues through the Bank of England.

Thirdly, there is another issue which we propose. A Committee presided over by my right hon. Friend the Financial Secretary has devised what I venture to term a very ingenious and practical scheme for giving everybody, however poor, an opportunity of taking a share in the Loan on at least as good terms as are given to the millionaire. It is proposed that War Loan vouchers for 5s., or any multiple of 5s., shall be on sale at Post Offices, or, if they will help us, through trade unions, friendly societies, and works offices. These 5s. vouchers will carry interest at the rate of 5 per cent. per annum for every complete calendar month. Broken days will not be taken into account, but the rate of interest, instead of being 4½ per cent., will be 5 per cent., which will more than make good the loss on the broken months. The vouchers, when they have been accumulated to the amount of £5, may be exchanged at the Post Office for a £5 bond, which will then carry all the rights of any other stockholder. We propose, however, an additional condition. We propose to give the holder of a voucher who finds a difficulty in saving up to an amount of £5, or who, for some other reason, requires his money, the right to pay in his voucher to the Post Office as a deposit on Post Office account. He can thus convert it immediately into cash. But, if the voucher is so treated, it will not carry interest. It will be used only as money, and as money no interest will be paid upon it. By these arrangements we give to the working classes, if they invest in the War Loan, every advantage which is offered to any other class, and we hope by these means to induce the public on every scale of living to retrench its expenditure, to save its money, and to subscribe to the War Loan for a period of four or five months, either by the purchase of vouchers or by the payment of instalments.

Mr. LOUGH

How will the interest on the voucher be credited?

Mr. McKENNA

They will be credited, on the exchange of the voucher for the bond, with the amount of interest. The allotment lists for application will be closed on or before 10th July; that is to say, the public will have, unless we close the lists earlier, just upon three weeks in which to make up its mind whether or not it will subscribe. Allotment will be made on application, and the lists will not be closed unless the applications have reached a point which we consider sufficient to meet our requirements. But our requirements are great. I have already given to the Committee figures to show the vast number of millions which will be required to finance the War up to the end of this financial year, and nothing but a great appeal through our financial resources, stimulated by the most earnest sense of patriotism, will enable us to obtain the money. I would urge upon those who have the means of subscribing, and those who can obtain the means of subscribing by curtailing part of their customary expenditure, that every effort that they make now is an effort which is not only necessary to enable us to carry on the War, but will bear very great fruit in enabling us to maintain our financial pre-eminence after the War is over. That is an aspect of the question which we must not overlook. As long as the War may last there is a future. We do not want to see ourselves crippled in that future by our own neglect of the rules of prudence and economy whilst the War is being carried on. Now, Sir, he who subscribes to the country's need at the present time is, in truth, doing an act of mercy, and his act benefits both him and the country to whom he gives. He who subscribes now, and saves in order to subscribe, will be able to bear the strain when the War is over, and he will be thankful for the efforts he has made in this struggle to help himself. But still dearer to him must be the knowledge that every aid that he gives to himself he is multiplying for his country, and that his country will bless him for his prudence and his generosity.

Sir F. BANBURY

I am not quite sure whether I understood the Chancellor of the Exchequer correctly. Does he say that the amount of the Loan is unlimited?

Mr. McKENNA

Yes.

Sir F. BANBURY

That is rather a strong order to those of us who have been brought up in the old financial school. I am not surprised that the right hon. Gentleman's terms are very generous if the public are to be asked to subscribe to an unlimited amount. The result of the amount being unlimited will be that the market will never know what amount will be issued, and it will be quite impossible for this stock to go to a premium, and it must at once be at a discount, because with an unlimited Loan on the market we shall not know where we are. I will not now go into the question whether any Government has the right to ask for an unlimited amount.

Mr. McKENNA

I stated that we are not asking for any specific amount, but, of course, the amount is limited by the terms of the Resolution to £250,000,000. I think the total is £910,000,000, but I was not asking for that amount.

Sir F. BANBURY

Then I withdraw what I have stated. As long as the amount is limited then we know where we are, and everybody will know what is before him. My hon. Friends near me thought that the amount was unlimited, but now I understand it is limited to something like £900,000,000, Of course, the terms are very generous, and there is not any question about that. One point the right hon. Gentleman left out was what is the cost to the taxpayer going to be of the conversion of Consols and the conversion of the old War Loan. It is going to cost a very considerable amount, and I should put it, roughly speaking, at about £3,500,000 per annum in extra interest. It all depends upon how many people convert, but I think the amount would be something of that sort. I do not want to criticise the proposals of the right hon. Gentleman when he is going to borrow an enormous sum like this at a high rate of interest, but when he is doing that I think he should give the whole of the Consols some opportunity of making their stock saleable. I am sorry that he does not think he has been sufficiently generous, and I regret that he went so far as he did when he said that, in the event of a further Loan being required, all this sort of thing will be gone over again. Supposing, for instance, as I hope will be the case, that this Loan turns out a great success and there is a great demand for it abroad—I should think there would be, especially in America, where a 4½ per cent. English Loan should be worth subscribing to. If successful, the people who subscribe gain the advantage. But supposing it is a failure, it is not fair to say to the taxpayer, "You must recompense these people because it has been a failure." You are giving those people an option for nothing, which is not business. It is a new principle to say that if a thing is a success you must reap the advantage, but if it is a failure somebody else must bear the loss. I recognise the difficulty of the right hon. Gentleman's position, but I am sorry that my advice was not taken in the case of the last Loan, when I did all I could to have it issued at 4 per cent. at par, instead of 3 per cent. at 95. It would have cost the country no more, and it would have made the Loan a success instead of a failure. However, my advice was not taken. I am inclined to think that the right hon. gentleman has been sufficiently generous, and, if he could do it, I should say that all these advantages should be confined to the holders of Consols and the old War Loan; but should we unfortunately have to borrow any more, because £900,000,000 is a large amount, then more people must take the times as they are, and, if the Government have to borrow at a lower rate, it cannot be helped. I do not think it is advisable to say that should there be a necessity to borrow further at 5 per cent. all those people are to receive an additional ½ per cent. I do not know whether it is too late to alter that, but I think it would be well to make that alteration. We have really to consider the taxpayer. The right hon. Gentleman has been so generous that I do not think it is necessary to give this option to the people who are going to subscribe.

Mr. JAMES MASON

I am very much impressed by the generosity which is put forward in this scheme, but I should like to have one or two points cleared up which the right hon. Gentleman did not explain quite clearly in his speech. The right hon. Gentleman told us that applications for the Loan must be made by July 10th. I presume that the issue of the vouchers does not cease on the 10th July, but goes on indefinitely?

Mr. McKENNA

Yes.

Mr. J. MASON

In that case I presume that the amount of the Loan will in the future be constantly increasing by the issue of further bonds and vouchers from week to week. That seems to me to be a position which will require further consideration. May I ask one question with regard to the Consols? The right hon. Gentleman told us that with regard to the old War Loan, in the case of people who could not afford to take up the new War Loan, and get the benefits put forward, they would have rights which would be saleable, but he did not tell us whether similar rights were saleable in the case of Consols. Do the Consols carry similar rights to the old War Loan which has saleable rights?

Mr. McKENNA

Yes, obviously.

Mr. J. MASON

I would like to know whether it would not be advisable that Treasury Bills now current should be made convertible into the new Loan. Take, for instance, Treasury Bills at six or nine months. If they want to use that money for the purposes of the loan they have to borrow money in other quarters, whilst receiving a less rate of interest. Treasury Bills at six months have been issued at 3⅝ per cent., but during their currency the person who wishes to apply for the War Loan would be receiving a less rate than if he were able to get the War Loan at once. Would it be possible to consider some arrangement by which those Treasury Bills could be converted into War Loan Stock immediately? I hope that on the whole question of this Loan the right hon. Gentleman has thoroughly considered whether the time has not come when we ought to find a larger proportion of this special expenditure than we have done up to the present time by means of taxation rather than by Loan. I feel extremely strongly myself, and I am quite sure that many others in this House do, that the proportion we are paying out of taxation for this War is not sufficient compared with that which we are paying out of Loan.

If we realise the enormous amount of artificial income there is in this country at the present time, income which is partly due to the War, which is to a larger extent due to a certain activity in trade, and which we all anticipate will to a considerable extent collapse at the end of the War, I think we shall admit that there are very large numbers of people in this country who are at this moment receiving incomes far in excess of those they are likely to receive when the War is over. If that is so, is it wise to encourage people to spend incomes which they may think are as low as they are likely to get and to encourage them in the view that those incomes are not likely to be further reduced, when we most of us know that they are to a great extent artificial, and are likely to be a good deal lower when the War is over? The taxpayers of this country as a whole are much more able now to bear increased taxation than they are likely to be at the end of the War, when we probably shall be in much greater financial difficulty, and when we shall require all the resources we shall have to encourage industries and to put them on a sound basis. At that time increased taxation will be much more serious than it is to-day.

There is one other reason why I advocate increased taxation. It is all very fine to talk about reducing the consumption of imported articles and the like, but it is extremely difficult to get a great many people to reduce the consumption of articles, so long as they have got the money to pay for them. I believe that the only way in which you can bring about that saving and thrift which the right hon. Gentleman advocated just now is by enforcing a certain amount of that saving in the form of increased taxation at once. It is, of course, most desirable that everything should be done that can be done to prevent any waste in consumption. We are all agreed upon that. There is a special difficulty in the case of imported articles, which have got to be paid for either by exports visible or invisible or by gold. That being the case, is it not desirable that a considerable number of the articles which we import now should be themselves taxed? I am not going into the old question of who pays the tax. I will only take one example as an illustration of my point. Petrol has not gone up to the price which a great many people anticipated. Petrol is absolutely necessary for the conduct of the War, and so long as private people are able for the purposes of their private cars to go on consuming large quantities of petrol there ought to be some check on their consumption by some increase in the tax on that article. At the same time a certain amount of revenue would be brought in to the Treasury. I hope that in the whole of this question of financing the War the right hon. Gentleman will really give ample consideration to the question whether or not we should increase the proportion of the cost of the War which should be met by taxation as compared with that which should be met by Loan.

Mr. GOLDSTONE

I followed the speech of the hon. Gentleman who has just sat down with very considerable interest, and especially that part of it in which he suggested the raising of additional revenue at the present moment by means of taxation instead of by Loan. Perhaps, from another point of view, but certainly with the same principle in mind, I heartily agree with him. I have in mind the difficulty which will ensue after the War is over in promoting schemes of social betterment. If we are then saddled with Loans carrying interest to something like the extent of £40,000,000 a year, it will be extremely difficult to attend to such necessary things as housing, education, and the like. It does seem to me that the suggestions of the hon. Gentleman in one or two particulars are entirely practicable, particularly his suggestion for taxing those who have at present considerable means which are available for the purpose. In this connection I hope that the Government will take the opportunity of taxing the excessive war profits which are known to have been made and which are being made as a result of this War. I think that the hon. Member cordially agrees with that suggestion.

I fail to follow him, however, when he suggests that at this time of truce we should begin to introduce Tariff Reform by a side wind. He suggested, for example, the taxation of petrol without stating definitely what was his policy. I think that his point would be met just as well if he placed a high tax on the users of expensive motor cars. He could get the money in that way without departing from the principle of Free Trade. There are other possibilities entirely in the same connection which the Government ought to consider. There is the possibility of heavy taxation in respect to persons who keep men servants. This would indirectly be of very excellent service from the national point of view. There are other means along the lines suggested by the hon. Member, apart altogether from the application of a policy to which many take great exception, which it would be well that the Government should consider.

I have risen, however, to draw attention to the new proposal of the Chancellor of the Exchequer of allowing the working classes to take some part in this Loan, and, though I cannot pose as a financial expert, so clear was the statement of the right hon. Gentleman, that, in the main, I was able to follow every detail of it. I believe, from what I know of active workers in the trade union movement, that the proposal to give opportunities to working men to subscribe to this Loan will be approved, and that a considerable amount will be taken up—considerable in the aggregate, though the individual sums may be low. There are, no doubt, at the present time certain trades which are extremely busy. The men engaged in them are doing better now than they have done for years. High wages are undoubtedly being earned by men in engineering and steel works and the like. It seems to me the right hon. Gentleman will find that a considerable number of working men will be prepared to take these vouchers. He does well to give the opportunity to approved societies and to trade unions—I think he might extend it to the co-operative societies—to be the channels for the distribution of these 5s., 10s., and £1 vouchers, but I would suggest that if 10th July is the last date for working men to come in under this scheme—

The FINANCIAL SECRETARY to the TREASURY (Mr. Montagu)

No, up to 31st October.

Mr. GOLDSTONE

I am glad to hear that. One of my queries had reference to the final date for the receipt of contributions from the working-class section of the community, and this postponement is all to the good. There will be men who will be stimulated by this opportunity of entering into a War Loan on equal terms with the millionaire; to contribute their 10s., and possibly in some cases their £1, with a view to the accumulation of a unit of £5. To attempt to get that £5 before 10th July would be obviously absurd for the vast proportion of the men whom I have in mind. The postponement of the date will give them the opportunity of steadily accumulating £5, and possibly more. This, is seems to me, will give to the War Loan an element of success, and may possibly provide more considerable sums than the right hon. Gentleman contemplates. I venture on behalf of a considerable number of my colleagues to give, that part of the right hon. Gentleman's speech approval and commendation, and to thank him for the clear statement which he has made and for giving the class for which I particularly speak the opportunity of entering into this War Loan.

Mr. CHAPLIN

I have no claim whatever to speak as a financial expert, but, standing where I do, I should just like to be permitted to say how the speech and the proposal of the right hon. Gentleman struck me. It struck me as an able, clear, undoubtedly most generous, and, above all, a great patriotic appeal for a great public patriotic motive, to the whole of the nation at large, and I heartily wish him success in his undertaking.

Sir THOMAS WHITTAKER

One would like to have longer time before expressing a final opinion on these very important proposals, but I wish to press one point which was put by the hon. Member for Windsor (Mr. James Mason) with regard to the Treasury Bills which have recently been issued. They have, no doubt, been largely taken by bankers, but they have not by any means been solely taken by bankers. Very considerable sums have been taken by other people. These Loans are repayable six, nine, and twelve months after the time the Bills were issued. If those people can be induced to put that money into this new War Loan the Government would then have the advantage of having their money locked up.

A very important point in connection with this very generous offer which the Government is making is the effect it will have upon the value of all other securities. It is all right to lift the interest on Government securities, but doing so and creating such an enormous quantity of them means that other securities far more numerous and valuable will go down. You will probably, before you have done with this business, have this year something like £1,000,000,000 of 4½ per cent. Stock under the security of the British Government. A good many other securities will have to find a much lower level than they have done to-day. It is going to be a very serious thing for the country. It may be unavoidable, but it does bring home to us what this expenditure really means. No doubt, in so far as the smaller investor can be successfully and prudently brought in, it is extremely desirable, but I am not quite clear what effect it may have upon our savings banks. If the money is going to be drawn out of the savings bank to be put into this War Loan it means that the savings banks of this country will have to raise the money. I do not know how they will get it, but if they are compelled to sell their present seurities in order to find money in any large amount for their depositors to take up this Loan, the results may be very serious to the savings bank. I have not looked into the accounts recently of the Post Office Savings Bank, but I have my doubts as to whether the Government could realise enough from the securities held on behalf of the Post Office Savings Bank to pay all the deposits they hold; I am not sure that the Post Office Savings Bank is solvent from that point of view. If there were large demands on the Post Office Savings Bank for money to put into this Loan, and the Government had to provide that money by sales, there might be a big deficiency to make up. This is a very important matter.

With regard to raising more taxation, I heartily agree with the hon. Gentleman the Member for Windsor. We have had a great deal of talk about economy, but nothing would promote it so much amongst the general public as further taxation, because that would mean enforced economy, and the money would be taken. I do not think, however, we are going to get much out of petrol, theatre tickets, or motor taxes, or things of that kind. In war time you want money in lumps, and it is no use tinkering about with odd hundreds of thousands here and there; you want it by the million, and it will have to be got on a very different basis from anything suggested in that way. First of all, you will have to get more from those who have got a good deal; they pay pretty stoutly now. And then you will have to raise a great amount from the masses of the people. You cannot raise substantial sums by taxing in any other way, and I agree that the time has come when we ought to bring home the necessity for thrift in every direction by more taxation.

Sir WILLIAM PEARCE

I should like to ask the Chancellor of the Exchequer as to the preference in allotment to the holders of Consols and of the old War Loan. I understand he proposes that the holder of 95 per cent. old War Loan Stock is to be able to apply for £100 of this new stock, and that when the conversion is made he is obliged to take up £100 worth of the new stock besides, so that in each transaction there will be £195 applied for. This means that a very large portion of the limited amount—for the amount is limited—of the new Loan must be kept back for the holders of Consols and of the old War Loan Stock, and they are to have an opportunity to apply for this until the 30th October. Therefore, right up to the 30th October, you are going to limit the amount of new stock available for new subscribers, because that amount cannot be ascertained until then. And if the holders of Consols and old War Loan Stock apply to the full extent of their rights, there may not be more than 200 or 300 millions left for outside applications, and the amount of these outside applications to be granted cannot be known for certainty until the 30th October, when the rights of the two prior Loans will no longer exist. If I am correct in that it seems to me the Treasury must be in a state of uncertainty right up to the 30th October as to the amount they can give to outside applications.

Mr. SAMUEL ROBERTS

I should like, with my Friends on these benches, to congratulate the Chancellor of the Exchequer on his very clear statement. The announcement he has made this afternoon will be a surprise to the Money Market, as I do not think it was expected that the Loan would be anything more than a little over 4 per cent. Still, in my opinion, the right hon. Gentleman has done right. He has made a certainty of it. No doubt the terms are very tempting, but he is doing without what is called a forced loan. There has been a good deal of talk about forced loans, and no doubt if we cannot get the money voluntarily force will have to be exerted. We should regret that. The right hon. Gentleman at the same time has done justice to the holders of Consols and of the first War Loan Stock. It would be manifestly unfair to holders of Consols, and those who invested in the first War Loan, that they should have their security depreciated on account of the better terms of the issue of stock when money is required by the State more than it was at that time. The right hon. Gentleman the hon. Member for Spen Valley (Sir T. Whittaker) has referred to the question of gilt-edged securities, and no doubt the effect of these proposals of the Government on those securities will be that they must fall further. I should say myself that the rate of interest on gilt-edged securities will approach now 5 per cent. or over. The right hon. Gentleman will no doubt say he is not the custodian of the holders of these securities and that they must look after themselves. I am very glad the right hon. Gentleman has opened this Loan to small holders—to the working classes. I am quite sure that if the matter is fairly put before them they will be only too willing to invest their money in it. I should like to suggest to the right hon. Gentleman a method in which that could be done. Vouchers, I understand, are to be obtainable at the post office for 5s. up to £5. Might I suggest to the right hon. Gentleman that the opportunity to get money from the working man is at the point when he receives his wages, and if when his weekly wages are paid to him he is asked if he will take 5s. of the Loan he might willingly do it at the moment, whereas after the money has passed into his pocket the chance of his investing it in this manner would become very uncertain. Could not some arrangement be made by which the suggestion to invest should be conveyed to the man at the moment his wages are paid to him?

With regard to Consols, I think the Government proposal will be a very great advantage to the holders of this stock. The Committee are aware that Consols are unredeemable; they are perpetual annuities going on for ever without a chance of being redeemed. The scheme of the right hon. Gentleman affords an opportunity for converting these Consols into a War Loan which will be redeemable, and that will be a tremendous advantage to the holders of Consols. I do not think the right hon. Gentleman in his statement mentioned at what period the instalments were to be called up.

Mr. McKENNA

There will be fortnightly instalments of 15 per cent. and 10 per cent. until the 26th October.

Mr. S. ROBERTS

I am obliged to the right hon. Gentleman. There is one other point on which I should like information. On the occasion of a previous statement it was intimated that a promise had been obtained from the bankers to take up £100,000,000 of the stock. I suppose I cannot ask if the Government have been able to do this on that occasion, but, as a banker, I should like to say we are prepared to do our duty in this matter. I am quite sure the country is prepared to do its duty, and if the right hon. Gentleman will act upon my suggestion with regard to working people he will find that they too are quite ready to come forward and do their little bit of service to the country.

Mr. LOUGH

There was a very interesting point put by the hon. Member for the City of London (Sir F. Banbury) to which I should like to call the attention of the Chancellor of the Exchequer, and I am in a better position to do that than was my hon. Friend, because I have now the Resolution before me. The question is whether this House is justified in sanctioning a Loan for an unlimited amount? My right hon. Friend opposite stated that the amount was really limited to the amount asked by the House for the service of the year ending the 31st March, 1916, and he mentioned an approximate sum of £900,000,000. I want to put a question to the right hon. Gentleman on the Resolution which is now before me. In his statement the Chancellor of the Exchequer was only referring to point "A" of the Resolution, but point "B" says in addition, "a sum not exceeding £250,000,000." Then there is point "C," which refers to "any sum required for cancelling securities issued under the War Loan, 1914, or any Treasury Bills." It looks to me, from the second part of the Resolution, that that includes Consols, and my hon. Friend the Member for the City of London, I think, made a good point when he asked whether constitutionally we could sanction the Loan for an amount which was not limited in some way—which might amount to 1,000, 1,500, or even 2,000 millions—under the Resolution. There appears to me to be no kind of limit whatever embodied in the Resolution.

5.0 P.M.

It is a very serious thing for the House of Commons in one afternoon, coming down here without any idea of the nature of the proposals that are to be made, to agree to such a large proposal as this. I am not suggesting any note of hostility to the scheme of the Government. I am sure they have thought the matter out well. The emergency is a great one, and fully justifies them in calling on every citizen to do all he can to help. But the speech of the right hon. Gentleman seemed to be conceived in a spirit of some despondency. [HON. MEMBERS: "No, no!"] Well, so it seemed to me, and I thought there was no reason whatever for it. I wish to cheer him up by the few remarks I am making. He spoke of this as an act of mercy which would meet its final reward when the investor got his security at 4½ per cent. But surely there was no need to use such an expression as that! This is a good business proposition, and I venture to say that any amount of money that may be required can easily be raised on such excellent terms as those now offered. There is, however, one point I would like to make regarding the Resolution. I need hardly say I do not want to press the Government upon it now. The very fact that the terms of the Loan are more liberal and more costly to the nation than the terms offered a few months before tends to show that the Government is not, perhaps, taking the wisest course in financing the War. It has been financed almost altogether on the German method of borrowing. I think it was Trietsche who said you might borrow all the money for the War, and he went on further to say that England had borrowed all the money for her great wars. That was a most astounding remark for a man like that to make. He was supposed to be a responsible man, but he did not know anything of the facts of which he was speaking. The great feature with regard to the finance of our previous wars was that a large proportion of the expenditure was obtained from taxation. Without pressing the Government in any unfriendly way this afternoon, I think hon. Members in all parts of the Committee will agree with me that the Government have not risen to the feeling of the House of Commons with regard to raising money by taxation. From all parts the suggestion is made that they should put on taxes. Some are futile suggestions and would be absolutely unremunerative. I know the Government will not adopt them, therefore I do not take any notice of them. I cannot help feeling that from the beginning of the War we should have had much larger proposals for taxation than we have had. This year £40,000,000 or £50,000,000 will be raised, but it will be a very small share of the w-hole of the expenditure. The right hon. Gentleman gave me rather a fright at the commencement of the proceedings, because I thought the Resolution he moved was intended to sanction some Resolution with regard to taxation, but I understand that it only refers to this Loan.

I should be glad if in his speech in reply the right hon. Gentleman would indicate whether during the present Session of Parliament he will make any proposal with regard to taxation. I believe it would be very satisfactory to the House, and I would strongly recommend him to look at the matter in the bold spirit shown by the right hon. Gentleman the Member for the Spen Valley (Sir T. Whittaker). Take the case of sugar. Instead of fiddling with sugar, as the Government seem to be doing, open your ports, let sugar in free, and put 1d. a 1b. duty on it. You will then raise £14,000,000. You could also level up the duties on coffee and cocoa to the level of the duty on tea, and you will get a considerable amount of money there. Say you get from £30,000,000 to £40,000,000 by taxation, that will be spread over all the population of the country. There is no doubt that resort will have to be had to every sort of taxation, and that that is the best source from which the Government can get this money to carry on the War. The right hon. Gentleman told us that the revenue of the country is £700,000 a day. Make it up to £1,000,000 a day quickly by taxation and not by borrowing. You will easily get the extra £300,000 or £400,000. It is a great thing to have ready money steadily coming in. It would be the best way of getting the money from the people and it would be the best way of financing the War.

The Government will not think that their proposals have received anything but a sympathetic reception at the hands of the Committee. They are of a most extravagant kind. This is a great appeal for an unlimited amount at this huge rate of interest. There are many good points about it, particularly that affecting the Savings Banks. At Question Time the inquiry was put to the Government as to whether they would not increase the rate of interest paid by the Savings Banks, and they refused to give any answer to the inquiry. Now it is quite clear that the Government is putting down machinery that will enable everybody to get 4½ per cent. for the money they have in the Savings Banks. They may take the money out and invest it in the War Loan. I think consideration ought to be given to these investors and to the working classes. I feel that the Resolution imposes a great and immense responsibility on the House of Commons. The one feeling I have with regard to the War is that we are not getting enough money by taxation from day to day. The Government would commend their general proposals more by imposing larger taxation, and I believe that would carry everybody in the House with them.

Sir COURTENAY WARNER

I desire to congratulate my right hon Friend the Chancellor of the Exchequer not only upon his statement, but upon his boldness in taking the right course and in being liberal enough to the lenders so as to ensure not only getting what he wants for the present, but also for some time to come. By far the most important thing, and it compares favourably with the borrowing of the first War Loan, is that the Chancellor has had the pluck to go at it in the proper way. It might have been well to have had some fixed nominal limit to the Loan, however large, rather than the sort of indefinite description of the limit we have under the present circumstances. I mainly rose to ask a question about the vouchers. The system is most reasonable and workable, and will be of very great advantage. Are the vouchers, which are to carry 5 per cent. interest, to go on indefinitely? That point was not made clear. My right hon. Friend said that the vouchers were to be taken to the post office and converted into bonds, but it was not stated how long they would carry the 5 per cent. interest without the necessity of being converted into bonds. It is a small point but rather an important one to the small investor. It ought to be made clear that these vouchers are to have some limit. I should like to add my congratulations to those already expressed to my right hon. Friend on the whole scheme. I am pleased that it is a large scheme and not a small one.

Sir EDWARD COATES

I listened, like all other hon. Members, with great interest to the admirable and clear exposition which the Chancellor of the Exchequer gave of this great War Loan. There are one or two questions I should like to ask in order to get certain points clearer in my own mind. I understand that the list of subscribers to the new War Loan will close on 10th July. I take it that by the 11th July the Government will know exactly the amount of new money they will receive from the applications by the public and that the House may possibly be told then the amount of stock that has been subscribed. With regard to the money subscribed to the old War Loan, as it is now called, and the holders of Consols, I understand that the holders will have until the 30th October in which to exchange for the new War Loam. There will be two classes of securities up to the 30th October, and I take it that after the 30th October there will still be two classes, because I understood from the Chancellor of the Exchequer that subscribers to a new War Loan, if any further War Loan were issued, would have the opportunity of bringing in their present War Loan holding at the price of the day in order to exchange into the new War Loan.

Mr. McKENNA

At par.

Sir E. COATES

Quite so! I want to know whether the present holders of Consols and the present holders of War Loan Stock will also have the opportunity of making that exchange into any further new War Loan that may come out.

Mr. McKENNA

As it is rather an intricate point I had better reply at once. The Consols holder and the old War Loan holder who converts will get on his converted stock all the privileges of an original subscriber.

Sir E. COATES

Thank you very much. If you take the £400,000,000 of Consols which the Chancellor of the Exchequer mentioned in his speech, with the £350,000,000 of the War Loan you get £750,000,000 altogether, and if you have another Loan of £300,000,000 or £400,000,000 you will have a total of £1,000,000,000. Do I understand that if you have another new Loan after the 30th of October the whole of the holders of that £1,000,000,000 will have an opportunity of exchanging into the new War Loan? With regard to the proposals relating to the Post Office Savings Bank, the scheme of the right hon. Gentleman is an admirable one in order to obtain the savings of the working classes. There is, however, one point of danger which I see and which has, perhaps, already been seen by those in authority: that is, that at present the tens of thousands of subscribers to the Post Office Savings Bank have some little difficulty in getting money out. When they want money they have to take their book to the Post Office and go through a certain amount of red tape in order to get it. I understand that now they can draw their money out if they like, and can have either the money or, when they have £5, can get a £5 Bond. The Bond is handed to them, I suppose, by the post-master or post-mistress. I can see a danger in a poor woman who has all her savings in the Savings Bank drawing £5 out and getting a "Bearer" security. It would be preferable that when she arranged to get her £5, instead of getting a £5 Bond she should get £5 in inscribed stock.

Mr. McKENNA

It can be inscribed stock.

Sir E. COATES

May I suggest that you should insist upon its being inscribed. Those of us who know something about business know how easily you can have a £5 Bond stolen or how easily it can be lost. I only throw out that as a suggestion to the Chancellor of the Exchequer. The right hon. Gentleman in his speech suggested that it was possible that this Loan might assist the exchanges abroad. From the experience we had in connection with the South African War Loan when part of it was issued in America, we found that within a very few months the investors in this country had purchased the Consols back from America and that they were held over here. I should like to have seen it possible for the Chancellor of the Exchequer to have done the same thing with regard to, at any rate, a portion of this Loan, and that, say, £100,000,000 or more should have been offered in America free of Income Tax. We should, no doubt, have seen that the security would have been very popular on that side. We know over here the difficulty of guessing and prophesying what the Income Tax will be. With regard to the effect of the 4½ per cent. new Loan upon other securities, there is no doubt that in regard to what we call gilt-edged securities, such as English Railway Debenture stock, Municipal stocks, and other sorts of stocks, the effect will be a very bad one, and that it will reduce them considerably in price. It might be wise if in the offer they are making now of a 4½ per cent. Stock at par, payment between 1925 and 1945, he had taken the option between now and 1925 of paying off this 4½ per cent. at 1 per cent. premium. Provided he got the option of paying off the whole or any part of the Loan, any holder of the Loan would realise that at any moment he might be paid off, and in that way it might induce him, instead of selling his junior securities or gilt-edged securities, which had fallen considerably in value to hold them, and in that way the fall of those securities would not be so great.

Mr. GODFREY COLLINS

I very much regret that when the Government have taken power to borrow this large sum of money they are not advising the House as to the increased taxation which will be necessary to pay the interest which this debt raises. At the end of this financial year, if my figures are correct, the interest of the National Debt alone will be £90,000,000, and in the annual statement of the Chancellor of the Exchequer he only allows £51,000,000 for the interest on the National Debt; therefore to the extent of £40,000,000 a year the revenue is insufficient to meet the interest on the debt which will be owed by this country at the end of the financial year. I listened as closely as I could to the statement, in connection more especially with the transfer of Consols into this new stock. If I understand my right hon. Friend correctly, if owners of Consols hand the Government £75 worth the Government will hand back £50 of stock in the new War Loan. In other words, they will give to the present owner of Consols a direct cash bonus of some 15 per cent. to 20 per cent. in interest. I am taking the owner of Consols to-day who holds stock to the extent of £75. He receives in interest £1 17s. 6d. In the future he will receive interest of £2 5s. per year. In other words, the investment this morning was worth £1 17s. 6d. a year and this afternoon it is worth £2 5s., which is an increase in his income of some 20 per cent.

Mr. McKENNA

made an observation which was not heard in the Reporters' Gallery.

Mr. COLLINS

That is if he enters into an undertaking to take up new stock. But to-day there are some £400,000,000 of Consols in the hands of the public. I understand that Consols amount to about £810,000,000.

Mr. McKENNA

Rather less.

Mr. COLLINS

And half of that is in the hands of the public. Therefore the stock which is in the hands of the public this morning is increased to this large extent without the present owners of Consols giving a sufficient return to the Government. Why should the Government to-day give this sop to the owners of Consols? During the past ten months the owners of all raw material—iron, steel, coal, land, whatever they may own—have looked upon the War as a cake out of which they must take a big slice, and here the financial interests, no doubt correctly, have urged the Chancellor of the Exchequer to issue this Loan at 4½ per cent. Naturally I cannot say whether the terms are too generous or not, but surely the time has arrived when the owners of these securities, the owners of raw material, and the owners of various commodities should pay back by taxation some share of the increased price which has accrued to them as the result of this War. My right hon. Friend in the closing part of his speech urged the country to save money and to reduce expenditure. Opportunity will require to be taken by the Government to instil this idea into the minds of the people. Any offer, as we had this afternoon, to borrow money at 4½ per cent. will be judged by the people as a good business proposition. But something further than that is needed if the nation as a whole is to curtail its expenditure. During the last ten months there has been an effective campaign of voluntary recruiting, and I would urge the Government to start a thorough campaign to urge the people of this country to save their money daily and cut down their expenditure and by that means help this country in its hour of need.

Mr. HOBHOUSE

Amidst the general approval which the Chancellor of the Exchequer's proposal has met with there has been one note of criticism. It is that he has put no limit to the sum which he proposes to borrow under his Bill. I think he has an absolutely clear case on this point. Under the War Loan Bill of August last, power was taken to raise an unlimited sum of money. No methods or conditions by which the Loan was to be raised were inserted in that Bill and the then Chancellor of the Exchequer had a perfectly free hand both as to amount and as to method. I understand that the present Chancellor of the Exchequer proposes only to limit the borrowing to the amount of money required to make up the deficiency of taxation—the difference between expenditure and revenue for the present year and that amount of money which will be required to meet conversion. I think the House should understand that these two amounts taken together will be very serious. Under the estimate of expenditure for the present year which was made by the late Chancellor of the Exchequer in May last, there will be a deficiency of revenue by the end of the financial year of £860,000,000. But inasmuch as expenditure is growing very fast—from £2,225,000 a day to £2,500,000—that amount will not be really £860,000,000, but something over £900,000,000. In addition to that there will be sums needed not to meet the conversion, but in order to make an issue to meet conversion. I understand there are £235,000,000 of Treasury Bills. Some portion, if not the whole of these are to be converted, are they not, into permanent loan?

Mr. McKENNA

That is not part of the scheme.

Mr. HOBHOUSE

I am glad to have cleared that up. But there will have to be met, for the purpose of this conversion, Consols and the £350,000,000 of past War Loan. There will also have to be met any sum which people choose to apply out of their present deposits in the Savings Bank which they choose to convert into the 5s. voucher, and this may amount to some hundreds of millions. I do not know whether this is part of the right hon. Gentleman's scheme, but if it is he may have to meet a very large demand for this conversion, and it may cost him a very large sum in interest in order to pay for the increased dividends payable to the new War Loan holders as against what they receive under their Savings Bank deposits.

That brings me to the question of these vouchers. It is a most ingenious and admirable idea, but I think the amount of the voucher which any one person may be permitted to buy must be limited; otherwise it will be open to a person to buy 5s. vouchers by the sack, to convert them into £25 bonds, and to obtain 5 per cent. interest upon them. I can conceive an ingenious person receiving 5 per cent. instead of 4½ per cent. by the War Loan, and I suggest to the Financial Secretary that he should put some limit on the amount of these vouchers which any one person may buy. There is a limit to the amount that any person may deposit in the Savings Bank in any one year or on the whole. Surely the same argument should be applied to these vouchers which, as I understand, are to provide an opportunity of thrift for the class of persons who usually deposit in the Savings Bank! On the other hand, I think the amount of money which may be raised by means of these vouchers may easily be overestimated. Unless you are going to permit the taxpayer in the Savings Bank to convert his deposits into vouchers and thus receive 5 per cent. instead of 2½ per cent., the amount of money which will be available for the purpose of fresh drawing on the savings of the nation will not exceed much more than £8,000,000 to £10,000,000. When I had to do with the affairs of the Post Office we went into this question very carefully six or eight months ago to see whether we could not anticipate the present proposal. I was then advised that the amount of money which it was to be expected might be drawn for national purposes from the pockets of those who deposited in the Savings Bank would not exceed £8,000,000 to £10,000,000. There may be some frosh estimate and some fresh figures which I have not had an opportunity of seeing, but unless I was then misinformed, my right hon. Friend could not expect to receive a larger sum than that which I have mentioned.

There is only one other point. The proposed date of conversion of this Loan is 1925. The Loan for £350,000,000 which preceded it is, if my memory serves me aright, to be converted either in 1925 or in 192S. Let us suppose that it is converted in 1925. There will be from £1,000,000,000 to £1,500,000,000 of money raised under this Act, and there will be £350,000,000 or thereabouts raised under the previous Act—probably £300,000,000. There will therefore be £1,800,000,000 falling in to be dealt with in 1925.

Mr. McKENNA

made an observation which was not heard in the Reporters' Gallery.

Mr. HOBHOUSE

I understood it would either be converted compulsorily by the investor in 1945 or optionally by the Government in 1935. Is not that the proposal?

Mr. McKENNA

Yes.

Mr. HOBHOUSE

The previous Loan of £350,000,000 must be dealt with in 1928 and may be dealt with in 1925. Supposing the market is fairly easy in 1925, the Government will attempt, probably, to take advantage of it. It may have therefore to deal with something like £1,500,000,000. I recollect when I was the Secretary to the Treasury that it was thought to be exceedingly difficult to deal with £70,000,000 or £80,000,000 on a given date. When you multiply that twenty fold, the duties which the Chancellor of the Exchequer of that date will have to discharge, and the difficulties which will be presented to him, will be almost overwhelming. I would venture to suggest to the right hon. Gentleman, with all respect—because, of course, he has sources of information which are so much better than any we can possess—whether it would not be better to put off the possible date of conversion from 1925 to, say, another ten years. I would like to congratulate the right hon. Gentleman upon his scheme, which bears some relation to that which has already been adopted in Germany. It is, however, much more ingenious and it is much sounder. It rests, not upon an imaginary basis such as the scheme in Germany rests upon, where you go on pledging your credit in successive layers until you have sucked all that is available; but, in this case, without really increasing the burden of the nation, I think the Chancellor of the Exchequer will be in a fair way to realise far greater sums than ever this House will expect he will be able to do, and far greater sums than any that this House at one time thought it would be necessary to raise.

Mr. MONTAGU

I do not propose to reply to all the criticisms of the scheme, but I want merely to answer some of the questions which have been asked about the voucher scheme. Every effort has been made to give to the subscriber through the voucher scheme the same advantages, and no greater advantages, than the man who subscribes through the Bank of England. Therefore, I do not anticipate the dangers that my right hon. Friend suggested just now from buying these vouchers in bags full from the Post Office. Really, there is no incentive to do that. It is true that these vouchers bear interest at 5 per cent., not from the date on which they are purchased, but from the first day of the first complete month after the day on which they are purchased. It may turn out to be a little bit more going on throughout the month than 4½ per cent.; but, even if it is, the owner of the voucher is not allowed to convert his voucher into War Loan stock, except between the 1st December and the 15th December of this year. When he converts he gets one shilling bonus, as well as 5 per cent. interest on the months that have elapsed. That shilling is a little less than the bonus dividend earned by a subscriber of £100. I think the right hon. Gentleman will find that he gets almost exactly the 4½ per cent. which the larger subscriber gets within a fraction of a penny. Therefore there will not be any incentive to subscribe in the way the right hon. Gentleman suggested in large amounts. If there is, we propose in the prospectus to take power to limit the subscriptions through these vouchers to not less than £100.

HON. MEMBERS

indicated dissent.

Mr. MONTAGU

I mean that if we do fix a limit as to the holding of any one man, it will not be a smaller holding than £100. We might fix the limit at £200, but it will not be smaller than £100. If I may give an example how this will work, I think it would be easier to understand if there are any difficulties. I agree with the right hon. Gentleman that there will not be any great subscription except by the co-operation of all those who have any influence with people who are earning a weekly wage. We rely not only upon the co-operation of the employers, but also on the co-operation of trade union officials, friendly society officials, co-operative officials, and industrial society officials.

Mr. BOOTH

Does the right hon. Gentleman mean industrial insurance societies?

Mr. MONTAGU

Yes. Of course it may be possible to arrange that a society buying these vouchers for sale to their members can buy them to sell or return, returning them at the end of the month. The vouchers will be printed partly in different colours for each month so that they would be easily identified. That can only be done by societies which we have some means of knowing. I hope a suggestion put forward by one hon. Member will be adopted, namely, that a man on receiving his wage can if he likes go to another department in the same works, possibly the canteen, and purchase War Loan vouchers. It may even be possible for a workman to ask his employer by written authority, voluntarily given, as they do in some railway companies I think, to deduct pay in excess of a certain sum earned in any week, such sum to be invested in War Loan vouchers. When he has got these vouchers he collects them, and keeps them until the 1st December. If he gets tired of them, and does not want any interest on them, all he has got to do is to go to the Post Office Savings Bank and open an account with them, just as if they were cash. He is not like a subscriber to the War Loan, who has paid an instalment.

Mr. HOBHOUSE

He may either open an account or pay them into his own account.

Mr. MONTAGU

Yes, and he has a right to withdraw at any moment up to the time of 1st December, when he converts them, into War Loan. I would remind all those hon. Members who anticipate large withdrawals from the Post Office Savings Bank that there is a great difference between money on call and money locked up in a thirty years' War Loan, which cannot be taken out as the subscriber would wish. I do not, therefore, think that there will be as much danger of those large withdrawals as some hon. Members think.

Mr. HOBHOUSE

He may sell them?

Mr. MONTAGU

He may sell at the market price. Let me now give the example I mentioned. When he takes his voucher to the post office on the 1st December, or any time between the 1st December and the 15th December, he converts them into War Loan in multiples of £5. Supposing he has purchased £1 10s. worth of these vouchers in June. There are five complete months until the 1st December, and his interest is 7½d. He purchases another £1 15s. worth in July, and there are four complete months, which give him 7d. interest. In August he purchases another £2 10s. worth, and three complete months give him 7½d. interest. In September he purchases another £2 10s. worth, and two complete months give him 5d. interest. In October he purchases £1 worth, and one complete month gives him 1d. interest. In November he purchases £1 15s. worth, but there is no complete month and he gets no interest. That represents a total of £11, and he takes it to the post office, and he gets in exchange two £5 War Loan certificates. He can get the extra £1, which is over, back in cash. He can put it into the Post Office Savings Bank, or he can reserve it for future investment on terms which we hope to be able to announce in the future, but we have only gone to the 1st December at present. He will receive, as interest, 2s. 4d. in cash, and he will receive a bonus of 2s., which is 1s. on every £5 invested, making a total of 4s. 4d., and he will receive a dividend of 4s. 6d. on the 1st June, and the 1st December in every year until the War Loan is redeemed. That is one concrete example of how the thing works. The 5 per cent. difficulty is not a real one, because, as I have said, the whole scheme is based on the 1st December of this year.

Mr. HORNE

The Chancellor of the Exchequer was very clear in the way in which he outlined his scheme, but there are one or two points upon which I should like to be still more clear. If an individual proposes to take up this Loan, and pays the full amount on application, I should like to know what discount will be allowed to him for taking it up at once?

Mr. McKENNA

Four and a half per cent.

Mr. HORNE

Then in that case, if any investor comes with the old War Loan, and with Consols, and brings an additional sum in cash, he will receive a discount on the War Loan, and the Consols at 4½ per cent. He will convert them at once into new War Loan at 4½ per cent. He will get a dividend of 4½ per cent. on the 1st December on Consols which he converts on the 10th July. The existing interest on Consols will be turned into 4½ per cent., and the old War Stock of 4 per cent. will be turned into 4½ per cent. From the date on which they are brought in they will carry the extra amount. The other point I want to call attention to is that it has been stated that these terms are very liberal. I think they are very liberal, and I feel sure that all the anticipations of the Chancellor of the Exchequer as to the prosperity of this Loan will be carried out. If the former War Loan was only a qualified success part of that was due to the uncertainty that was set up, merely to save time, by the increased taxes, and especially the increased Income Tax. That is a particular point which I think the present Chancellor of the Exchequer has had to consider in connection with this Loan. Although he has offered 4½ per cent. interest on the money he knows that actually the Treasury will only pay back net, in consequence of the Income Tax of 2s. 6d. in the £1, just over 4 per cent. I have heard it stated in this House that the Income Tax ought to be 15s. in the £1. In that case the net return to any investor in this War Loan would be a very small one indeed. A very large amount is, I am sure, anticipated by the Chancellor of the Exchequer to be derived from various institutions which have large sums to invest, but it must be remembered that these funds do not belong to the institutions themselves; they are really held in trust for the large number of people who contribute them. It is of very great importance to all those who have the management of these funds that they should be absolutely certain that they can yield a certain fixed rate of interest during the years to come in the investments they make. At present, with the Income Tax at 2s. 6d. in the £1, this 4½ per cent. Loan is, I think, fair and generous, and I am sure will be accepted readily unless there is uncertainty as to what the Income Tax is to be raised to in the future. That is, I think, the only fear which those who have to finance these funds will have to experience. Though I did not think it at all likely that any loan would be issued free of Income Tax, yet it would be of very great assistance, to those who have these funds to invest, if the Chancellor of the Exchequer could possibly tell us that the Income Tax charge upon this Loan would not exceed the charge at the present time. If such persons could only feel that, they might rest assured that they would get a return of 4 per cent. on their money. I think that that would meet every apprehension on their part. I also congratulate the Chancellor on his scheme of vouchers, which I hope everyone who has anything to do with the small investor will try to foster in every way in his power. I wish that the time during which these investments may be made in the War Loan could be extended beyond December. It seems a pity that it should have to stop them. I should be very glad to know that the time could be extended, and that, for at least a year, contributions could be made to the War Loan by small investors out of the surplus earnings which many of them have to invest.

Mr. DAVID MASON

I listened with great interest to the hon. Member who has just sat down When I heard the proposal to place our Loans at this high rate of interest free of Income Tax, I began to wonder whether we were here representing the taxpayers' interest or some other interest. The speech of the right hon. Gentleman the Chancellor of the Exchequer, on which I congratulate him because of its lucidity, seemed to lend itself to the same suspicion. I do feel that we are here surely on behalf of the taxpayers, and I would ask, as many speakers have already asked, where is the proposal for taxation as against the proposal to borrow these large amounts? One listened to the Chancellor of the Exchequer with great interest on the proposal generally, but I share with other speakers the feeling of disappointment that, so far, the proposals of the Government with regard to the increased taxation which is necessary are in the air. Look for a moment at the financial position, which has already been referred to by my right hon. Friend the Member for Islington (Mr. Lough) and others, and by my hon. Friend the Member for Windsor (Mr. James Mason), who was, I think, the first to refer to it, when he asked that more attention should be given to this question of the necessity for increased taxation. Examine for a moment the financial position. Assuming that this War runs for a year, we should have an expenditure of £1,136,000,000, as estimated by the late Chancellor of the Exchequer. To meet that we are only raising by taxation something like £267,000,000. We are asked now, not to consider any further taxation with regard to taxation, but practically, we are asked, to give a blank cheque to the Government for an unlimited Loan, or for unlimited powers of borrowing. The hon. Baronet the Member for the City of London drew attention to that point, and I think that it is due to the House of Commons that the Chancellor of the Exchequer in his reply should make the matter a little clearer than he has already done.

When one considers the conversion, the giving of this addition to the existing Consol holders, the existing Crown annuity holders, the holders of the old Loan, and the raising of this fresh money at 4½ per cent., one is appalled at the proposal. Why should it be necessary to give any such rights to the existing Consol holder, or the holder of old Loans, when he came into the contract with his eyes open? The right hon. Gentlemen the Chancellor of the Exchequer says that we have a duty to perform to our creditors, but have we not also a duty to perform to the taxpayer? Does not the taxpayer look to the Government of the day to finance this Loan to the best of their ability—that is to say, with as small a charge as possible on the taxpayer, having regard to the exigencies of the situation, and the state of the money market at the time? The right hon. Gentleman's proposal, that we are to give them these powers, and that these powers are all to be extended to further Loans that may be raised after this, is the most astounding proposal from a responsible Government that the mind of man can conceive. Talk of Germany! Germany in her most fatuous moments never made such a proposition. We, the House of Commons, are to be asked to give power to this Government to place these Loans, and to give all these rights to previous holders of securities, and we are also to give powers by which, if they again come before the House for further money, the existing holders of securities will also be benefited in the same way. It seems the most monstrous proposal that was ever put before any assembly of sensible men.

I hope that I shall not be accused of using exaggerated language, but let us conceive for a moment, as serious men, the effect which this will have on all securities owned by the great insurance companies and banks of this country. If you play ducks and drakes with British credit, give unlimited power to issue securities on a 4½ per cent. basis, and allow everybody to convert existing Consols and the old Loans, does not the right hon. Gentleman think, and does not the Government know that if you depreciate in this manner the vast mass of securities, by this high rate of interest, you will depreciate all other securities. The hon. Baronet the Member for the City of London nods his head. He understands finance; he understands what that means, not only for the City of Lon-do, but for the whole country. It seems to me quite unnecessary. If there is fresh capital available, the capital would be available at a rate of interest. Why, then, disturb the existing contracts which have already been placed, and which you maintain, by continuing to pay the existing rate of interest? Why, then, bring in these people and give them this rate of interest, and thereby, as I submit, tend to depreciate all the existing resources of our banks and joint stock companies, from which eventually we have to pay for this War? There seems to me to be no justification for this. The right hon. Gentleman has made out no case for it, and for the life of me I cannot see why we should be asked to agree to any such proposal.

May I, in confirmation of the argument that a far greater amount of this demand for capital cost should come from taxation, just read a short extract from an illustrious predecessor of the right hon. Gentleman, Mr. Gladstone. He held, I think, and rightly held, that in finance it was better, as he said, to call upon the taxpayer, rather than upon the provider of Loans. Writing of the Crimean war, he said:— The system of raising funds necessary for wars, practises wholesale, systematic and continual deception upon the people. The people do not really know what they are doing. The consequences are adjourned into a far future. On 11th August, 1862, he goes a little more deeply into the subject and says:— The general question of loans versus taxes for war purposes is one of the utmost interest, but one that I have never seen worked out in print; but assuming as data the established principles of our financial system, and by no means denying the necessity of Loans, I have not the least doubt that it is for the interest of labour, as opposed to capital, that as large a share as possible of war expenditure should be defrayed from taxes. When war breaks out, the wages of labour on the whole have a tendency to rise and the labour of the country is well able to bear some augmentation of taxes. The sums added to public expenditure are likely at the outset, and for some time, to be larger than the sums which are drawn from commerce. When war ends, on the contrary, a great mass of persons are dismissed from public employment, and, flooding the labour market, reduce the rate of wages. But again, when war comes, it is quite certain that a large share of the war taxes will be laid upon property, and that in war property will bear a larger share of our total taxation than in peace. From this it seems to follow at once, that up to the point at which endurance is practicable, payment by war taxes rather than by taxes in peace, is for the interest of the people at large. I think that that is a very interesting statement, coming from such an illustrious quarter, and I do hope that our Friends on the Labour Benches will appreciate what the Government are doing in coming forward with a proposal, after having one Loan of £350,000,000, that we should add something like another £1,000,000,000, while at the same time making no proposals for additional taxation. We had some intimation that they are considering taxation proposals, but we have not got them before us. We are now committing ourselves to an addition to the public debt of this country of something like £1,000,000,000. We are also committing ourselves to an addition to the fixed charges on the revenue of this country, which it is impossible at the present moment to calculate, because we do not know how much will be converted, yet we know that there are something like £800,000,000 of Consols and £350,000,000 of the old Loan. The Consols bear something less than 2¾ per cent. interest and the old Loan 3½ per cent. It is very easy for hon. Members to calculate the addition to the fixed charge of the country which weighs upon the taxpayer, and principally upon labour, because if you have this enormous funding operation, as Mr. Gladstone well pointed out, and place that charge upon the country now, the position is not altogether appreciated. We do not feel it at the moment We think that by putting it on the posterity we have created for the time being a position of affluence, a position of apparent prosperity, but, in my opinion, we shall be laying up for the future a terrible position of misery, particularly for the working classes of this country.

I would like to refer to one answer which the right hon. Gentleman made to a question which was asked him in reference to Treasury Bills, as to whether it forms part of the scheme to fund the existing Treasury Bills. I think that he stated that the existing amount of Treasury Bills was £235,000,000. After the very apt, lucid, and convincing way in which he told us that to go on increasing the floating debt, which now amounts to £235,000,000, is unsound, while pointing out Very properly that the conditions might not be so favourable as they are to-day, and that therefore it would be unwise to continue borrowing by keeping on the system of issuing Treasury Bills to all who come and ask for them, I was surprised, when someone on the opposite Benches asked the right hon. Gentleman whether he proposed to fund this floating debt, to hear him say that the funding of this £235,000,000 was not part of the scheme.

Mr. McKENNA

Treasury Bills may or may not be funded out of the money which is raised by this Loan. It is not part of this scheme, but it is quite open to the Government to fund them.

6.0 P.M.

Mr. MASON

I am very glad to have that interruption, because I do hope, after the very convincing way in which the Chancellor showed us how unsound it was to go on increasing this floating debt, that this will form part of the scheme. It is not very definite that it will do so, but it does not close the door, and certainly it might form part. To have this operation of leaving the floating debt lying on the market appears to me most unsound. Another point is why the rate of interest should have been increased to 4½ per cent. Of course the Chancellor of the Exchequer will say that he did not think that he could obtain the money unless he increased the rate of interest. Reference has been made to the possibility of America taking part in this Loan, and the suggestion is made that the Loan should be offered in America free of Income Tax. It was suggested on the former occasion by the hon. Member for Greenock that it would be good to issue British Government securities in the United States. The hon. Gentleman forgot that the United States is a neutral country, and that they have already definitely stated that they will not issue a Loan or allow a Loan to be issued over there; but they will allow credits to be established in the United States provided you purchase certain things—munitions and so on. I understand that as a neutral Power they have refused to offer facilities to any belligerents to place Loans within the United States. One of the main reasons for raising the rate of interest so high as 4½ per cent. is to attract, quite legitimately, American capital over here; so that, while they will not allow a Loan to be issued in the United States, there is no reason why American capitalists should not come to this country and invest in a British Loan. I doubt whether there will be a great in-investment, but the reason for putting the rate of interest so high is with a view to getting American capital.

But there a very grave situation is caused with regard to the position of exchange, particularly in the United States of America. If this particular Loan is taken up to any considerable extent in the United States that, of course, will tend to bring about a more favourable exchange in this country. But there are other reasons why this unfavourable rate of exchange continues to be a cause of very great uneasiness in the City and in commercial circles. The excess of our imports over exports for ten months amounts to something like £267,000,000, and that is one of the problems which the Government have to face, and probably has entered into their mind in making the rate of interest so high as they have for this Loan. But, as I have said, there is another cause which is not touched upon, and which is undoubtedly affecting our credit, and which I believe, in spite of considerable applications by America, will continue to operate, and that is the action of the Treasury in continuing to issue Treasury Currency Notes. The late Chancellor of the Exchequer has never met this point; I do hope the present Chancellor of the Exchequer, who I believe deservedly has a reputation for financial ability and courage, will do so. Within the last two weeks there has been some drop, but I believe the previous issues have been half a million a week, and that the issues amount to something like 45½ millions. I would point out that if you have some agency of the Government which is continually adding to the currency by the amount of half a million a week it must have some effect. On the previous occasion I suggested, and I hope I was able to prove my point, that it had the serious affect of affecting the price of commodities. It is, of course, well known to anyone who has given any study to this question, that if you continually add to your currency, if you dilute the regular amount of the currency, existing commodities, as has been seen in the last eight or nine months, will continually rise in price.

It has been often argued that this action of the Treasury in issuing currency notes is not a bad thing, because they are easily convertible. I do not doubt their convertibility, and I know that the Treasury to-day holds something like 28½ millions in gold and other securities against the issue, but the continuous issue of these notes has an effect upon the position of exchange. While the Government may think that the Loan, if taken up in America, will tend to bring about a more favourable exchange, this action of the Treasury in continually issuing these Treasury Notes, will, I submit, more than offset any advantages which they may temporarily receive through applications for the Loan from America. Because the Bank of England are anxious to turn the exchange in our favour they pursue the policy, as they have done in the past, of trying to raise the rate of discount and trying to increase the value of money. But how can you increase the value of money by the continuous issue of Treasury Notes? On a previous occasion, when I raised the question, I quoted the statements of eminent authorities in support of what I say—the statement of a great French economist, and the statement of a distinguished Member of this House, Mr. Goschen—afterwards Lord Goschen—and I would ask the Chancellor of the Exchequer, if my humble words or my feeble arguments have no effect upon him, to refer to those well-known authorities—

Sir J. D. REES

They did not make those statements in war time; they did not speak in time of hostilities.

Mr. MASON

On the contrary, Lord Goschen, in his book on "Foreign Exchanges," alluded to the question of war. War does not change economic principles, which prevail in war time as in peace, and if you defy economic laws in war time you double the danger and double the disadvantage. You cannot make millions grow on trees simply because it is war time, yet that is what we are endeavouring to do. We are endeavouring to carry on external trade, we are endeavouring to maintain London as the centre of Money Markets of the world, and we have to pay for our imports in gold. I submit that in war time, as in any other times, we should be most careful of the delicate mechanism of foreign exchange. I speak in no spirit of hostility to the Government proposals; I am anxious to maintain British credit, but I believe this action of the Treasury is undermining it. I believe that this policy of the continuous issue of paper money, if persisted in, will, in spite of American subscriptions to the Loan, affect our credit, and the last condition will be worse than the first. I trust that the Chancellor of the Exchequer will give this point, to which I have alluded, his consideration. I hope that the Government will reconsider some of those powers with regard to conversion. At this time I do not think criticism will be of much avail, as the right hon. Gentleman says the prospectus will be out this evening. All we can suggest, therefore, if it is not too late, is that those powers with regard to conversion, whereby a subscriber to this Loan would be again able as time went on to reconvert at 5 or 6 per cent., should be carefully considered. That seems to me quite unnecessary.

It does not appear that the subscriber demands it. The subscriber would subscribe partly from patriotic motives and partly because it was really good business. He would be content with his 3½ or 4½ per cent., and to give guarantees to subscribers of a high rate of interest at the expense of the taxpayer is really most unsound. We are here to do what we can for the taxpayers of the country rather than for great financiers and the banking interest. I do not believe the banking interest itself or other great financial interests have brought pressure to bear upon the Government, but, if they have, surely the Government are here to represent the financial interests of the taxpayers, and do the best they can. I suggest to the right hon. Gentleman that he should, at the risk of perhaps being unpopular in the City, take a strong line with the City bankers and financiers. Let him take his courage in both hands, and let him found his proposals on the broad ground of patriotism and a proper and regular rate of interest, having regard to the state of the Money Market as it is to-day, rather than—as it would be impossible for him to do—to accommodate those financial interests in the City. I believe that the Loan will as a monetary transaction be a success, but I do hope that the right hon. Gentleman will be clearer as to the amount. No one likes to go into any proposal without knowing definitely the limit of what the Loan is going to be I welcome the proposal which has been made to make the Loan possible for the small investor. I believe you will get far more interest taken in the proposal and a great deal more money from the people rather than from financial interests which frequently take it up with the object of again unloading it and reselling it at a profit to the people. If the right hon. Gentleman devotes an amount of attention to making the Loan popular and bringing home to small investors the more likely it is to make it an assured success.

Mr. SANDERSON

I do not think the Committee would tolerate me if I endeavoured to follow the hon Member through all the matters he has discussed even if I were able to do so. Over and over again the hon. Member said that we were here to consider the interest of the taxpayers. I suppose we are to a certain extent, but I would remind the hon. Member that we are faced with one of the greatest emergencies which the State has ever had to face, and it seems to me the matter we have chiefly to consider at the present time is the question of the State and the emergency which faces the State. The Chancellor of the Exchequer had a task to perform this afternoon which was a very great task, and the occasion, I think, will be regarded as a memorable one, and, if I may say so, I agree with my right hon. Friend that he showed himself very worthy of the occasion from his point of view, and made a statement which was exceedingly clear and concise. Further than that, he and his advisers have put before the country a scheme which is ingenious and which is certainly attractive. I think it is open to one or two criticisms. I want to join issue with my hon. Friend the Member for Windsor (Mr. James Mason), who complained that the Chancellor of the Exchequer did not put on more taxation instead of raising more money by Loan. I suppose every patriotic man is only too glad to give everything he can of his substance in the present emergency, and, more than that, every patriotic man of my acquaintance either has given or is giving that which is dearer to him than any material possession, namely, those who are nearest and dearet, who are risking those lives for their country. But, after all, we must remember that this War—or, rather, the benefit of this War, if there can be any benefit from such a War—will be reaped by posterity, and not by anyone who is sitting in this Committee, because I do not suppose that this country will ever recover from the effects of this War during the lifetime of any person here. We are largely fighting, apart from the great principles of liberty and justice, for the lives and freedom of those who are to come after us, and, therefore, it seems to me to be right that the Chancellor of the Exchequer is getting a large amount of money by way of Loan. He has got to get the money and to make the scheme attractive, which I think he has done.

May I make one suggestion? I speak only from the point of view of the very small investor, as I do not represent any great insurance company like some other hon. Members. Take the man who is anxious to subscribe, perhaps, £500 or £1,000. I think what he wants to know is what is to be the limit of the Income Tax—at all events for the current year. If he is a careful, prudent man he puts a sum aside to meet the Income Tax which will be due next January, but if he thinks that in the new Budget which the Chancellor of the Exchequer is going to introduce towards the end of the year there will be an increase in the Income Tax, then he will say, "I must put aside an additional amount for that Income Tax and, therefore, I should not be able to subscribe to this new Loan as much as I would like." That is a point which might affect the success of the Loan. Whether the Loan is sound finance or not I am not able to say, but there cannot be any doubt as to its attractiveness. Just look at one part of it. Here am I, say, who invested a small amount in the last War Loan last November, for which I paid £95. It is now worth £93 10s., or something of that kind. If I can only scrape together another £5 then I shall have £100 in the new War Loan for which I shall be getting 4½ per cent. interest instead of something like 4¼ per cent. I cannot imagine anybody refusing to convert the old War Loan into the new War Loan.

Mr. McKENNA

If the holder of £100 old War Loan lays down £105 in cash, being £100 for subscription in the new War Loan and an additional £5, and delivers up the £100 old War Loan, then he gets £200 in the new War Loan.

Mr. SANDERSON

That does not really affect the point I was making. I am personally rather glad of the terms, as the right hon. Gentleman is going to get the money more easily, but I am not quite sure why it has been done. The people who invested in the War Loan in November last took their risk. They knew perfectly well, or at least they ought to have known, that in all probability there would have to be another War Loan, and that in all probability the rate of interest would be higher. I do not think a person so situated has any right when he subscribed upon a basis of 3½ per cent., or actually rather more than 4 per cent., at the expense of the State, for that is really what it comes to, to be put in the position of the man who subscribed to the new Loan. Neither, again, do I think it is quite right for the Government with regard to any future Loan to mortgage its liberty as the right hon. Gentleman has done this afternoon. If I understood him aright, when a man who has subscribed for this Loan comes to subscribe for a future Loan, if such is required, he may hand in the scrip of this Loan for cash. I do not think the Chancellor of the Exchequer need have done that. Then let me refer to the question of these 5s. vouchers. I am bound to say, after the later explanation of the Financial Secretary, I did not feel sanguine about the matter. I thought I understood him before, but after his explanation I am sorry to say I did not quite understand it. It seems to me it really is too elaborate. I have great doubt whether the Chancellor of the Exchequer will get much money in respect of those 5s. vouchers and I will tell you why. I do not myself think that the small investor will take up the Loan on these 5s. vouchers and I think, and I have the authority of an expert on finance for this proposition, namely, the hon. Member for the City (Sir F. Banbury), that such a matter as this will work itself down to the small investor if you only give it time, but if you are going to limit it to next December I doubt whether you are giving sufficient time. The Chancellor of the Exchequer shakes his head. I understand that the subscriptions in respect of the 5s. vouchers have to be made by next December?

Mr. McKENNA

My right hon. Friend made that quite clear.

Mr. SANDERSON

He did not to my limited intelligence. I certainly understood him to say that after December none of these 5s. vouchers would be issued, and other hon. Members understood him to say that also.

Mr. MONTAGU

The draft prospectus provides that if you hold at the beginning of 1915 a total number of scrip vouchers exceeding an even £5, or a multiple of £5, the Post Office will repurchase the excess from you without interest, or you may retain them for further investment in stock on conditions to be announced later. I thought I made it quite clear that we proposed to go on with the system of vouchers but that the conditions would not be the same conditions after the 1st of December. We have reserved the task of considering the conditions for after the 1st of December until a later date.

Mr. SANDERSON

I did not understand the right hon. Gentleman to say that previously, but even then the point I am endeavouring to make remains. It is suggested that these 5s. vouchers under present conditions are to be an attraction to working men. I do not believe you are giving enough time if you expect them to subscribe in anything like a large amount to this Loan. I would like to know what hon. Members opposite below the Gangway have to say on the point. Am I right in supposing that these 5s. vouchers will not carry interest until the holder has got a sum of £5? The Chancellor of the Exchequer, in answer to a question, said that the interest would be paid by way of credit on the sum of £5. Suppose the man subscribes £1 or £4, or something less than £5, and then ceases to do so, how is he to get interest? That may be only a small matter but let us remember in this connection we are dealing with small matters and with the investments of working men who have got perhaps 10s. to invest in a couple of weeks. He wants to know, "When am I going to get my interest?" If he is not to get his interest until he has subscribed £5, I do not think the proposal will hold out very much attraction to him.

Mr. McKENNA

We have had a most interesting Debate, and I think the whole Resolution has been fairly well covered. I am exceedingly grateful to right hon. and hon. Members on both sides of the House for the kindness with which they have received the proposals. I will do my best to reply in detail to some of the criticisms which have been made. The strongest criticism has been upon the line that the terms offered are too generous, particularly that part which gives financial advantages to the holders of old War Loan and Consols. I confess that that criticism in the mouth of the hon. Baronet opposite and my hon. Friend the Member for Coventry (Mr. D. Mason) a little disappointed me. My hon. Friend is an authority on financial matters, and I should have thought he would have been a little cautious about expressing any positive opinion as to the conditions upon which £500,000,000 could be raised. I am quite sure that the hon. Baronet could tell me within half-a-crown what terms I should offer if I wanted to raise £50,000,000, and I am sure he would be right. But I think he will agree with me that he would hesitate to be didactic about the terms to be offered when you want to raise £500,000,000. He would be cautious, and he was cautious; but I am a little disappointed that my hon. Friend was so absolutely positive that he knew the precise terms upon which we could raise £500,000,000. I confess that I do not, and all the most experienced financial advisers whom I have consulted are of one mind upon that subject—that they cannot tell, in a transaction of such magnitude that we have no experience to guide us, on what terms you can raise this gigantic sum. All that we know is that it must be on some better terms than 4¼ per cent., because the investor can get 4¼ per cent. on the old War Loan and get his money back at par in thirteen years. The ordinary investor therefore will not be tempted to take the new stock at less than or even at 4¼ per cent., if he can only get his money back in thirteen years. We must offer something better.

As to the terms of conversion, which are considered to be so excessively favourable, it is not for me to look at the other side of the picture. It is not for me to emphasise what we gain by conversion. But I would remind critics that there is something to be said for the conversion of Consols in the wiping off of one-third of the capital amount of liabilities. It is true we are under no liability ever to repay the capital; but, sooner or later, we should have to make a Sinking Fund to buy these Consols in the open market. We should have in the long run to pay for them quite as much as 66⅔, and it may not be a disadvantageous thing, while being generous to the Consols holder, to wipe out two-thirds of the capital indebtedness. As to the old War Loan, it is true that we convert a 4¼ per cent. into a 4½ per cent. stock, but we take a longer time for repayment, and that, again, is an advantage to the State. But I think it is right to offer conversion terms, in spite of what the hon. Baronet said as to a bargain being a bargain and as to the investors' having taken the risk. I remember that when the man made his bargain he made it with the State when the State wanted him to make the bargain; and I remember that if we treat that man fairly now we are much more likely to get more money from the new investor than if we left him in the lurch to lament his loss.

The hon. Baronet says that our covenant to accept this new War Loan at par for cash in any new application for later loans is an unprofitable one. We want to raise money. We do not want people to sit looking at their money and saying, "We will wait for better terms later." That is one of the most difficult obstacles we have to face in getting money. However patriotic a man may intend to be he will feel, "I would rather come to my country's aid at a higher rate of interest if I can get it." I do not want to lay too much stress on that. I want to say nothing which seems to impute to anybody any ungenerous frame of mind. At the same time, I have to take into calculation all frames of mind, and I have to be sure, if I can, that I shall get the money. There is no motive or inducement to any investor to wait any longer. For that reason, amongst others, I hope that upon this occasion we shall get a sufficient sum of money to enable us to pay for the War for the rest of this financial year. On the subject of the technical form of the limit, I really think that the Debate has disclosed the necessity of not putting in any definite sum. I quite appreciate the point of the hon. Baronet, speaking as an old Member of the House and as a guardian of our traditional claims for the financial control of this House. I quite agree with him that there are general advantages in favour of putting in a fixed amount. But on this occasion it is impossible to do so. We have undertaken responsibilities towards the holders of Consols and of the old War Loan, and we must leave ourselves at liberty to issue a sufficient amount of this new War Loan to cover the whole of the conversion rights of the holders of the old War Loan and of Consols. That is the minimum. If they are all converted that comes to many hundred millions.

Mr. D. MASON

made an observation which was inaudible in the Reporters' Gallery.

Mr. McKENNA

It is impossible to convert unless the stock is issued; therefore we must have liberty to issue stock to enable the holders of the old War Loan and of Consols to convert.

Mr. MASON

There is no limit of time within which this option should expire.

Mr. McKENNA

There is a limit of time—the 31st October.

Mr. MASON

But not as to the amount at the time.

Mr. McKENNA

I have to issue the Loan now. What amount am I to put?

Mr. MASON

You could strike an average.

Mr. McKENNA

When you give a man rights, what is the use of striking an average? I give him a right; therefore he is entitled to come forward and convert. The only figure we could put in would be the maximum figure, which might be taken by the public in order to effect the conversion of all the Consols, of all the old War Loan, and of the old annuities; and I should have to allow something for subscription through the Post Office, and something for subscription through vouchers. If you take all these figures together you get an amount not far short of £1,000,000,000. [HON MEMBERS: "More!"] If you allow for a reasonable amount through the Post Office. I cannot say that I am issuing this Loan for £1,000,000,000, and that if I do not get that sum it is a failure. I do not expect to get £1,000,000,000. At this moment I do not really want as much as £1,000,000,000. [An HON. MEMBER: "You are taking the power!"] I am taking it, but I am not issuing a Loan for that amount. If I put in any fixed amount and say that the Loan is issued for that amount, I am confronted with one of two alternatives: either the Loan will be declared a failure if I do not reach the total, or I put in a total which I know I shall get, but which may not be enough to meet the responsibilities we have taken upon ourselves. For that reason we put in no amount. But we do put in the Resolution a limit. The Resolution covers all the Supply granted for the year, a sum not exceeding £250,000,000 in addition, and any sums required for cancelling any securities issued under the War Loan Act, 1914, or any Treasury Bills which the Treasury may from time to time be authorised to cancel. That is a further amount, which is not excessively large, covering a kind of transaction which we have to provide for. For instance, we may not think it desirable that the Bank of England—

Sir F. BANBURY

The matter is quite satisfactory to me on that point. Unfortunately I had not had an opportunity of seeing the Resolution. Now that I know there is a limit to the actual cash I, personally, am quite satisfied.

Mr. McKENNA

I am very much obliged for the frankness of the hon. Baronet.

Sir W. PEARCE

Is the conversion pure and simple, or is it a reward for a previous subscription?

Mr. McKENNA

No conversion is possible except to a holder of the new War Loan. A person must first of all apply for some of the new War Loan before he can convert any of the old War Loan.

Sir W. PEARCE

How much?

Mr. McKENNA

In proportion; £ per £ in regard to the old War Loan, and £100 per £70 in respect of Consols.

Sir W. PEARCE

He cannot exchange his old War Loan without making another subscription to the new Loan?

Mr. McKENNA

He must subscribe to the new Loan before he can convert his old Loan.

Sir T. WHITTAKER

He has to double his holding?

Mr. McKENNA

Practically as regards War Loan, and rather more in regard to Consols. I was pressed at the same time to make proposals for additional taxation—though not by one hon. Member who preferred that I should give assurances that there should be no taxation of a particular kind. My hon. Friends will, I am sure, agree that it is far better for us to take one step at a time. At this moment we have to issue a Loan. We want to do everything we can to ensure the success of that Loan, not for the gratification of the Treasury, nor even for the gratification of the Government, but for the sake of the country. For the sake of the national interest we shall take every precaution we can to ensure the success of the Loan. It must not be supposed that we are unmindful of the maxim enunciated by Mr. Gladstone as to the desirability of paying for the War as far as possible out of revenue. Does my hon. Friend forget that we are doing something to pay for it out of revenue? Does he forget that Mr. Gladstone would have regarded the 2s. 6d. Income Tax, supplemented by a Super-tax of 2s. 6d., as something far beyond what he would ever have dreamt of imposing upon the propertied classes in the wars in which he was concerned?

Mr. D. MASON

He would have kept his Income Tax in peace time at a much lower rate of payment.

Mr. McKENNA

How can we say that? We do not assent to the proposition that this generation is not doing its duty in this matter. I think it is doing a very great deal. We all know, if the War goes on, we will be confronted with further taxation. I shall do my best to make the burdens as easy as possible, but we shall have to find further money, and it is perfectly open to anybody to calculate what. They have only to reckon the time when the Loans, at the present rate of expenditure, will become so great that the mere interest on them will have exhausted all our surplus revenue, then it will be obvious to anybody how the matter will stand. There is nobody who would suggest that we should borrow in order to pay the interest. We must raise fresh taxes. That time has not come yet, and at the present moment I would rather not complicate the Loan by suggesting new taxes.

Mr. GERSHOM STEWART

Is the right hon. Gentleman advertising this Loan in India and other places, so as to bring in the whole of the British Empire?

Mr. McKENNA

I am not sure. I should be very glad indeed to bring in the whole Empire, and to get what subscriptions we can both from India and the Dominions. We shall certainly consider that point. I am not sure, however, whether we can look to very much money from them. I rather fear that in those quarters they will be borrowers instead of lenders, but I shall certainly bear the matter in mind. One factor I think must not be overlooked. In the very able speech of my right hon. Friend the Member for Spen Valley (Sir Thomas Whittaker), which was followed by one by the hon. Member for Lewisham (Sir E. Coates), reference was made to the decline in the capital value of securities caused by the issue of Government securities at 4½ per cent. That is true, and it is unavoidable. But there is another side to the picture. It must not be forgotten that this Loan is repayable in ten years. During the War, while we are demanding these great sums, it is a fact that securities are unavoidably affected. That fact will be borne in mind by holders who look forward to the time when the War Loan will be relatively depressed by the fact of the ten years' repayment, whilst the others, having a longer limit, will reach a higher point. My hon. Friend appreciates the fact that repayment in ten years will be a very strong factor in strengthening the prices of other securities which have a longer run. I think I have dealt with most points.

Mr. J. MASON

Is it possible to do anything with the conversion of Treasury Bills?

Mr. MCKENNA

I am just coming to that point. I have dealt with most of the other points. I think it would be safe now to move an Amendment in the War Loan Resolution. I do not want to commit myself at this moment, but I want to take power to cancel the Treasury Bills that are now issuable. If I am in order, I should like to move, in the first paragraph (c), to leave out the words "issued under any Act relating to Ways and Means."

The effect of that will be that we shall take power to borrow any sums required for cancelling any securities issued under the War Loan Act, 1914, or any Treasury Bills. I have another Amendment to move. I do not know whether it is a printer's error or a copyist's error, but I desire in the second paragraph (c), after the word "England" ["Bank of England"], to insert the words "and the Bank of Ireland."

Amendments made: In the first paragraph (c) leave out the words, "issued under any Act relating to Ways and Means." In the second paragraph (c), after the word "England" ["Bank of England"] insert the words "and the Bank of Ireland."—[Mr. McKenna.]

Mr. WATT

What about Scotland?

Mr. HOBHOUSE

On a point of Order. Can you insert words as to the Treasury Bills?

Mr. McKENNA

It is done in another way.

Motion made, and Question proposed, "That the Resolution, as amended, be the Resolution of the Committee."

Sir T. WHITTAKER

The right hon. Gentleman is taking power by this Amendment to repay these Treasury Bills. Does that give power to the holders of these bills to demand the repayment, or the conversion of them, into the War Loan? This Resolution now, as I understand it, only gives the Treasury power to pay off these bills. That is not quite the point we are discussing.

Mr. McKENNA

I would ask my right hon. Friend not to ask me to commit myself now to any definite decision. What we are doing is to leave ourselves perfectly free to pay these off. We are as anxious as anyone for the success of the Loan, but there may be other considerations where it would be undesirable to repay the Loan.

Sir J. D. REES

Do I rightly understand the right hon. Gentleman to say that out of the proceeds of the Loan all the liabilities of the Bank of England, in respect of pre-moratorium bills, will be discharged?

Mr. McKENNA

Yes.

Mr. WING

Do I understand aright that the investment of small amounts can be continuous and into the next year?

Mr. McKENNA

That is right. On 1st December the present terms will come to an end. They are founded upon the conditions of the Loan which we are proposing. After 1st December the issue of the 5s. amounts will have to be on new terms, which will be considered before then.

Mr. HORNE

May I ask whether on application for this new Loan Treasury Bills may be sent in in payment, discount being allowed for the time the Treasury Bills have to run?

Mr. McKENNA

That is a proceeding that at first sight we may be very glad to adopt, but I do not want to commit myself at the present time. I have taken powers to enable us to do it. To-morrow we have the Second Reading of the Resolution, and I shall be very glad then to answer these various points.

Mr. D. MASON

Would the right hon. Gentleman be kind enough to give me an answer as to the action of the Treasury in regard to the current Treasury notes?

Mr. McKENNA

My hon. Friend will excuse me, but that is nothing to do with this Loan. I cannot go into that question now.

Mr. R. McNEILL

I would like to put a question before the Second Reading to-morrow. The right hon. Gentleman has told us of the effect which this transaction must necessarily have upon other securities at the present time. He has also held out the hope to holders of the securities, for what it may be worth—I do not think it will be much—as to the redeemability of this Loan. I want to ask whether he has considered what the effect will be upon the holders of Irish Land Stock, who stand in a rather peculiar position? The right hon. Gentleman knows that although the stocks are not Government securities in the strict sense of the word, they are guaranteed by the British Government. The holders, therefore, certainly have a right to look to the right hon. Gentleman to protect their interests, quite as much as those of the holders of old War Loan or Consols. If that stock is depressed by the action of the Government now, it will not only have an unjust effect upon the holders of the stock, but it will have a very serious effect upon the whole process of land purchase in Ireland, which is regarded as a very important thing from the national point of view.

Mr. HOGGE

Do I understand my right hon. Friend that he is not going to levy any further taxation during this financial year?

Mr. MCKENNA

No!

Sir E. COATES

Will the right hon. Gentleman take into consideration the suggestion that the 5s. bonds should be inscribed? Will he also say whether the Bank of England is going to lend money to applicants for the new War Loan, as they did in the old War Loan? I have been asked to put those questions.

Mr. McKENNA

The bonds will be inscribed. In regard to the second question I would like to take counsel before I answer it. I think it possible that the answer will be favourable.

Resolution, as amended, put, and agreed to.

Resolved, That the Treasury may borrow, in such mariner as they think fit, on the security of the Consolidated Fund—

1. (a) any sum required for raising the supply granted to His Majesty for the service of the year ending the thirty-first day of March one thousand nine hundred and sixteen; and
2. (b) a sum not exceeding two hundred and fifty million pounds in addition; and
3. (c) any sums required for cancelling any securities issued under the War Loan Act, 1914, or any Treasury Bills which the Treasury may, for the time being, be authorised to cancel;

and, in connection therewith, the Treasury may—

1. (a) arrange for giving an option subject to such conditions and on such terms as the Treasury determine, to any holders of consolidated two-and-a-half per cent. annuities, or two-and three-quarters per cent. annuities, or two-and-a-half per cent. annuities, or three-and-a-half per cent. War Stock and War Bonds issued under the War Loan Act, 1914, to take new securities in lieu of those annuities, stock, or bonds, and may create securities for the purpose; and
2. (b) charge on the Consolidated Fund the principal and interest of any securities so created and any expenses incurred in respect of any such borrowing or exchange of securities; and
3. (c) charge on the Consolidated Fund any additional remuneration to the Bank of England and the Bank of Ireland in respect of any sums raised or securities issued either under the War Loan Act, 1914, or in pursuance of this Resolution."

Resolution to be reported; Committee to sit again to-morrow (Tuesday).

Resolution reported.

Resolution considered, pursuant to the Order of the House this day.

c1004
1. WAR LOAN BILL. 36 words