WAR LOAN (TRUSTEES) BILL. (Hansard, 30 June 1915)

§ The CHANCELLOR of the EXCHEQUER (Mr. McKenna)
I beg to move, "That leave be granted to introduce a Bill to enable trustees to borrow money for the purpose of exercising any option to convert Securities given under the War Loan Act, 1915, to holders of that Loan, and to indemnify trustees for any loss in respect of any such borrowing or any transaction in relation to the Loan, and to authorise the investment of moneys subject to any trust in any Securities created under that Act."
The Bill which I ask leave to introduce will enable trustees to borrow money for the purpose of obtaining under the War Loan Act, 1915, conversion of securities now held by them. The House will remember that under the terms of the existing War Loan holders of new War Loan are entitled to convert certain amounts of old War Loan, Consols, and Annuities, of which they may also be holders. It has been brought to my notice that many trustees who are now holders of Consols and old War Loan will be most anxious in the interests of the estate to convert their Consols and old War Loan into new War Loan, but they are not in possession of the necessary funds to enable them to apply for a sufficient quantity of new War Loan. It is proposed now to give such trustees the power to borrow money for the purpose of the purchase of a sufficient quantity of new War Loan in order to enable them to convert such convertible securities as they may hold. The power of borrowing is strictly limited to that purpose, and to the amounts requisite for that purpose.
I know it may be said that it is making a big stride to give power to a trustee to borrow money, but in this case the borrowing is strictly limited to a specific purpose, which is for the benefit of the estate. It does seem to be rather hard upon the person who is the beneficiary of property in Consols that he should not be entitled to the benefit of the conversion to which holders of Consols are entitled merely because his trustee has not available the necessary funds for the purpose of the application. The risk that the estate runs, I venture to assume, is the minimum risk.
1816 The amount that can be borrowed is only the amount which is required for the purpose of the application for the new War Loan. The estate, while it will owe a debt in respect of the new application, will have at least double the quantity of the new War Loan as compared with the amount of the debt, and, even if the new War Loan hereafter has to be sold at a loss, the estate will still benefit unless the loss is extravagant — and I do not think we have any reason in this House to apprehend that. The estate would still benefit, because of the great advantage conferred by the conversion. I think there would be a real hardship upon estates held in trust if facilities were not given to trustees to do this. I do not mind calling the attention of the House to the fact that it is a real advantage to the State that every opportunity should be given to persons in possession of means to apply for the Loan. The draft of the Bill—and that is all I am in a position to lay before the House at the present moment—is in the Vote Office, but it is not quite complete. It should include another Clause, which I should like to read to the House:—
"It is hereby declared that any sum paid to any Court, or otherwise under the control of any Court, may without prejudice to any other mode of investment be invested in securities created under the War Loan Act, 1915, and any finch sum may, if the judge so direct, or in accordance with the Rules of Court, be realised and reinvested in that Loan."
In the course of the Debate yesterday a question was raised by an hon. Member as to whether funds which have been paid into Court under an award of the County Court judge in compensation cases can be invested in the new War Loan. They may now by Statute be invested in Consols, but the hon. Gentleman who raised the point was doubtful whether they could be invested in the new War Loan. In order to make it quite clear, I thought it advisable to ask the draftsman to include a Declaratory Clause, providing that any sum paid into Court may be so invested. Here, again, it is to the obvious advantage of the beneficiary of the trust sum that his capital should be invested in a 4½ per cent. security instead of a 2½ per cent. At the same time it is to the advantage of the State. I see the hon. Member (Mr. Shirley Benn) who raised the point last night is now present. We are not quite sure it is 1817 necessary, but in order that there may be no mistake we have introduced this Declaratory Clause into the Bill.

§ Mr. T. LOUGH
What is to be the rate of interest?

§ Mr. McKENNA
There is no provision as to the rate of interest, nor is any such provision needed. The Loan obviously will only be for quite a short period. The trustee will borrow the money for the purpose of applying for the new War Loan, and when he has applied for the new War Loan, he will use that new War Loan for the purpose of converting, his Consols, and he will then have, in the trust fund, the original quantity of stock in converted Consols, but also the new War Loan stock bought for the purpose of conversion. He will, after the issue is closed, be able to sell new War Loan stock, and pay off the debt, so that whether he pays 4 per cent., 4½ per cent., or 5 per cent. interest, it will not be very material to the estate, because it is only for a very short period that the loan will be required. What is important is that, whereas the estate obtains for its capital 2½ per cent. only, in future, after conversion, it will get 3 per cent.

§ Mr. T. M. HEALY
How about Parliamentary deposits here and in the House of Lords?

§ Mr. McKENNA
The hon. and learned Member means the deposits on private Bills; they are held permanently.

§ Mr. HEALY
But why should they not have the benefit of the 4½ per cent.?

§ Mr. McKENNA
I shall have to look at the original Bill to see whether there is power to invest these funds. I think there is, but I am not quite sure.

§ Sir F. BANBURY
Can the right hon. Gentleman say out of what funds the interest is to come? Is it to be paid by the trustee or the beneficiary? Out of what funds is the loss, if there be any loss on the realisation of the War Loan, to be made good?

§ Mr. McKENNA
It will be paid out of the estate. The transaction is for the benefit of the beneficiaries of the estate, and the profit or loss will accrue to or fall on the estate.

§ Sir F. BANBURY
I understood the right hon. Gentleman to say that the operation was to the advantage of the 1818 beneficiaries, and yet the loss, if there is to be one, is to fall on the estate. Surely that is not right.

§ Mr. McKENNA
I was having regard to the interest of the beneficiaries in the estate as a whole. If the beneficiaries of the estate are to get the benefit of the conversion, I assume that if there be any loss it will fall on them in their due order. They will get the immediate profit, but they may have to refund any loss. Inasmuch as the result of the conversion to them is an increased income from Consols—an increase from a 2½ per cent. to a 3 per cent. basis—it is very unlikely that any mere turn of the market will involve a loss on the sale of the new War Loan which would wipe out the advantage to them of the conversion. I think it would be most improper to prevent the estates getting the advantage of the terms now offered. I hope I have sufficiently explained the Bill, and if the House will give it a favourable reception now, I would ask, inasmuch as it is-urgent, that it should be carried through all its stages to-night.

§ Sir JAMES DOUGHERTY
Does this Bill apply to funds in Chancery?

§ Mr. McKENNA
This is only a Bill to enable trustees to borrow money for the purposes of conversion. The only other Clause is a Declaratory Clause, enabling funds in Court which are dealt with under a specific Act to be used for the purposes of investment in the new War Loan. If the House agree to the introduction of the Bill I propose, for very obvious reasons, to ask the House to pass it through all its stages to-day. The value of the Bill will, of course, be exhausted by next Saturday week, when applications for the new War Loan will be closed, and, consequently, unless we give time for the trustees to make use of the provisions of the Bill we shall deny to the estates concerned all the advantages which I hope they will derive from it. I beg to ask leave to bring in the Bill.

§ Mr. HEALY
I desire to put a point to the right hon. Gentleman which has not been covered. Take the Trinity College deposit of £5,000 and also Parliamentary and House of Lords deposits. I do not know how they stand. If the right hon. Gentleman would say that between now and the Bill going to the House of Lords he will look into the matter and see that it is wholly covered, I do not object. 1819 I hardly think it is right to push this Bill through all its stages without giving us some little opportunity of looking at it. We might take the Second Reading, but there should be some stage at which we could make Amendments if necessary.

§ Sir JAMES YOXALL
I want to be assured that the term "trustee" in the Bill legally covers a case in which a Government Department is itself a trustee. I have in mind a case in which a Government Department holds, on behalf of a great number of beneficiaries under a "Superannuation Act, some millions of money in Consols. Will it be possible under this Bill for that Government Department itself to exercise the power of borrowing which the Bill otherwise confers upon a trustee? It is a very important point to these beneficiaries, and I should like to have some assurance upon it from the Chancellor of the Exchequer.

§ Sir F. BANBURY
I am afraid it is my fault if I did not put my question quite clearly to the right hon. Gentleman a few moments ago. Perhaps he will permit me to put it again, and I will give an illustration in order to make it quite clear. Supposing there is an estate of £10,000 consisting of Consols which gives to a beneficiary, whom I will call John Smith, £250 a year. John Smith's trustees convert under this particular Bill, and the result will be that John Smith receives £300 a year instead of £250. There is a loss on conversion, made up of the sale at a discount of the new War Loan and of the money to provide the interest on the sum which has been borrowed in order to make the conversion. Who is going to pay that loss? Is John Smith going to pay, he being the beneficiary and getting £50 a year extra, or is the body of the estate going to pay, and so deprive the remainder man of the capital which should be his? I think I have made the point clear now, and it is a question which should be answered. My hon. and learned Friend near me (Mr. Sanderson) wants to know whether that is dealt with in the Bill. I cannot answer that, because I did not know the Bill had been printed and I have not seen it. With regard to what the hon. and learned Member for North-East Cork (Mr. T. M. Healy) said just now, may I venture to suggest, as none of us have seen the Bill, that we should take the Second Reading to-day, then we might dispose of the Committee stage to-morrow. 1820 One day would make no difference, but I think we ought to have some opportunity of looking into the Bill, which is an important one, so that we may have, if necessary, a slight debate upon the Committee stage.

§ Mr. McKENNA
I think that is an extremely reasonable proposal, and we should be willing, if the general principle is accepted, to take the Committee stage to-morrow. I think the principle will meet with the general acceptance of the House, and I will answer to-morrow the objections and the points raised.

§ Mr. ANEURIN WILLIAMS
I would like to suggest one point for the consideration of the right hon. Gentleman. It is not, I need hardly say, put forward in any other spirit but that of a desire to help in this great work of raising the funds. The point is, that under the proposal as it has been laid before us there will be probably a large number of trustees who will have to sell large quantities of this War Loan very soon after they have converted their Consols or other securities. That will mean throwing a lot of this War Loan upon the market and possibly a temporary depreciation in its price. All I want to ask the Chancellor of the Exchequer to-day is to consider carefully whether something could not be arranged to prevent that depreciation occurring. It might only be a temporary one, but it would certainly be rather damaging if it did occur.

§ Mr. HOLT
I am very glad indeed that my right hon. Friend has agreed to postpone the Committee stage, because this is a proposal at which we ought not to rush. It is a proposal to encourage trustees to enter what is more or less a gambling transaction. That is a very serious thing for this House to do. A trust is formed for the express purpose of providing a certain income to the beneficiaries without any risk whatever. We are going to encourage the trustees to run a risk possibly for the benefit of the beneficiaries but possibly for their loss—[An HON. MEMBER: "Why not?"]—not because we are thinking about the beneficiaries at all, but because we want to make a good Loan. The question put by my hon. Friend who has just sat down (Mr. A. Williams) shows clearly what was in his mind. This is a proposal we ought to look at with a great deal of caution. It does not seem a proper thing that this House should encourage trustees to gamble in the beneficiaries' property.

§ Sir WILLIAM BEALE
I do not go so far as my hon. Friend (Mr. Holt) in regarding this particular arrangement as a gambling arrangement. I do not know whether we are now having a Debate on the Second Reading, but I am not at all prepared to say that the principle of the Bill has been sufficiently explained to make it acceptable to those who have a large experience in the administration of trusts. There is already a procedure whereby, at a very small expense, if a transaction of this sort is beneficial to a trust, either the trustees or any beneficiary can get the approval of a judge in a particular case if he thinks it is a proper thing to do. I do not at present understand on what principle and how it might be more beneficial to a trust estate for the trustees to borrow money, the trust estate being liable for any loss that may occur in raising the money with which to apply for the War Loan. It all depends how-much you have to sell. I know the difficulty. All trust securities are necessarily depreciated by the issue of this Loan. What I do not see at present is how it can possibly be more economic, rather than to sell at what price you can get now, to borrow money by pledging the investments or placing them in the hands of somebody else to sell at his discretion. He must have a market to sell at his discretion. It may be all right, but at the present moment I do not think the principle is made out satisfactorily from the point of view of the beneficial administration of the trust.

§ Mr. NEVILLE
I would like to ask the Chancellor of the Exchequer whether the facilities given by this Bill will apply to charity trustees? There is an enormous number, as the Chancellor of the Exchequer will know, of small parish charities all over the Kingdom which are vested, I believe, in the official Trustee, such as charity funds or charity lands. Will they have an opportunity of taking advantage of the facilities afforded by this Bill for the purpose of converting their Consols? The amount of Consols held by small charities throughout the country is something enormous. It would be a great advantage to them if they could convert. If the right hon. Gentleman can answer that question I should be much obliged.

§ Mr. SANDERSON
I have some hesitation in speaking about the Bill, because I have had no opportunity of seeing its terms. I have listened to the statement made by the Chancellor of the Exchequer 1822 and, so far as I can understand it, I am bound to say I am in favour of the principle. I suppose most trusts of any importance contain Consols as part of the securities. There is no doubt whatever that this new War Loan at 4½ per cent. and the conditions attached to it have affected very considerably the position of Consols. Looking at the matter from the point of view of a trustee, I do not think it has affected them for the better. Therefore it seems to me that the trustees ought to be put into a position to get the most benefit they can in connection with that which is perhaps the most important part of their securities. Having regard to what was said just now by the hon. Gentleman opposite (Sir P. Beale) that trustees ought to sell instead of borrowing, I would respectfully draw the hon. Member's attention to the fact that it is very difficult indeed to sell Consols at the present moment.

§ Sir W. BEALE
I said that.

§ Mr. SANDERSON
I did not catch it. In fact, it is almost impossible to sell. Therefore, if the trustee is to get the advantage of the War Loan, if he happens to be a holder of Consols, the only possible way to do it is to give him power to borrow for the purpose of applying for the Loan. If he has not got it, the only possible way by which he can get it is to give him statutory power, as is proposed by the Chancellor of the Exchequer. I am not so familiar with this branch of the law as some of my hon. Friends on this side of the House who, I am sorry to say, are not here—for instance, my hon. and learned Friend Mr. Cave; but, as far as I can see, I think the principle is a good one under the present extraordinary circumstances.

§ Mr. JAMES MASON (indistinctly heard)
Of course, the advantage to trustees derived from this Bill falls entirely on those trusts whose funds are invested in different securities. In that case they are pledging the whole of the trust funds for the purpose of converting a proportionate amount. In the case of trusts in which the whole trust fund is in Consols it is, of course, obvious that they would only be able to borrow about half the amount and convert five-eights. It seems impossible otherwise to give sufficient security to convert the whole of the Consols. The principal object I had in rising was to emphasise the disadvantage which was suggested by the hon. Member (Mr. Aneurin Williams), who said that the depreciation 1823 caused by the sudden throwing upon the market of large quantities of new War Loan might have very serious effects. I should like to call the attention of the Chancellor of the Exchequer to this aspect of the case. In the anticipation that as the result of this Bill large quantities of War Loan will be thrown shortly on the market, is it not possible that investors who now might otherwise apply for the War Loan will hold back in order to take advantage of that depreciation?

§ Mr. McKENNA
I think the last suggestion is not one which is likely to be realised. We do not anticipate that these powers of borrowing will be as widely exercised as some persons seem to think. A great many estates will sell securities in order to apply for the new Loan. Some I know cannot, but a great many will, and I am sure what a good trustee will do will be to go through the list of securities and sell American securities and securities of that kind, for which he can obtain a ready market at a good price. I have personally done this work myself, and I know as a fact that there are some other securities which can be sold. That will be done, and the funds will be applied for the purpose of applying for War Loan. We are thinking now of the case of trustees who wish to apply and have to borrow for the purpose. A trustee will not throw his new War Loans on to the market immediately after the issue. He will sell the War Loan prudently and wisely in order to get the best price for the estate.
As to the notion that it would be necessary to throw it upon the market, it is quite a mistake. The War Loan is issued on such favourable terms that there is sure to be a large active market in the stock after the issue is closed, but I certainly do not anticipate that there will be any such vast number of sales as will lead to the evil which the hon. Member thinks is likely to happen. There, will be a very large demand after the issue is closed for new War Loan, which is much more likely to send it to a premium, by persons who are holders of Consols and old War Loan and have not acquired the War Loan in time for the purpose of conversion. People forget that the amount of War Loan which would have to be applied for in order to convert all existing Consols, annuities, and old War Loan, is something like £700,000,000 or £800,000,000, and it is perfectly clear, when we remember that a considerable number of those 1824 who apply for War Loan will lock it away and never use it for the purpose of conversion, that applicants for conversion will be in excess of the stock which can go round, and so far from anticipating a drop in the stock, I should rather anticipate that it will hold its own, even though trustees do wish to sell. I quite agree that one stock may be a stock which has been used for the purpose of conversion and the other is a stock which has not been so used, but the market demand for the investment is equally well satisfied with the stock which can be-described as ex rights, as the stock cum rights. In Committee I shall be in a position to answer all the points which have been raised, with regard to particular kinds of trustees and trust stock where they are provided for under this Bill. I do not think, however, that these points touch the principle of the measure.
My hon. Friend (Mr. Holt) treated this as a Bill which was authorising a gamble by trustees. Is he justified in even approaching the subject from that point of view? By the issue of the new War Loan we automatically reduce the capital value of the trust fund. If the trust fund is in Government securities we do something to increase its capital value if application is made for the new War Loan. I cannot regard it as a gamble to give power to a trustee to enable him to take advantage of the opportunity which is offered him. Let us be quite clear on the point. If there is to be any loss to the estate on this transaction you will have to see new War Loan, a 4 per cent. Government security, standing at something not far short of 20 per cent. discount. That is not a possibility which we are contemplating at present, and certainly not a possibility within the time in which the trustees could regulate their accounts. There is no gamble.

§ Mr. HOLT
How do you make out that it would have to drop 20 per cent. Surely if it drops 1 per cent.—

§ Mr. McKENNA
No; because he converts Consols, which pay him now 2½ per cent., into stock bearing 3 per cent., consequently the estate has a large margin before the loss occurs. That is how it happens. A mere 1 per cent. drop would not wipe out the advantage of conversion. It would have to be a drop of more than 5 per cent. or 10 per cent. before the advantage is lost. I might put it at something between 10 per cent. and 20 per cent. 1825 discount before the advantage to the estate would be lost. In those circumstances we cannot regard it as a gamble. I quite admit that it is contrary to some principles of equity, but when the principles of equity were, after many years of practice, deduced from the legal constitution I do not think conversions of this kind were in contemplation. We have to adapt our principles of equity in relation to trusts to the new conditions of conversion, and I cannot believe that it would be contrary to any real principle of equity, properly understood, that a trustee should be able to enter into a transaction which is for the benefit of the estate.

§ Sir W. BEALE
made an observation which was not heard in the Reporters' Gallery.

§ Mr. McKENNA
Yes, in proper cases I have no doubt they will do it by a simple application to the Court, but in other cases, where they cannot do it except by borrowing, I think they ought to be allowed to borrow, particularly as the security is so uncommonly good.

§ Sir F. BANBURY
I wish to ask a question about procedure. The right hon. Gentleman says he will answer questions on the Committee stage. The Debate will be confined to the Clauses, and it is possible that some questions asked may not be in order on the Clauses. I suppose the right hon. Gentleman will arrange with the Chairman of Committees that the rules may be a little relaxed.

§ Mr. J. A. PEASE
Will the Bill be circulated in the morning?

§ Mr. McKENNA
The Bill will be circulated immediately. I will ask the Chairman of Committees if he will be so kind as to allow us that latitude. The case which was put by the hon. Baronet is that of a trustee of an estate of £10,000 in Consols. If he will allow me I will take the case of the old War Loan, because the figures are easier. He wants to know what will happen in case there is a loss. Let us work the figures out in regard to £10,000 of old War Loan and see what it means. The trustee of the estate will go to his bank and he will say, "I desire to borrow from you £10,000 for the purpose of applying that sum to new War Loan, and I give you as security £10,000 of old War Loan. The bank will, assuming that it is an obliging bank, advance from time to time the necessary sum up to the 1826 total of £10,000 in November, in order to apply the £10,000 to new War Loan. The bank will hold as security against £10,000, old War Loan of £10,000, and new War Loan, £10,000; so that the bank will have ample margin for the whole Loan. The old War Loan will then be converted into new War Loan on an additional payment of £500. The estate will now be in possession of £20,000 of new War Loan, on which the interest at 4½ per cent. would bring in £900 a year. The estate before this transaction is undertaken possessed £10,000 old War Loan, on which the interest was £350 a year. The estate, therefore, will have a surplus income of £550 a year; against that the estate have got to pay back £500 of cash borrowed and interest on the £10,000 borrowed. If it borrows from the bank at 5 per cent. it can pay the interest on the money borrowed with a margin, but if it has to borrow at more than 5 per cent. it will have a slight loss. Suppose there is a loss and that in order to repay the debt the holder has got to sell, not £10,000 of new War Loan, but £11,000. I am leaving a margin of 10 per cent. Of the £10,000 a sum of £500 will go to pay for the cash advanced, and £500 will go to pay the loss on the transaction, assuming that there is a loss. That will still leave the estate with £9,000 of new War Loan at 4½ per cent., which is very readily calculated, and will bring in £405 a year. The estate started with £350 a year, and it ends up the transaction with £405 a year, and in that calculation I have allowed for a loss of £500.

§ Sir F. BANBURY
I wish we were in Committee. May I point out that I understand the right hon. Gentleman to say that the estate will have £9,000, but it started with £10,000, and it would have £10,000 at par in thirteen years? It had got its old War Loan of £10,000, therefore there is a loss of £1,000 to the estate. There is an increase in the interest, but the trustees have to regard the body of the estate and not the interest.

§ Mr. McKENNA
That is perfectly true. I was looking at the case only from the point of view of interest for the time being. Though that sum would be redeemable thirteen years hence at par, when you get the amount the estate is saleable for it would have a greater value if the transaction is made as I have pointed out than if it is not made. If the hon. Baronet will work the sum out on paper he will see that the gain to the estate is obvious. The 1827 estate as a whole will benefit. In the case of Consols or Annuities it is exactly the same as in the case of old War Loan. However, we may resume the discussion in Committee to-morrow.

§ Mr. NEVILLE
Will the right hon. Gentleman deal with the point I raised?

§ Mr. McKENNA
I will deal with the point in Committee to-morrow.

§ Mr. JAMES MASON
The right hon. Gentleman suggests that the case which he has given holds equally good with Consols, but does he maintain that if a trust consisted of £750 worth of Consols, the trustees will be able to borrow £1,000 for the purposes of conversion? What would be the security?

§ Mr. McKENNA
I do maintain that. The trustees would not be able to go and lodge £750 of Consols and receive from the bank £1,000 for them, but if the trustees lodged with the bank £750 worth of Consols and gave the bank the right to hold the War Loan, for which application was made, as well as the Consols, then I think the bank would be willing to lend the £1,000.

§ Mr. ANEURIN WILLIAMS
I hope sincerely that the Chancellor of the Exchequer between now and the Committee stage will reconsider this question of possible depreciation of stock after conversion, because it is quite clear that the people he spoke of as wanting to buy stock will want to buy stock cum rights of conversion, but with respect to those who hold stock ex rights of conversion, that demand will be no good to them. When they want to clear up an account with their bankers as between capital and revenue on their trust account, they will certainly be under a strong temptation to put their stock ex rights upon the market. I think there will be a serious danger of depreciation of stock ex rights. What I desire is that something should be done to avoid 1828 that, which I believe would be a serious disadvantage. I also would like to say that as between capital and revenue on trust estate it is absolutely essential that something should be put into this Bill in the Committee stage, or else trustees will be afraid to launch out in this matter and apply as we desire them to apply, because they will not know whether they are to treat the bankers' charges and possible loss on re-sale of War Loan as falling properly upon income or upon capital. If they make a mistake, of course they are liable to have it charged some day upon themselves personally. Therefore I hope that it will be distinctly provided in the Bill when we come to the Committee stage how any losses of that sort and any expenses of that sort are to be borne.

§ Colonel HALL WALKER
I hope there will be an opportunity when the Bill is considered in Committee to deal with a point which arises out of these transactions in regard to people not being able to deduct their interest on Loan from their Income Tax on Income. I will give a typical case of a trust which has an investment in Consols of the nominal value of £10,000. The trustee is able to sell these £10,000 worth of Consols to the Government with the object of converting them into £10,000 of new War Loan which he is privileged to do on the strength of holding these Consols of the nominal value of £10,000. He sells them to the Government at the value of 65, which is equal to £6,500 on conversion. By placing that amount of £6,500 new War Loan, together with the £10,000 of new War Loan which he would get by virtue of his possession of his £10,000 worth of Consols, there is an amount of £16,500, which will be the security to the Bank for the loan from them of £10,000 with which to pay for the new War Loan. There now arises the situation that the trustee will have to pay his banker interest at 5 per cent. on the borrowed money of £10,000, which means £500 a year, and as the total income from the £16,500 new War Loan at 4½ per cent. is equal to £742, he will have to pay Income Tax upon that amount, and will not be allowed to deduct from that sum of £742 the £500 interest which he has had to pay to his banker. In that case, from the rough calculation I have been able to make, the total income of the new estate will amount to only £242, as against £250 income on Consols at, say, 2½, without calculating the loss in Income Tax.

§ Mr. McKENNA
I have made provision for that. We agreed yesterday that we would meet that case.

§ Colonel HALL WALKER
I have not had that quite clear. If that is so, I am quite content.

§ Mr. McKENNA
Oh, yes, we agreed yesterday that we would meet that case.

§ Mr. HOHLER
I am in doubt about the transaction which the Chancellor of the Exchequer put to us just now, namely, the conversion of £10,000 of old War Loan into new War Loan, which involved the purchase of £10,000 of new War Loan. He put to us the case of an obliging banker, whom he assumes would leave his money out for ever. Supposing he does not, and the money is called in? Who is to be responsible? Is the trustee to make himself personally responsible? Is it clear that the bank may not call upon him at any time? If, on the other hand, the trustee has to go to a solicitor and raise the money through him, look at the cost of the stamps on the mortgage deed. I think the transaction which the Chancellor of the Exchequer gave us is exceedingly remote. The trustee has got to find £10,000 and convert it into new War Loan; in addition he has got to find a sum of £500, and it is suggested that the security of the old War Loan and the scrip of the new War Loan will be satisfactory security to the bank. That may be so as long as the bank likes to leave the money out, but if not a difficult situation may be created and the trustee may be involved in an immense obligation. Suppose the money is called in, what is he to do? What is the position then of the trustee who borrows money from the bank? I do not know whether it will do much harm to bring in the Bill, but I hope that no trustee will act upon it. I object entirely to the principle of the Bill.

§ Sir W. BEALE
I would like a rather clearer answer than that which the right hon. Gentleman gave to the hon. Member for Windsor. Suppose a trust estate to consist solely of Consols, of course the Chancellor does not pretend that you can on these Consols raise enough money to convert it all. I am sure that his answer would be that if you raise what you can, and put it into War Loans, and mortgage the Consols and the War Loan, that would be an advantage to the estate. It seems to me that that is hardly correct and that it must depend on what interest 1830 you are paying on the money which you have borrowed. Then, there is another point. If you put this security into the hands of the bank, or whoever you borrow the money from, they may realise those, Consols at any time and at any price. I do not think that the question which was put by the hon. Member has been answered in a way that would give any greater feeling of security to beneficiaries under a trust estate, if the trustees are to have this large power.

§ Mr. KING
I view this matter from a different point of view from those who have spoken in this Debate, because I am a trustee and I hold Consols for the benefit of the beneficiaries of this trust; and as I have sat here and listened to this Debate I have been considering what I ought to do myself, and I am candidly of the opinion now that it would be a rather difficult and uncertain transaction for me to go to my banker to-morrow and say on the strength of this Bill that I want to borrow money, and, if I did so, I am quite sure that I should not in a week's time feel so secure about this trust as I do at the present moment. For one thing it is quite impossible for me to make any agreement with my banker for a loan at a fixed rate, say, for more than six months. In a year's time, if the War continues, the rate of interest will most certainly be raised, and I can conceive that trustees in my position would be in a very difficult position. I hope that if this Bill passes a word of caution will be uttered, at any rate, by those who are greater authorities in the House than myself as to the difficulties and dangers that may have to be met, so that only those who can do so with complete security, and with some margin against possible risk, should invest in the War Loan on the terms offered by this Bill.

§ Mr. ROBERT PEARCE
I would ask the Chancellor of the Exchequer to be good enough to allow the Second Reading of this Bill to stand over until we have seen it. At present we do not know the contents of the Bill. However much we may be disposed to agree to the principle of having it brought in a first time without Debate and without consideration, it seems to me to be unfair to the whole body of trustees and to all the beneficiaries who are concerned to ask for the Second Reading and to force it through the House before we have seen even what the title of the Bill is to be. As to the position of the trustees and beneficiaries 1831 —and I suppose we are all in that position in some way or another—I wonder what we have done, what sinners we are, that we should have this calamity forced upon us, that trustees should have to consider whether they are to convert their present holdings into the new Loan, the fate of which is dependent upon the War and upon rates of interest, which, as the hon. Member for Somerset says, will certainly increase. It is a very serious thing for those who have to advise beneficiaries whether they should relinquish the tempting offer held out by the Chancellor of the Exchequer to increase their incomes by some 50 per cent., as beneficiaries are not able to resist the temptation, and all trustees who have any concern for the welfare of their securities will be urged to take advantage of the present opportunity of convening their holdings, and many trustees will feel that there is considerable difficulty, and they will be bound to advise the beneficiaries that on no account should a conversion be made of the trust moneys in their name. At least that is the judgment which I arrived at after hearing what has been said.

§ Mr. McKENNA
I am extremely sorry to hear my hon. Friend say, as a result of this Debate, that he has definitely come to the conclusion that he will have to advise all beneficiaries that in no circumstances should advantage be taken of the conversion of their money into the new War Loan for the benefit of the estate. I do not think that that is the general feeling of the House. Let me remind him that this power is only optional. No trustee is bound to follow this Bill. A trustee who thinks that he is doing better for an estate by leaving beneficiaries to get 2½ per cent. instead of 3 per cent. is at liberty to hold his views, but I think, on the other hand, that the House will be well advised to give trustees the opportunity to improve the income of the beneficiaries and to allow this Bill to go through the Second Reading to-day, on the understanding that we take the Committee stage and the other stages to-morrow, so that the Bill may become law in time for trustees to apply for the new War Loan.

§ Mr. PRINGLE
May I ask the right hon. Gentleman whether this Bill will be taken as the first Order to-morrow? The Committee stage of the Munitions Bill is down for to-morrow, and there is likely to be 1832 a prolonged Debate upon it. I should like to know the order in which the two measures are to be taken.

§ Mr. McKENNA
I should like an opportunity to consult my right hon. Friend. I should think that the Munitions Bill will probably come first, but I will not answer for it.