AMERICAN LOAN BILL.

HC Deb 12 October 1915 vol 74 cc1218-71

The CHANCELLOR of the EXCHEQUER (Mr. McKenna)

I beg to move, "That leave be given to introduce a Bill to enable a Loan to be raised, in conjunction with the French Government, in the United States of America."

I hope that the House will understand that it is only in the very exceptional circumstances of the case that we are asking that the American Loan Bill should be taken through all its stages in one day. The Loan, which is for 500,000,000 dollar's, has been fully underwritten, but it cannot be issued to the public in the United States until the issue has received the sanction of Parliament. Our partners in the Loan, the French Government, have already obtained a statutory assent, and it is of the greatest importance that there should be no further delay in the issue to the public. The money will be borrowed under powers which the Treasury already possess, and, in consequence, it is not necessary for me to ask Parliament for any further powers. I will say in a moment why it is necessary at all that Parliamentary assent should be given—and I should ask for Parliamentary assent in any circumstances. I will explain why it is necessary that it should be given. The Loan is a joint and several obligation on the British and French Exchequers. The two Governments will share in the proceeds to the amount of 250,000,000 dollars each, or a little over £50,000,000 sterling. The term of the Loan is for five years, and the rate of interest is 5 per cent. The issue price to the public is at 98, and the whole amount has been taken up by an underwriting syndicate. Any holder of the 5 per cent. bonds may exchange them, if he declares his option to do so in less than six months before they mature for payment, into a 4½ per cent. loan for a period beyond the original five years. The 4½ per cent. Loan may be repaid by us in 1930, and must be repaid in 1940. As we issue the Loan to the underwriting syndicate at 96, and we are under an obligation to repay at par in five years, the true interest must be reckoned, not as 5 per cent., but as £5 19s. 1d. per cent. Should the option to exchange into a 4½ per cent. Loan be exercised, the terms, throughout the period of the Loan, will be equivalent to a 4½ per cent. Loan issued at 96, together with an additional ½ per cent. interest for five years. In estimating the value of those terms we must compare them with the rate of interest paid in this country. Our own recent War Loan, which carries interest at 4½ per cent., now stands at 97¾. There is, however, in this price over ⅝ accrued dividend, and in making the comparison with the American issue, in which there is no accrued dividend, we must take the price of our own 4½ per cent. Loan at 96⅛. If the option of exchange to the 4½ per cent. Loan is exercised by the American lender, we are paying approximately ½ per cent. interest, for five years, more than the existing rate at which anybody could go into the market and invest his money in War Loan.

Sir F. BANBURY

There is the Income Tax.

Mr. McKENNA

I will come to the question of Income Tax, about which I think the hon. Gentleman has got a bad point. When we remember that capital generally earns a higher rate of interest in the United States of America than in this country, the terms of the Loan are not more onerous than could reasonably be expected. We must not forget that when we are at war we cannot hope to borrow in a neutral country on as easy terms as we can borrow at home. I have seen some criticism of the terms, but I do not think that when all the circumstances are taken into account such criticism is well founded. Now I come to the other point, in which I am sure the House will take great interest—I refer to the point of the hon. Baronet (Sir F. Banbury) in regard to the question of Income Tax. I have seen the argument that inasmuch as the interest on this Loan will be paid to the American lender without deduction for Income Tax, we are in consequence borrowing at an equivalent of nearly 1 per cent. higher than the actual amount paid; it has been suggested that we are borrowing nearly at the rate of 7 per cent. The argument is ingenious, but for myself I can only say that I marvel at more than I admire the ingenuity. Let us consider for a moment what it means. We owe in the United States, on account of our trade engagements, a sum which we will take at £50,000,000. If we pay that sum to-day we can only do so by exporting capital— presumably by the export of American securities. For the moment, we say to our creditors in the United States, "Will you please allow us to defer payment upon such terms as may be arranged?" And the United States creditor agrees, and we thereby are enabled to retain in this country the £50,000,000 capital which we must otherwise have exported. When we retain that £50,000,000 capital in this country we get Income Tax on the dividends. If we paid our debts and exported that capital we should lose the Income Tax on the dividends. What the hon. Baronet would like is that we should get the Income Tax twice over.

Sir F. BANBURY

The right hon. Gentleman has misunderstood me, but I will put it right.

Mr. McKENNA

So ingenious is the argument, that we should get the Income Tax twice over.

Sir F. BANBURY

A very good thing to do.

4.0 P.M.

Mr. McKENNA

A very good thing to do, and I should be very glad to do it; but we are borrowing from a neutral country, and we cannot expect a neutral lender to agree to those terms. What we have to consider is that if we borrowed in this country the capital would remain in this country; but if we borrow in a foreign country we are saving the exportation of capital, and consequently we retain in this country capital which produces income on which Income Tax is paid. The calculation that Income Tax ought to be reckoned, in addition to the rate of interest, as a loss to the country, is a pure fallacy; at least, so it appears to my reckoning. I have said that the Loan is for the purpose of paying trade debts, and enabling us to obtain our exchange in the United States. Our imports from North America have largely increased since the War, and our exports to North America have diminished. The increase in the imports during the first six months of 1915, exclusive of Government supplies not included in the Customs returns, amounts to £58,500,000. The reduction in the exports in the same period is £12,000,000, so that if we add the two figures together, as we must, the adverse balance during the first six months of the year compared with normal conditions is £70,000,000 against us, that is an adverse balance on ordinary trade. I am not now dealing with munitions of war bought by the Government and invoiced direct to the Government. They do not appear in the Customs return. I am speaking of the trade return.

Mr. HOUSTON

Can the right hon. Gentleman give us the other figures?

Mr. McKENNA

They are not relevant to this discussion. I am giving the annual trade figures. The other figures certainly bear on the exchange, but I am dealing with the exchange as affected by trade alone. Whatever allowance we may make for what are called invisible exports which assist in maintaining the balance of trade, no allowance will make good such a difference brought about by the conditions of the War as that of £70,000,000 in six months. It is true that some relief of this balance against us might be obtained by the sale in the United States of American securities held in this country, and every effort has been and is being made to obtain relief from that source. But of itself it would be insufficient, and we should not be doing our duty if we neglected to take any means which will assist this country in maintaining the normal level of exchange with the United States. I am going to ask the House to take all the stages of this Bill to-day, and consequently, if I get the assent of the House, there will be many opportunities on the different stages of the Bill to develop the case, and to reply to questions. I am going to suggest also that possibly the most convenient course would be if the House forthwith would allow the introduction of the Bill in order that copies of the Bill, which are already printed and in the Vote Office, might be liberated, and put into the hands of Members, so that they see exactly what it is that we propose to do. On the Second Beading of the Bill we can have the Debate, and the House would then be in a position to tell what the whole of our intentions are.

I am sure the House would desire to express its thanks to the Commission over which Lord Beading presided, and which included Sir Edward Holden, Sir Henry Babington Smith, and Mr. Blackett of the Treasury. They had serious difficulties to contend with, and they have accomplished their task with skill and success. The United States public is not accustomed to large external loans. I believe this is the first of any magnitude in the whole history of the United States. Then again, we must not overlook the fact that there are many cross currents of opinion in that country. Although the transaction was purely for the purpose of meeting liabilities already incurred, and payments shortly about to fall due, no little opposition was raised by some parties whose sympathies are not on our side. I hope that the existence of those parties will not be overlooked in the Debate, and that care will be taken to avoid the use of language which might be twisted and turned by some hostile elements to their advantage, and to the detriment of the Allies. The Loan is a trade transaction, the terms are fair and reasonable, and I recommend it with confidence to the acceptance of the House.

Major WORTHINGTON EVANS

As the Chancellor of the Exchequer has asked that we should not have any discussion until the Second Reading, I propose to reserve my remarks to that stage, but I think it would assist the House if he would tell us whether he is able to give us any further figures. I do not desire that he should give us the figures if he has reasons for wishing to withhold them. He has told us that the excess balance on ordinary trade operations in the first six months of this year is £70,000,000 against us. He might have also added the American tourist money which probably also affects the balance. He has not told us what the extent of the other purchases which do not appear in the Board of Trade Returns amount to during those six months. If he says that it is undesirable that a statement should be made on that subject, then, well and good, we must accept that, and discuss the Bill without it. If, on the other hand, it is possible for him to say what the real adverse balance is against us, not only on account of trade, but on account of Government purchases both on their own account and on account of the Allies, then we should be in a position to exercise some judgment upon the larger question of how we are to meet our foreign indebtedness which immediately arises on considering the Bill.

Mr. PETO

May I ask the right hon. Gentleman whether he proposes to move the Adjournment of the House for a sufficient number of minutes in order to allow Members to read the Bill?

Mr. McKENNA

It will not take two minutes to read it.

Mr. KING

I do not of course oppose the introduction of the Bill, but I must protest against the assumption that everybody will consider it right to pass all the stages of this Bill at one sitting. In my opinion no ground has been made out whatever why we should not have this Bill before us to-day, and then take the Second Reading to-morrow, and possibly the subsequent stages. Let me remind the Chancellor that there has been no hurry at all about this. We might have met yesterday; we might have met last week. The events of the Loan were all known before we separated ten days ago.

Mr. McKENNA

No.

Mr KING

The Chancellor will excuse me reminding him that an official statement embodying practically all the points which he has given us to-day was made to the Press before we left off our sittings here. Even if that were not so, it does not matter, because the Government knew perfectly well that the Bill would have to be introduced. Why the Government should adjourn the House for ten days and then come back and tell us that we must pass this measure in all its stages in one sitting, really passes my imagination to find an excuse for. I must appeal to the Prime Minister. He has told us again and again that he desires to preserve the rights and privileges of the House, and that he recognises that financial control still resides in the House of Commons. Whatever the general opinion of the House may be as to passing all the stages of this Bill at once, I as a House of Commons man shall protest against it. We have had cases before of Bills brought in in this way, and passed through all the stages at once, and what has been the result? The Government has had to come in in a day or two in some cases with another Bill to amend and completely alter legislation passed in that way. I do not suggest that they would have to submit to that humiliation in this affair, but I think it is sufficient to point a warning against hasty legislation of this kind, and against depriving the House of Commons of its old rights and privileges on a matter on which there cannot be the urgency of one day. I shall strongly oppose this measure being taken through all its stages to-day.

Question put, and agreed to.

Bill ordered to be brought in by the Chancellor of the Exchequer and Mr. Montagu. Presented accordingly, read the first time, and ordered to be printed. [Bill 146.]

Motion made, and Question proposed, "That the Bill be now read a second time."

Sir F. BANBURY

The right hon. Gentleman the Chancellor of the Exchequer rather misunderstood my interruption a few moments ago. I interrupted him to point out that there was no Income Tax on the American Loan, because the right hon. Gentleman was comparing the return on the American Loan with the return from the last English War Loan. I understood him to be advancing the argument that the terms were not excessive, and he was comparing the terms of the American Loan with those of the English War Loan, but in order to do so he must compare like with like, and, as everyone knows, there is no Income Tax on the American Loan, and in the other there is. I am sorry to say I do not agree with the right hon. Gentleman that the Commission has done its work well. I think it has done the work about as badly as it possibly could. What has the Commission done? It has succeeded in borrowing £100,000,000 of money in the United States, that money being guaranteed by English credit and French credit, and the rate of return to the purchaser is 6 per cent. I am not going to debate the question of Income Tax. I agree, of course, with the right hon. Gentleman. When the "Manchester Guardian" endeavoured to prove that this country was paying 7 per cent. they were wrong, because it was evident if you were going to borrow in the United States you must issue a loan free of Income Tax, otherwise foreigners would not have subscribed to it. Therefore I propose to deal with the yield as it actually is to the American purchaser, and which is 6 per cent. The right hon. Gentleman said that the rate on money paid in the United States was higher than in England. He is quite mistaken, as the very reverse is the case. Only five or six weeks ago—and I am perfectly prepared to give the right hon. Gentleman the names of the security and the price, and the people who sold it—certain American securities were sold on a 4 per cent. basis here and a 4¼ basis in America, if you take the exchange as being 4.55 or something of that sort. They were not American Government securities, but they were very good American securities. I do not mind saying what they were. They were New York City Bonds due in the year 1957. I made a calculation as to the return to the American purchaser, in which I included the advantage to the English seller in the exchange. They returned to the American purchaser 4¼ per cent. I am glad to see the right hon. Gentleman the Financial Secretary to the Treasury in his place. I am not sure whether he was a member of the firm, but his firm has had considerable experience in borrowing money and in issuing loans.

The FINANCIAL SECRETARY to the TREASURY (Mr. Montagu

): I have no connection with any firm of any kind.

Sir F. BANBURY

I do not doubt that the ability and astuteness which distinguish his relations in the City distinguish the right hon. Gentleman also. I may point out that I have spent nearly thirty-five years in the City and have been consulted on many occasions on the issuing of loans. What should I have done if I had been consulted as to the rate of interest we ought to pay if we had to borrow money in America? The first thing to find out is at what rate investors are investing their money at the time. I have shown the right hon. Gentleman that, at any rate in some cases, people were prepared to invest their money in America at 4¼ per cent. Is it not fair to suppose that, the Americans being a shrewd people and ready to make a good bargain when they can do so, if they were content to invest their money at 4¼ per cent. in New York City Bonds having forty-two years to run, they would have been content to invest their money in an Anglo-French Loan having only five years to run—which is a more popular form of investment at the present time— at a far and away lower rate of interest than 6 per cent.? It seems to me such a self-evident proposition that I cannot understand anyone contradicting it.

A Commission went out to New York. I am not at all certain that it was necessary to send a Commission at all. I think we could have done the business equally well from here by appointing an agent in New York, giving him powers to issue a loan at a price, and paying him a moderate commission which he would have been very thankful to receive. But the Commission, having gone to New York, what did they propose to do? They proceeded to underwrite the Loan by paying a commission of 2 per cent. That is a very large underwriting commission to pay on a security of this kind. In the days when I endeavoured to earn an honest and precarious living in the City I was very happy if I could get a 1 per cent. underwriting commission on a security not so good as an Anglo-French Loan. Therefore, to pay a commission of 2 per cent. appears to me to have been a very ridiculous thing to do. I am not sure, but I think I am right in saying, that there has never been an instance of an English loan having been underwritten, and I want to know why this Loan was underwritten at all for. What is the object in underwriting a loan? If, when in business, I had been consulted as to the underwriting of a loan, I should have said, "It is no use wasting money in paying an underwriting commission if you are sure the loan is going to be successful; but if you have doubt as to the success of the loan, if you are not sure of getting the money without underwriting, and if it is absolutely necessary that you should get the money, then let it be underwritten, but not otherwise." What is the natural desire of the people who underwrite a loan? When this Commission went to interview the American bankers, and asked them on what terms they would underwrite the Loan, naturally the American bankers asked such a price as would ensure their getting their commission without running any risk. We are going to pay them £2,000,000. I think the right hon. Gentleman will see, when the Loan is issued, that it will be fully subscribed, so that that £2,000,000 will have been spent for nothing at all, and will have served no useful purpose of any sort or kind. Is the underwriting net? That is to say, who pays the expenses of the issue?

Mr. McKENNA

They do.

Sir F. BANBURY

It is a net underwriting?

Mr. McKENNA

Yes. They pay all expenses.

Sir F. BANBURY

I do not know what the expenses may be, but I should have thought that £50,000 would pay them. They will probably be not so much; so that it is not a very large amount. I venture to say that if a commission of £200,000 had been offered to a firm to receive subscriptions and pay the expenses of bringing out the Loan, they would have been only too glad to accept it, and we could have got our Loan at 98. I believe we could have brought it out higher. I cannot conceive it possible that the American public would not have taken a 5 per cent. Anglo-French Loan for five years at par. If they had not taken it, where should we have been injured'! What have we done now? We have injured our credit to a very great extent by borrowing money at 6 per cent. in the United States. The right hon. Gentleman knows perfectly well that within a very short time he must come to this House for powers to raise a further loan. What does he suppose people will think when they find that he has been paying 6 per cent. in America? Will they not require something approaching that rate here? Is it likely that he will be able to get out another loan on anything like the terms of the last? He must remember that by the prospectus of the last loan he is bound to increase the interest payable on the £600,000,000 already issued if he brings out another loan at a higher rate of interest. That is a very important consideration. It will add very largely to the charges which we shall have to meet in the future.

I do not for a moment deny that some steps ought to be taken to rectify the exchange. After all, it is only a question of bargaining. If you have to pay for rectifying the exchange, how much have you to pay? If you have to pay such a large sum so that you alter your whole credit over here, I think it is rather doubtful whether it would not have been better to have left the thing alone. The right hon. Gentleman talks about German influences. I do not believe myself—and I have had some little experience of business—that German influences will prevent any American from buying a thing for 5s. if he thinks it is worth 7s. 6d. It is perfectly certain that we could have disregarded all these German influences and issued a Loan in America at a far lower rate than 6 per cent., and without paying this enormous underwriting commission.

I do not intend to oppose the Loan, because we have committed ourselves; I do not think we can go back upon the powers which the right hon. Gentleman entrusted to the Commission, but I ask him to be more careful in future, and to consider a little more closely the effects of borrowing money abroad at these high rates of interest. He knows perfectly well that it was suggested to him that he should receive subscriptions in America for the last War Loan. He would have been perfectly able to receive subscriptions in America, and to have stated that if the Loan was held by Americans it should be free from Income Tax. Therefore, the question of Income Tax could have been got over in connection with the last Loan. It would have been far better to have allowed subscriptions to have been received in the United States, because we should then have found out what the real market was, and what was the feeling of the United States towards an English Loan. If they had not taken any it would not have mattered; the Loan would have gone here; but we should have known how a Loan would be received in the United States. When the right hon. Gentleman refused to do this, I never for a moment supposed that he would within a few months pay 6 per cent. for money in America. I regret very much that he should have done it, as I think it was quite unnecessary. Although I shall not oppose the Bill, I hope the right hon. Gentleman will hesitate before he again entrusts the finances of the country to a Commission. I do not hesitate to say that, in my opinion—and not in my opinion only, but in the opinion of other people competent to judge — the Commission have done exceedingly badly.

Major EVANS

I hope the Chancellor of the Exchequer will be prepared to answer the question which I asked on the Motion for leave to bring in the Bill, because it is really important to those of us who wish to conduct this Debate with some knowledge of the actual figures. I would remind the House that the Chancellor of the Exchequer justified the necessity for this Loan by saying that the adverse balance on ordinary trading account during the first six months of this year amounted to £70,000,000 against us in excess of the ordinary balances of the year 1913, before the War. Although this Loan would have been required in any event, it does not really represent the problem which we have to consider when we say that there is an adverse balance of £70,000,000 against us. The adverse balance is very much higher indeed. The present Minister of Munitions, when Chancellor of the Exchequer, told us in May last that the adverse balance was piling up at the rate of £400,000,000 a year. Those figures have not been brought up to date by the present Chancellor of the Exchequer. I asked him just now whether he will give us those figures, because the real consideration is not a loan to meet a small adverse balance of £70,000,000, but a financial plan which will meet a very much larger adverse balance—not one loan as an isolated fact, but a loan accompanied by a financial policy which we can defend on the ground that it is adequate to meet the situation in which we find ourselves. I still invite the Chancellor of the Exchequer to give us those figures or to say that he does not intend to give them. It would certainly assist the Debate if we knew at once what information we are to receive. If the Chancellor of the Exchequer does not respond to my invitation, I can only— —

Mr. McKENNA

I will speak later.

Major EVANS

The Chancellor of the Exchequer may perhaps give us the figures then. For the present I must use the figures given by the Minister of Munitions in May last, namely, £400,000,000. I join with the hon. Baronet opposite (Sir F. Banbury) in his complaint that the Chancellor of the Exchequer, knowing the position, as he did know it in May last, did not make earlier provision for the issue of a Loan. The Chancellor of the Exchequer has really condemned himself out of his own mouth. He said that in considering the amount of interest we were to pay on the American Loan we had to take into account the rate of interest which we were paying on our own internal Loans. He went through a comparison between what we were paying in America and what we were paying in this country, and he naturally said that one depended on the other. But in May last we were paying 3½ per cent. on our internal Loans.

Mr. McKENNA

Oh, no; never!

Major EVANS

We had then an internal Loan bearing interest at 3½ per cent., issued at 95, and then standing round about 92. The exact return on that Loan was nearer 4 per cent. than 3½ per cent.

Mr. McKENNA

Well over 4½ per cent.

Major EVANS

It was under 4½ per cent. at any rate. In other words, it was at least 1 per cent. lower than we were paying at the time when this American Loan was arranged. That is a fair comparison. The two things are related, the rate of interest of the internal Loan and the rate of interest of the external Loan. That being so, if the right hon. Gentleman had accepted the suggestion of the hon. Baronet the Member for the City (Sir F. Banbury) and had included in the previous Loans that we issued the right of America to subscribe, and not to have to pay Income Tax upon the amount she did subscribe, then whatever subscriptions were got would have been subscriptions to the good. They would have been subscriptions which helped our position, and as, in a sense, they were the by-products of our Loans, our credit would not have been hurt, even if the subscriptions had not been large or successful. It is that delay from last May or June that has caused us to suffer the bad terms that we are now having to suffer by this Loan in America. Meanwhile, of course, we have lost many hundreds of thousands of pounds, probably some millions, by continuing purchases abroad at the unfavourable rate of exchange, from, say, May or June last up to the present date. The right hon. Gentleman says that there was really only one other alternative. We either had to have this Loan or to export foreign securities. I think that was his expression.

In other words, we had either to borrow money or else pay our debt by the sale of some of our capital securities. I agree with the right hon. Gentleman there, because these are the only two courses open to us, not only as regards this relatively small balance of £70,000,000, but as regards the larger balance which the late Chancellor of the Exchequer said was at the rate of £400,000,000 a year. I suggested—and I do not intend to repeat what I said on 23rd September on the Budget—that we should take immediate steps to provide ourselves with a second string to our bow. Perhaps hon. Members, having seen the terms upon which it is possible to borrow in America, even with the first £50,000,000, will now come to the conclusion that it is absolutely necessary that we should take immediate steps to put at the disposal of the Government all the foreign securities, or such of the foreign securities as are owned by individuals in this country, so that the Government may use them, either for the purpose of sale, and in that case for the purpose of reducing the amount that they will have to borrow, or for the purpose of using the collateral security for future Loans.

I suggest to the Chancellor of the Exchequer that this policy of increasing the continuous small Loans is an impossible policy. We start with a rate of interest of nearly 6 per cent. But there is attached to that another condition which, in my judgment, is even more objectionable: a condition that the borrower has the option—not that we have the option—but the borrower has the option to take up for another ten years the Loan at 4½ per cent. I ask the House to follow me for a moment. Supposing this policy of continuous Loans is followed. We have now a Loan of £50,000,000. We have a long way to go. There may be ten or fifteen more of these Loans required, if we are only going to rely on the policy of borrowing. The first Loan is at 6 per cent., with the option for another ten years at 4J per cent. The second Loan might be at the same rate; so might the third. But to where does that lead? Borrowers know from experience that the first loan is a comparatively easy affair; the second loan is a little more difficult. The terms are stiffer as the Loans continue. Suppose for a moment that in a series of Loans we were compelled to borrow at the same rate of interest—if you like, 6 per cent. for five years; then an option were to be given to continue for another ten years at 5 per cent., or even 6 per cent. See what our position will be! When the War is over we shall have a large outstanding external debt running for fifteen years at 5 per cent. or 6 per cent. We are trying to put our own house in order at that time. We shall be trying to fund our indebtedness. At what rate shall we be able to place our internal Loans? Never at a lower rate than the external rate yields at that moment. If it yields 5 per cent. or 6 per cent., that rate will govern the whole internal borrowing of this country. Consider that we may have to borrow some £3,000,000,000 or so as funded debt before this War is ended. Remember that every 1 per cent. additional on these Loans means an addition of £30,000,000 a year to the taxpayer of this country. If this policy of Loans is relied upon I see no reasonable prospect of the terms of the Loan not being gradually put up against us until the position I just foreshadowed becomes an actual fact. I urge upon the Government not to drift for another few months, and then, when there is another scare, send another Commission to America. Let them at once set up a small Committee to consider the proposal that the Government should acquire, not by confiscation, but in exchange for war bonds, all foreign securities—or such foreign securities as may be useful for that purpose—for the purpose of founding a fund to reduce the amount of borrowing that will be necessary, and to assist in enabling the borrowing that is necessary to be carried on on better terms and at a lower rate of interest.

Sir JOSEPH WALTON

The fact that a Loan, guaranteed by the two wealthiest nations in the world, France and England, could not be issued in America at a less rate than 6 per cent. interest, is a fact that surely must bring home to the House the realization. of our true financial position— that it is one of unexampled gravity! I am convinced that it was absolutely necessary for us to raise this Loan in America. It is perfectly true that we ought long ago to have taken very drastic measures to reduce the imports into this country, so that the balance of trade should not be so enormously against us. That balance of trade against us cannot be placed at a less figure than £500,000,000 a year. My regret is that we did not endeavour to double the amount of the Loan in the United States of America. My right hon. Friend the Chancellor of the Exchequer says we did. All that I can say is that I have the greatest confidence in the envoys that we sent to America to negotiate this Loan. I believe that with their experience and knowledge as skilled financiers they would not have agreed to the terms upon which the Loan has been issued, if they could have driven a better bargain. But the fact that we have to pay a rate of 6 per cent. for the small Loan of £100,000,000 causes one to look forward and ask to what is it leading? If we are spending £1,590,000,000 in the current financial year, and have to face an outlay of probably not less than £2,000,000,000 in the next financial year, it is certain that we shall require loan upon loan to be issued to meet the financial indebtedness of this country. One cannot but feel that those who may have money in this country to invest will expect to get a substantial increase in the rate of increase compared with what was paid in the last internal Loan the Government issued, especially having regard to the fact that the interest on these Loans issued at home is liable to a heavy Income Tax charge.

I do not know whether the Government have a special Cabinet Committee to survey and consider the financial position to-day, and to look forward and prepare, well in advance, for the financial needs of the future? It is true that our enemies are in worse straits. We know that the 5 per cent. bonds of the German Government are being offered in the United States of America to-day at 87½, though they were issued in Germany at 99. They are repayable at a comparative early date, and the rate of interest, therefore, that will be paid by Germany on such amounts of these bonds as are bought in America will not be less than 7 per cent. I question even on those terms whether there will be many people, even in America, to take over these bonds, outside a few wealthy German-Americans, who naturally will desire to assist their country. The third loan that Austria is issuing shows us what they are compelled to pay. They are issuing a 5½ per cent. loan at 93 2–3. The interest upon that loan is exempt from all taxes. Therefore it is safe to say that that loan will cost the Austrian Government possibly over rather than under 7 per cent. It is small consolation, however, for us to know that our enemies are in worse financial straits than we are. What I would venture to urge upon the Chancellor of the Exchequer is that in order to enable the people of this country to take up future internal Loans he should devote quite as much attention to reducing imports into this country as to arranging how best to tap the financial resources by taxation, or otherwise; because it is only by inducing the whole nation to adopt a policy of rigid economy and self-denial that we can increase the margin of our natonal income which can be made available both for taxation and for loans. I hope the right hon. Gentleman will seriously consider this subject. The Government ought to give us a lead in the matter of economy in public expenditure, as well as by urging upon the people the necessity of economy in private expenditure, The Government have given us no lead of a drastic character in the matter of public expenditure. Their entrenchment in the various peace Departments is practically nil. I wonder when we are to have that strong lead which the financial outlook of this nation warrants and makes imperative! I do not know whether I shall be in order in saying that even this House might set an example in the question of cutting down our public expenditure. For myself I say I believe in the principle of half-time half-pay, and seeing that we are— —

Mr. SPEAKER

I hope the hon. Gentleman will not lead the discussion into that topic, however interesting it may be. It is only remotely connected with the subject of debate.

Sir J. WALTON

I questioned whether I was in order in introducing this matter, but if not in order now I believe I should be in order on the Second Reading of the Finance Bill in returning again to the question which, after all, is quite as important as how to levy taxes and promote equal incidence of taxation. I support the Second Reading of the Bill because I believe that our representatives who went to America made the best possible bargain under the circumstances. It is very easy to say this Loan ought to have been issued in America six months ago, but it is useless to-day to enter into any recriminations of that sort. What we have got to do, irrespective, I am glad to know, of political partisanship, is to back the Government through with these financial proposals, and at the same time to urge upon them the necessity of more foresight and of preparing for the still greater pressure financially to which we shall have to submit in the future, and to show the country by their practice of economy and retrenchment in public expenditure the way that the nation ought to go.

Mr. ANNAN BRYCE

The hon. Baronet the Member for the City of London (Sir F. Banbury) and the hon. Member for Colchester (Major Worthington Evans) are quite right in calling attention to the deplorable terms upon which this Loan has been raised. At the same time, I do not think they have made sufficient allow- ance for the difficulty in which the Commissioners were placed. Anyone who knows these Commissioners, anyone who has had experience of the ability of Sir H. Babington Smith and Sir E. Holden, is convinced that they must have made the best bargain possible under the circumstances. We do not realise, sitting here, what diverse influences and what difficulties must have faced them. They were, after all, beggars, and beggars cannot be choosers. The real mischief is that the Government did not take this question in hand six or seven months ago. From the very beginning of the year the importance of the question was urged upon them by every financial authority in the country— by the City, by bankers, and by the journals of economics—and the Government were in a far better position than any of those critics or those who made the suggestions to know what the real facts of the case were, because only the Government knew what the real balance of trade was likely to be. The Government figures of imports are not published. There are open to us only the Customs figures published by the Board of Trade; but the Government figures have become, as this year has gone on, an increasingly important factor in the total balance of trade against us, and moreover the Government knew the orders that were given by France, Italy, and Russia. If they did not know they ought to have known them, and so they might have told what proportions this problem was likely to assume. No financial authority outside could possibly form an estimate of what the difficulties were likely to be, and that makes the responsibility of the Government for having allowed this question, like almost every other question since the beginning of the War, to drift without co-ordination or forethought. I think it is one of the most deplorable things to look round and see that every operation of a serious kind since this War began has been mismanaged by the Government. The hon. Member for Colchester made, I think, a valuable suggestion when he said that the Government ought seriously to consider the utilising of the body of American securities in this country. The Chancellor of the Exchequer seemed to pooh-pooh the idea that the body of these securities was sufficiently adequate to be worth consideration.

Mr. McKENNA

I did not say anything of the kind.

Mr. BRYCE

I think the right hon. Gentleman said he could not base any operation upon it; but, as a matter of fact, the body of American securities held in this country must still be enormous. At the beginning of the War it was estimated to be something like £1,200,000,000. Since the War began, I suppose, several hundred millions sterling has been sold. No one knows the figures, but certainly there must remain something like £500,000,000 to £700,000,000 of American securities held in this country. Surely it would be possible, as the hon. Member for Colchester suggested, to utilise that. The only alternative is the raising of further Loans. The hon. Member for Colchester and the hon. Baronet the Member for the City of London truly pointed out what the difficulties of any future Loans were going to be. This £100,000,000 which has been raised, of which £50,000,000 belongs to us, will not help the exchange question for more than a month or two. Already the exchange has begun to fall away. To-day I think it is about 4.67½ having reached 4.72 the other day. It is true the money is not yet available, but the fall which has again manifested itself shows how inadequate this provision is going to be. The Government did not take the question in hand until the country was in danger of becoming bankrupt. At the end of August the exchange fell until it reached 48 or 49, and it was only then that the Government began to think about it. [HON. MEMBERS: "Oh!"] At any rate, it was only then they began to do anything. The Commission was nominated after that. It ought to have been nominated before. I think the Government, as they were giving such disastrous terms as 6 per cent., at any rate ought to have made the Loan very much larger, because, as the hon. Baronet said, they would soon have to go back to America to double or treble this credit, and, although there is nothing except to accept the terms, bad though they are, I do press the Government immediately to take the matter in hand, and not allow further time to elapse before they make provision for the future meeting of this difficulty, which is likely to increase the longer time goes on.

Sir THOMAS WHITTAKER

We shall all be agreed in being startled at the terms of this Loan; they are undoubtedly high, especially in view of the fact that the United States themselves are very keenly interested in the making of this Loan; or, in other words, in establishing a reason- able rate of exchange. They are doing an enormous business with us. It is to their interest to do that business, and it is against that that the rate of exchange acts very unfavourably. It will tend to check the business they can do, and, as one who reads regularly the leading financial papers of the States, I see they recognise that. The leading financial authorities there recognise that they are very keenly interested in getting this exchange put on something like a reasonable footing, and therefore are interested in the success of the Loan. In view of that, the rate does indeed seem high. On the other hand, we have had extremely able Commissioners, and I agree with the hon. Member who spoke last that I cannot believe that they have not done their best and made the best bargain possible. It is all very well for us to talk about what ought to have been and what might have been done. We have extremely competent and able men, and I do not entertain the thought for a moment that they consented to terms like these unless they felt it was impossible to do better; and, therefore, we must take it that these were the best terms on which the Loan could be got. So far as it has gone there has been no great rush for it, and of course it would have been disastrous for us if the Loan when made had been a failure.

Sir F. BANBURY

May I point out that the subscriptions to the Loan have not yet been offered to the public?

Sir T. WHITTAKER

But the syndicate have issued it widespread at this additional 2 per cent., and that has not brought a great rush for it.

Sir F. BANBURY

Oh!

Sir T. WHITTAKER

But it has not. We know, as a matter of fact, what the subscriptions are, and we know—

Sir F. BANBURY

When it was full they stopped the list.

Sir T. WHITTAKER

There has not been a great rush for them, and failure would have been disastrous. Nor do I agree that the rate for this Loan is going to fix the rate for the Loan in this country; it is a separate transaction altogether. America is not accustomed to these foreign Loans. They have never had a Loan anything like this in America before. They have to have this inducement of 2 per cent. Of course, the British Government does not pay 2 per cent., but other Governments—Colonial Governments — have paid 2 per cent. underwriting.

Sir F. BANBURY

One.

5.0 P.M.

Sir T. WHITTAKER

More than one recently. It has been suggested that foreign securities should be acquired. Some little time ago I ventured personally and privately to urge upon the Treasury the adoption of this course, and, as part of the scheme, I ventured to suggest to them that they should acquire these securities held in this country at the market price of the day, and pay for them by handing over War Loan. I believe everybody who holds these securities would gladly let them have them at the market price of the day if applied to, and would take War Loan for them. The Government would thereby get a very large amount of additional money; they would pay nothing for it, but issue the War Loan. It would be a very advantageous transaction. I do not think there is now the large amount left in this country which some people are disposed to think. The best have been very largely sold. There has been a very large amount of selling of American securities, and I do not think there is left in this country anything like so much as some people imagine, and what is left, though not entirely, is to a very large extent the least saleable of these securities. It has been said that this Loan should have been issued six months ago. I do not think you could have got it six months ago. The Americans would not have taken it then. They have not been accustomed to this kind of thing. The necessity has only been brought home to them by the fall in the exchange, and the fear that it would interfere with their own commercial transactions. It is the necessity brought home to them that has induced them to take this Loan, and I do not think they would have taken it then. I agree that the remedy is to stop imports as far as you can, and that is why, putting Free Trade principles to the winds, I am in favour of going further in the direction of putting a stop to imports which can be stopped from foreign countries. The terms are high, but I cannot believe, knowing something of the Commission, that they have not done their best.

Mr. DILLON

Having some knowledge of America, I intervene in this Debate because I think the tone which has been adopted by three or four speakers has been exceedingly unfortunate. The first point that would occur to any practical person considering this transaction is that the American people have not forced their money upon you. They did not ask for permission to make a Loan, and it was us who asked to borrow the money from them. I have no doubt that the grounds on which we asked to borrow that money were excellent. It is a very easy thing at times like this to criticise, and I entirely agree with what fell from the hon. Baronet (Sir T. Whittaker) that if you had tried to float this Loan six months ago you would not have got the money. What would have been the moral effect of that upon the position of this country if you had tried to float this Loan and had failed? This is the first great foreign Loan which has been floated in America in the history of that country. The American people have never before been asked to lend on such a large scale to foreign Governments. This is the first transaction of the kind that has ever been attempted in America. [HON. MEMBERS.: "No!"]]

Mr. DAVID MASON

There were a large number of Japanese bonds issued in America during the Japanese war.

Mr. DILLON

Yes, I know that America took about £8,000,000 up as a Loan, but I am talking about large transactions. I believe America contributed about £10,000,000 as a Loan for the Boer war, but these are small matters which two or three American bankers can deal with. I do not believe that America would have floated this Loan on any terms that can be contemplated if the sharp fall of exchange had not threatened American trade. I think it is extremely unfortunate that hon. Members should have approached this question of the American Loan in a nagging and mean spirit. You may be perfectly certain that the men you sent out to America made the best bargain they could. An hon. Member who spoke from below the Gangway said that in his opinion a great effort ought to have been made to double this Loan, but that is exactly what they did. The Commission did their best to get double the money, and when you are criticising so unmercifully and in such a hostile spirit the terms of this Loan, you should always remember that the American public could have obtained double these terms and they would not take it. Hon. Members should recollect that this Debate will be largely reported and commented upon in the American newspapers. The hon. Baronet the Member for the City of London (Sir F. Banbury), who speaks with great authority in this House upon all financial matters, said that in his opinion there was no necessity for sending out a Commission at all, and that all you needed to do was to appoint an agent for this country to carry out the transaction.

Sir F. BANBURY

I said appoint an agent in New York.

Mr. DILLON

The hon. Baronet said that he saw no reason why if we had appointed an agent in New York this Loan should not have been floated on the same terms. I do not know whether the hon. Baronet has ever been in America, or has any acquaintance with the conditions of American life. I have lived in America and I have correspondents in America now, and I will venture to say that in regard to the bankers and commissioners who went out to America to conduct these negotiations the hon. Baronet never made a greater mistake than when he applied that statement to them. The conduct of those negotiations was one of the most ticklish and critical matters this country has ever had to deal with, because all the resources of German influences in America were immediately set to work, and for a long time it was a questionable thing whether even on the terms which have been described as being so extravagant the Loan could be floated. Tremendous influence was brought to bear on the American Government to intervene, and one word from the President would have killed the Loan. In spite of all this the Loan has been a success, and this transaction is considered in America to be a purely business one. The Americans were not anxious for this Loan, and they did not ask us to put it on their market. It has been put forward by the Press in America, which is friendly to us, as a strictly business transaction, and I earnestly say to hon. Members of this House that I think they are doing a very poor service to the future relations between the two countries by sneering at this Loan and endeavouring to represent the American people as having taken advantage of our necessities in order to squeeze out of us these terms. [An HON. MEMBER: "That has never been suggested!"] Some hon. Members who have spoken have represented that the American people have taken advantage of the present situation to exact wholly unreasonable terms, and that is using language in regard to which you will certainly see the result. It is language which will be resented in the United States of America, and I think it will be very fairly resented. One of the expressions used by an hon. Member in his speech was that this Loan had been floated upon deplorable terms. I think it is all to the good that this Loan should be represented as a good business transaction with the people of the United States.

But at the back of all this there is a much deeper consideration. After all, you cannot buy and sell, as some hon. Members seem to indicate, the business of the people of the United States. Even at 6 or 7 or 8 per cent. you could not have succeeded in floating this Loan if there had not been a great wave of sympathy in America for our cause in the War. At the back of the success of this Loan is the fact that it was a clear index of the popular sentiment of America towards the cause of the Allies, and that is why Germany made such great exertions to endeavour to prevent the Loan being floated. For these reasons I think it is a great mistake to criticise the Loan to which we are now committed, as if the people of the United States had taken advantage of our necessities. I am convinced from what I have read that the success of this Loan was largely due, not only to the cause which was stated quite correctly by the right hon. Baronet the Member for Spen Valley, but also to the fact that this Loan was necessary in order that the American people might continue doing with us a very profitable business. The Chancellor of the Exchequer made an appeal to the House when he introduced this Bill that no language should be used in the course of this Debate calculated to repel the good feeling of the American people, or which would be of use to the enormous interests which have been at work in the United States of America to prevent this Loan. I think that was perfectly wise advice to give. This advice recalls to my mind language of a most mischievous and scandalous character which has appeared in newspapers. Anybody who has lived in America knows that the American people are very sensitive. I do not say that Americans are lacking in a due appreciation of their own importance or the greatness of their country, but they are, nevertheless, an extremely sensitive people, and things which are said in this House or which may appear in the "Times" cause a great deal of animosity and bitterness which it is very difficult to understand. Here is a sample of the kind of language to which I refer. This newspaper says:— The Democrats depend for their support upon the German-American and Irish-American vote, both bitterly hostile to Great Britain. That, in the first place, is a false statement, most insulting, because the President of the United States and the Democratic party do not depend for their support upon the German vote. When I was in America the German vote was largely Republican. That is only a sample of ignorance. The second is a sample of pure malice. "And the Irish vote, which is bitterly hostile to this country." That is a lie, and a very foolish falsehood, because, as a matter of fact, at least five-sixths of the Irish vote is now, for the first time in history, thoroughly friendly to this country —and a very important fact it is. Nevertheless, some millions still cherish the hope, and the hope is fostered by Germany for its own purpose, that sooner or later the British Empire will fall apart, and then they will succeed to that part which is situated on the American Continent. That is a gratuitous insult, and I only alluded to it, not because of the importance of the newspaper, but because it is a sample of a good many other comments which I have read during the last few days on the whole of this transaction. For my part, having had some experience of American life, I think when you go to that great nation in an hour of such crisis as the present, and ask for a loan of their money, and when you send out your best intellect and your most experienced men to pledge the credit of this Empire, that it is degrading and mean for you in this House to be wrangling over the terms which your own envoys have settled with these people, and that you ought to honour your bond like gentlemen.

Sir H. DALZIEL

The hon. Gentleman who has just sat down no doubt meant well by the speech which he has delivered. No one will doubt the honesty and integrity of his intention, but I think that the interpretation which he placed upon the Debate this afternoon was wholly and entirely unwarranted. He set himself up to be the champion of the American people. The American people require no champion in this country. We are all of the same mind about the American people and the American Government. That issue has not been raised at all this afternoon, and the hon. Gentleman has replied to a case which has never been presented. Nobody has said anything derogatory to the American people. The American people are not yet in this transaction. They have not yet had an opportunity of expressing an opinion about it. We are dealing at this moment with American financiers and their clients. The American people have not yet had an opportunity of subscribing. I regret, and I am sure the House regrets, the interpretation which the hon. Gentleman has put upon this Debate, because his view counts for something in America. I venture to say that his description of our wrangling over the terms of the Loan gives a wholly unwarrantable and unjustifiable view of this Debate. Have we come to this fact, that when a Bill of this important character is brought before the House—we have never seen it until to-day—a Member of this House is to be debarred from offering his views on the rate of interest to be paid and on the manner in which it is proposed that the transaction should be carried out? And because we think that certain mistakes have been made, are we to be charged with levelling accusations and insinuations at the American people? There has been nothing of the kind. Everybody who has heard the Debate knows that the speech of the hon. Member was entirely unwarranted. The criticisms which have been made are honest criticisms, and, for my part, I think the Government have been too late in this matter, as they have been in so many other things. I believe it would have been possible to have obtained this Loan privately months ago at a lower rate of interest than we are now about to pay, and I think very high authorities can be quoted for that suggestion.

The proposal of the Government is that we are going to settle the question of exchange This £100,000,000 is a mere drop in the ocean in regard to the question of exchange, and the moment the exchange is down against us again we shall have another proposal from the Government. I venture to say that we shall not hear from the Chancellor of the Exchequer any assurance that this is going to settle the question of exchange. He knows differently. He knows that it is impossible. Therefore throughout this War we are going to be faced from time to time with this question of exchange, and it is not one Loan which is going to deal with it. The £50,000,000 which we are going to get will only carry us, at the rate we are going at the present time, over ten days of war. We must look forward not merely to this Loan but to many Loans before the War is over, and therefore we ought to congratulate the Commission on what they have done. I think, if they had gone months ago, that they would have been able to have done very much better, but that is due to the delay of the Government, and it is undoubtedly the case that they have made the best bargain they could. We in this House know Lord Reading and Sir Edward Holden, and we know that they would do the very best that they could—nobody doubts that—but they were surrounded by circumstances which made it impossible for them to make a better bargain. We are practically in the hands of American financiers.

One hon. Member said that it would have been fatal if this had not been a successful Loan. That is undoubtedly the case, and therefore the first object of our representatives was to make sure that the Loan was going to go. I do not agree with the hon. Baronet (Sir F. Banbury) who said there was no necessity for underwriting. I think that underwriting was a wise policy. I do not think we need have paid so much as we did, but, looking at the risk—if we had not underwritten, we might have had bad war news on the day of issue, and by the activities of German agents in America the whole Loan might have been a failure—I think the wise counsel was that we should make sure of the thing being a success. Therefore, it was wise to spend a considerable amount of money in order to make that sure. I think we ought to congratulate ourselves, on the whole—the price is heavy, but that is due to facts outside the control of our representatives—on the fact that we are able to get £100,000,000 from America. The friendship of America is worth a very great deal at this moment, and throughout this War, and that is why I rose to resent the suggestion that this House is not grateful to America. I believe that this House and this country are grateful to America for the sentiment of the people and the good feeling which prevails there under very difficult circumstances, because our enemies are much more active there than we are, and they are careful to see that news is published there which we are not allowed to see in this. country. That is a most material fact. People in this country are ignorant of certain material facts which affect this Loan. These facts have to be taken into consideration, and, late though it is, I congratulate the Chancellor of the Exchequer on being able to say to-day that he has got his Loan through. It is not only important for what he gets now, but I hope it is important for the future.

I think in his Bill the Chancellor of the Exchequer really ought to provide for the control of the House of Commons with regard to the rate of interest. If circumstances arise which may make it difficult even for this Loan, the House of Commons has no power with regard to the rate of interest. We hand the matter entirely over to the Treasury. That is a bad precedent. In a matter of this kind we ought to have a statement from the Government and we ought to assent to it, and we ought not to leave it to a Treasury official, or even to the Treasury itself. Conditions might alter and the market might go against us, and that might alter the rate of interest. The matter, I imagine, is so tied up that there can be no question with regard to this particular Loan, but still I think that the right hon. Gentleman ought to consider whether it is a good precedent to leave the matter entirely to the Treasury.

Sir R. COOPER

I feel that no good service can be rendered by cricising our finances of the last few months or the events which have led up to this Loan, but it matters very much that we should look stern facts in the face. In the first place, it is quite obvious that we must, owing to the circumstances, pass this Bill, and personally I have nothing that I want to say upon it, but, listening to the Debate this afternoon, I do feel that there is one matter to which the Government do not attach the importance which it deserves. Within four months' time these very difficulties we are meeting to-day are going to arise again. Are the Government going to wait until that time comes before they take some steps to deal with them? The right hon. Gentleman the Member for the Spen Valley (Sir T. Whittaker) made a reference to the desirability and possibility of cutting down imports. It is recognised by a good many Members on both sides of the House that a good deal more might yet be done by the Chancellor of the Exchequer in that direction to balance more evenly our exports and our imports.

I have been personally very much attracted by the proposal that has been put before the House by the hon. Member for Colchester (Major Evans). I noticed that the Chancellor of the Exchequer when speaking on the first Reading of this Bill made a reference to the use of foreign securities. He said, in effect, that the Government were trying this method of easing the situation, but they did not find that it was enough. I assume that the Government have really no wide scope for dealing in foreign securities. That does not have regard to the number of foreign securities and bonds which are held by private individuals, by banks, insurance companies, and so on. I have consulted a person who is recognised generally as being an authority on matters of finance, and I learn from him that the estimate of the hon. Member for Colchester, when he spoke of there being probably £4,000,000,000 of foreign securities in this country, is almost certainly very much beyond the mark. But there are undoubtedly, in the hands of the banks, insurance companies, and private individuals, about £1,000,000,000 worth. There is great value to the Government in these securities of which I think immediate advantage ought to be taken. The first thing to be done obviously is for the Government to forbid the export of these foreign securities, and I think I can show that there is no objection to that step being taken. Next, as the hon. Member suggested, there must be a compulsory register of all the securities that are held: in this country, and there must be some penalty for neglecting to give a proper return. By these means the Government will get the information which they want. The third thing will be that they will have to commandeer these securities by Act of Parliament. I want to suggest a step further than my hon. and gallant Friend (Major Worthington Evans) has done, that there will be no hardship upon anybody, there can be no legitimate complaint on the part of anybody if the security of the British Government, through War Loan, is going to be given to people who own these foreign securities, especially if the Government would give such security, in War Loan, as would return to the owners of those securities at least the same annual income as they are now getting.

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

Sir R. COOPER

Foreign securities and gold bonds. I am glad the right lion. Gentleman has reminded me of that point, because obviously I did not mean that the Government should go and buy up all these securities. The next necessary step which I should like to see carried out would be that the Government should seek the advice of a very carefully limited committee of leading bankers, with at least one or two leading members of the Stock Exchange, to advise the Government and the Treasury in the selection of those securities which are best fitted for the Government purposes of exchange, not only with the United States, which we are mainly discussing to-day, but also with any other countries where there may be an adverse balance of trade or an adverse exchange, and the Government then, under this proposal, would purchase such of these securities as had market value, or had a price which would give the same rate of interest to the holders as they found necessary and desirable for their purpose.

Mr. WATSON RUTHERFORD

Some of us wish to discuss the existing Loan. My hon. Friend seems to be discussing a scheme for some further loan upon different terms. Is that' in order?

Mr. SPEAKER

The suggestion of the hon. Baronet who was addressing the House was of a somewhat cognate nature to that contained in the Bill. The object of it is the same, namely, to redress the balance of trade. I think the hon. Baronet is entitled to make a general statement as to what his plan is, and how he would have dealt with it if he had been Chancellor of the Exchequer.

Mr. RUTHERFORD

I did not raise the question for the purpose of interrupting my hon. Friend, but it seemed to me that if we were going to discuss all kinds of other proposals quite different from that now before the House, if we are going to carry this Bill through in one sitting, we are going a rather long way out of the way.

Sir R. COOPER

I am sorry if any hon. Members think I am going too wide. I have purposely avoided saying that I really at heart object to this Bill, and that what the Government should have done is so-and-so and so-and-so. I accept the situation in which we find ourselves to-day, and if one does that, I want, so far as it is possible, to throw out any suggestions which may help the Government in dealing with another difficulty which is only some twelve or fourteen weeks away from us, and which I think the House ought to consider without very much delay. I have explained this matter as it appears to me, and I want to ask the Chancellor of the Exchequer if he will give, at any rate, very serious Consideration to the proposal of my hon. and gallant Friend (Major Evans). There seems to me, so far as one can gain a personal indication amongst business men and financial men, a very wide belief that there is a great value in this proposal, and that the Government ought, at any rate, to give it the most serious consideration. There is one other matter which is not quite so directly connected, but it does directly affect the question of the gold reserve of this country, which is bound up in the Bill before the House. This matter may affect our finance with the United States, and certainly to a small extent it will do so. In this country we have three different mediums of payment. There is either the Bank of England note, or the Treasury note, or the sovereign, and it is very significant that, by way of illustration, the value of each of these mediums of exchange in France at present is so very variable. The value of £l in £5 notes is 27 francs 40, the Treasury note is worth 27 francs, and the gold sovereign is worth only 26 francs 50. These were the figures for 20th September. The same thing is happening, I believe, all over the world—in America, as well as in France. They are all after the £5 notes, because they are payable in gold on demand, and I anticipate, or fear, that the time will come when these notes will suddenly come back to the Bank of England and on demand gold has to be paid for them. I only want to throw out the suggestion that I think the right hon. Gentleman, in looking at the matter of the gold reserve and protecting it as he wants to do, might consider whether or not it would not be a good thing for the Government to take over the note issue of the Bank of England.

Mr. McKENNA

I think the House has received the proposal rather more favourably, in one sense, than I expected. Speaking perfectly frankly, the notion of paying 6 per cent. for Anglo-French Loan at any time is startling, and no one, least of all I, who think it startling, could expect the House of Commons at first sight to welcome with open hands a bargain which would appear to them, as it did to me on first consideration, somewhat more onerous that we might naturally hope to obtain. But hon. Members must go through with me the history I have been, through, and when they have done that I think they will come to the same conclu- sion that I have come to, and that is that the Commission has done extremely well. I would ask hon. Members to observe what criticism of the terms really means. I will take the very forcible speech of the hon. Baronet (Sir F. Banbury) as an example. He says first of all the commission paid to the underwriters is extravagant, and they have an exceptionally good bargain. They were offered a double bargain, and they would not take it. With double the amount they could make double the commission and double the profit. That would be £4,000,000, and they would not take it. I think the underwriters know the American public a good deal better than either the hon. Baronet or myself, and if they did not think it good enough to take £4,000,000 for a £200,000,000 loan it is because they were very doubtful whether they would be able to float it. When you come to consider whether the terms are extravagant or reasonable, you have to find out what you can get in the market. We could not float more than £100,000,000. We tried £200,000,000 first of all, then we tried £160,000,000, and then I understand we tried £140,000,000. We could not get more than £100,000,000, so that, at any rate, those who made the bargain with us were not themselves so sure that they had got such a fine profitable catch as the hon. Baronet is. Then as to the rate of interest. It must not be supposed that the sending out of a Commission was the first inquiry we had made as to the possibility of obtaining the Loan. Hon. Members must forgive me if I remonstrate a little with them. Because they do not see day by day in the newspapers the history of every financial transaction we undertake, they assume that nothing has been done. It is quite a mistake. This sending out of a Commission was anything but the first step in the proposal to obtain a Loan. I went to the Treasury on 27th May, and early in June I was making inquiries as to whether we could obtain a Loan in America and what the terms were, and consulting, I hope discreetly, with persons competent to give an opinion. I heard a great many opinions. A great many people told me off-hand that a Loan would be quite easy to raise at 4½ per cent. to an unlimited amount, and that America was bursting to lend us money. But these opinions were no use to me. I wanted an offer. The only offer I got was for a mere fraction of £100,000,000 at a higher rate of interest than we are now paying. That was the only offer I could get, and we sent out the Commission because we found it impossible to make arrangements at such a rate as I should feel justified in presenting to the House for a really substantial Loan. The hon. Baronet (Sir F. Banbury), in order to prove his thesis that the ordinary rate of interest for investment in America is lower than in this country— —

Sir F. BANBURY

I did not say it was lower, but certainly not much higher.

Mr. McKENNA

I will not quarrel with the hon. Baronet. I understood him to say it is lower.

Mr. HOUSTON

The rates of deposit are very much lower.

Mr. McKENNA

Of course they are. We hold this tremendous amount of American securities, because the general return of interest on equal security is higher in the United States than at home. You have only to take the whole history of the rates of return in the United States and at home—I am not speaking of the return now in War time, but of the customary pre-War rate—and it will be seen there is no question that in America the ordinary terms on as good security are higher than in this country.

Mr. MACMASTER

Four per cent.

Mr. McKENNA

Four per cent. on security reckoned over there as being as good as British Government security?

Mr. MACMASTER

City securities.

Mr. McKENNA

There again the hon. Member knows, and the hon. Baronet knows, that stocks of that kind must not be quoted as examples. The hon. Baronet knows very well that under American law certain securities have an advantage.

Sir F. BANBURY

Government securities.

Mr. McKENNA

Yes, and City securities.

Sir F. BANBURY

No. American Government securities have always commanded a higher price in the market because in America bankers who hold them are allowed to issue notes against them. Therefore I purposely avoided quoting Government securities, because it would not be a fair illustration. I gave the illustration of New York City bonds, which have no particular advantage attaching to them as Government securities have, and it was a fair illustration. If the right hon. Gentleman will look for a year or two and compare the return from first-class American railway bonds with the return given by first-class English railway preference and debentures, he will find that there was not more than one-quarter per cent. difference.

Mr. McKENNA

I am not going to quarrel with the hon. Baronet, but it has been higher in the United States, and we have to contemplate a higher rate of interest. I have explained to the House how our own War Loan stands at the present moment. I explained to the House that if the Americans exercised their option of exchange into the longer period Loan at 4½ per cent. the only difference in price between the War Loan in this country to-day and the price at which the Americans would get the stock is a ½ per cent. for five years—not a very high price j to be paid by a country which is at war—a price paid by that country at war in another country in which we have been told all the news is known. I look upon it as one of the most satisfactory features for our well-known pessimists to remember, that in the United States, where everything is known, they still think it good enough to lend £100,000,000 to the Anglo-French Governments.

Let me say a few words upon the very interesting question opened up by my hon. Friend the Member for Colchester (Major Evans) and pursued by the hon. Baronet opposite (Sir R. Cooper). I do not think they opposed the idea of a Loan at all, but both of them suggested that a Loan of this amount must sooner or later be supplemented by other measures. I agree entirely. But I beg them not to suppose that we are not taking any steps. I beg them not to think that months are allowed to go by and that nothing is done. That is not correct. I can asure them that when four months hence, when a new situation will have arisen because of the great liabilities which are becoming due in America—four months hence I admit a new situation will arise—they must not suppose that then, for the first time, the Government will act. It is not so. To take the step proposed by both the hon. Members is not easy. It has been considered. It was considered, I may say, by myself, in the month of June last—the very proposal they are putting forward now. Whether it may ultimately become necessary or not I cannot say, but I was quite satisfied in the month of June last that it would have been premature. It would have been distinctly premature, because of the issue of our own War Loan. The hon. Baronet says, "When you issued your own Loan why did you not allow the Americans to subscribe?" That also was very carefully considered, and I can assure the hon. Baronet that his advice was not rejected or thrown on one side without very careful thought. We took a great deal of American opinion upon the point, and we were satisfied that the effect of throwing it open to American subscription would be that we should get little or nothing. We had to consider what would be the effect upon our future action if we had issued this Loan at 4½ per cent. in the United States at 99 and we had got nothing. If we were right in assuming that we should get nothing, have we not scored a point against ourselves instead of in our favour, and is it not better to have a clean sheet rather than a mark of failure against you? On the whole we came to the conclusion that it would be safer to leave it alone. We shall, of course, have to take much wider steps than we have now done in proposing this Bill. What form those steps should take it would be premature to announce, although I can assure hon. Gentlemen that they are the subject of constant thought and inquiry.

Perhaps I may go so far as this, to warn the House against any hasty acceptance of the idea of taking by compulsion. There are enormous difficulties if you take by compulsion. The hon. Baronet suggested that we should take by compulsion and should give the holder—if I understood him aright—of the foreign securities the same income from War Loan as from his present holding of those securities. What does that mean? The War Loan, even at 96, is paying about £4 14s. If we are to give the same income that the holder of foreign securities gets from the security which is paying 6, 7, or 8 per cent., we should have to give him nearly half as much War Loans again as he holds in foreign securities. We cannot afford to do that. I would rather borrow in America at 10 per cent. than do that. If, on the other hand, we do not take the income rate, but do take the selling value, then you are met with the difficulty of the person who is living on the dividends he obtains from these investments. He says, "It is all very well to give me an equivalent in capital amount in War Loan, but I cannot live upon what you have left me." These are the difficulties we have to consider.

Sir F. BANBURY

Take the case of a stock which is redeemable in ten years at par and which stands at 75. Are you going to confiscate that?

Mr. McKENNA

You will have to give the equivalent in value. If you take the market price as it stands to-day the holder of the foreign securities will lose in income. If you take the income basis or what the holder is getting in income, then the British Government will lose in capital value. Into one or other of these pitfalls you cannot fail to fall. Consequently, I hope the House will give very careful consideration to any broad scheme of confiscation. I hope to get over the difficulty. It will be my object to get over the difficulty in a way that will be satisfactory to all parties, and neither too costly to the State nor in any degree injurious to the holders. My right hon. Friend the Member for Kirkcaldy (Sir H. Dalziel) put a question to me as to the rate of interest appearing in the Bill. Of course, in the present case the bargain is made. I have stated to the House what the rate of interest is—5 per cent. There would be no objection to putting it into the Bill, but on the whole I think it would mean greatly lengthening the Bill, and as I am very anxious to put it before the United States people as quickly as we can and in as short a form as possible, I think, on the whole, we had better leave it out. I have stated the exact terms to the House—5 per cent., with an option to holder of bonds to exchange into 4½ per cent. Loan repayable in 1934.

Sir H. DALZIEL

Will the terms be circulated?

Mr. McKENNA

I hope so; I hope they will be placed on record. I think I have dealt with all points raised, but there are one or two other matters raised by the hon. Member for Barnsley (Sir J. Walton) which I can more easily deal with on the Budget. I agree with him both as to the necessity of curtailing expenditure—by the way, I wish we had had some of my colleagues present at the time—and as to the necessity of limiting exports so far as we can. I am entirely at one with the hon. Gentleman in seeing the absolute necessity, so long as our power to manufacture for export is curtailed, of limiting our imports. If we do not, we are really putting such a strain on British finances which have borne the strain up to date in such a remarkable manner, that a Chancellor of the Exchequer will have the greatest difficulty in meeting it. I think I have answered all the questions, and I thank the House for its general acceptance of the Bill.

Major EVANS

Will the right hon. Gentleman answer my question about figures?

Mr. McKENNA

I apologise for having overlooked it. I shall be perfectly willing on another and suitable occasion to give figures, but I should not like to do so on this occasion, because this Loan explicitly is not being raised for the purpose of paying for Government purchases of munitions in America. I therefore do not want in this Debate, which has nothing to do with the Government purchase of munitions, to give figures which could be used by our opponents elsewhere as evidence that the Loan was being used for such purposes. It is a Loan which may be called the American Exchange Loan, and it is for the purpose of maintaining the exchange. That is a sufficient purpose to recommend it to the whole trading interests of the country.

Mr. D. MASON

In his first speech the Chancellor of the Exchequer made a point with regard to the rate of interest of this loan being a half per cent. greater than the 4½ per cent. on the War Loan at 96⅛. I think he forgets that the terms of this Loan were made public and that loans on the Stock Exchange and other loans naturally fell in sympathy with the rate of the Loan raised in America. It is scarcely fair to say that because the present Loan of 4½ per cent. returns ½ per cent. less than we are paying in America, therefore this rate of interest is not a very high one. I do not propose to say very much upon the point of the high rate of interest that is being paid, as that has been touched upon by other speakers. I should like to refer to one other point upon which the Chancellor of the Exchequer spoke, in reference to the Income Tax and the yield. He referred to the fact that some critics outside spoke of a 7 per cent. Loan. I agree with him that it is hardly fair to describe this Loan, on the terms we are paying for this accommodation in America, as being a 7 per cent. Loan, because you do not deduct the Income Tax. As the "Economist" newspaper said, if you take a 4½ per cent. Loan, less Income Tax, which goes to the Treasury, the cost to the Treasury is £3 14s. 3d., whereas we are paying in America for this accommodation as nearly as possible 6 per cent. That is a fair comparison of what is the cost to the Treasury and therefore to the taxpayers of this country.

6.0 P.M.

The third point the Chancellor of the Exchequer made in his second speech was one touched upon by the hon. Baronet opposite (Sir F. Banbury) and the hon. Member for Colchester (Major Evans). They suggested that the British Loan ought to have been issued simultaneously in America. If I understand the pronouncement made from time to time by the United States Government, it was very distinctly laid down that they would not endorse what might be called a straight Loan made to any of the belligerents, but that they would allow credits to be established, such as this Loan is. That utterly disposes of the idea—the Chancellor of the Exchequer had apparently forgotten it—that the British Loan could have been issued simultaneously in America. I think the United States laid that down over and over again, and it is well for us to understand that, unless they are going to change their original attitude, they would not allow Loans to be issued in the United States but that they would permit credits. These credits are Loans which are allowed to be issued in America, with the condition that the proceeds of the issue of the Loan are to be spent in the United States. That is a very important point to bear in mind, and it bears upon the real questions at issue in regard to this particular Bill. As I understand this Bill, it is put forward by the Chancellor of the Exchequer in the hope of stabilising the exchange, but the right hon. Gentleman has not shown how it is going to arrive at that result. I very much doubt whether this Loan will have that effect. If anyone takes the trouble to study it they will see for themselves that, as the credit is established in the United States, where the money is to be spent, the effect that it will have upon the exchange is very much exaggerated. Just let me give an example. Suppose this country were making a straight Loan of £100,000,000 to the United States, and we were issuing our bonds to the Americans to take the place of exports. The Americans with these bonds would have to purchase in New York or London. That would tend to improve materially the rate of exchange. But this is not a Loan of that description; it is a credit, and the money is no doubt going to our credit, but it is also a condition that it is to be spent in the United States, and that does away to a large extent with the benefit which it would have upon the exchange. I cannot for the life of me see how it is going to bring about this result.

The Chancellor of the Exchequer has not enlightened the House, and I think he might touch upon a point of this character, which surely we are entitled to put forward, without having cast upon us the reflection that we are adverse to the United States. I for one, intimately connected as I am with America, would be the last person to be adverse. I have a very warm and high regard for the United States, but to suggest, as has been done, that the astute American banker, who must be rather laughing at the speech of the hon. Member for East Mayo, is concerned with the question whether this speech or that affects his sensitiveness, is to show a very slight knowledge of the astuteness and acuteness of that individual. I regret very much indeed that the Chancellor of the Exchequer has not shown us how this Loan, for this very large sum, costing the country something like 6 per cent. per annum, is going to carry out the object he stated. I do not know whether he will honour us with a third speech, but if he does it will be very interesting to hear from him how this particular Loan is going to have the effect he suggests. He tells us he has consulted many bankers. No doubt he has, but naturally bankers are not philanthropists. They may be very glad to discuss with him financial operations, American or otherwise, but I do think we are entitled to hear from him how this particular Loan is going to stabilise the exchange.

There are several causes which have brought about existing conditions. I saw the other day, in an American newspaper, they drew an analogy between the condition which now prevails here and that which prevailed there in 1895. Efforts were then made by the United States Treasury to float a straight loan, without any condition in this country, for the object which this credit is supposed to bring about for us. It was pointed out that in 1895, in America, there was a great outflow of gold to Great Britain, and there was a fear and distrust prevailing whether the United States would be able to maintain gold payments. The suggestion was that they should float a loan in order to improve their credit. The reason of the distrust was to be found in the very natural fear of the result of legislation then prevalent in the United States, which tended in the direction of a silver basis and raised a doubt whether they would be able to maintain a gold basis. Those acquainted with the state of affairs knew that previous to that time the United States was suffering from the Sherman Act, which compelled the United States Treasury to pump into their currency silver dollars against silver ounces purchased to the tune of 50,000,000 ounces per month. The effect was to depreciate American currency, and gold flowed out, until the actual reserve fell from £100,000,000, at which it ought to be maintained, to something like £41,000,000, which they had to maintain against their greenbacks. The result was to create distrust. And if I may draw an analogy with our own position here, I would say we are finding a similar operation being performed by our Treasury in issuing currency notes, which have now reached £72,000,000, whereas we only have £28,500,000 gold held for the special purpose of dealing with them. The same result is therefore taking place here.

There are, of course, other contributing factors. I seem unable to convince the Chancellor of the Exchequer, for he never will meet the point which I raise. Probably when we have a panic, or some object lesson of that character, he will really begin to appreciate this analogy which has been pointed out by American writers. In the nature of things, in bringing about the stabilising of exchange by such palliatives as this £100,000,000 Loan, if you have another operation going on in the Treasury, making money more or less unlendable, you render your operation absolutely futile by this continual action of the Treasury. I do not wish to weary the House by continually referring to that, but it seems to be entirely lost sight of by Treasury officials. I have quoted authorities, among them that of a distinguished Member of this House (Lord Goschen) who set forth from time to time proofs of my contention. I hope the authorities I can now give may make some impression on the right hon. Gentleman, because they are leading living authorities. I have a statement by Mr. Huth Jackson, in his Presidential Address to the Institute of Bankers. He is a distinguished authority who commands, and rightly so, the respect of many eminent bankers in the City of London. He said— —

Mr. SPEAKER

The hon. Gentleman is discussing a matter which is not contained in this Bill, or is only very remotely connected with it. I said at a former period that hon. Members were entitled to indicate generally the solutions of difficulties which they would propose, but I think the hon. Member is not entitled to go deeply into this subject, and to make a general statement with regard to it.

Mr. MASON

Perhaps I was rather led into intricate details. This Bill is for the purpose of stabilising exchange, and if I can show that other causes will absolutely prevent its being the corrective which it is suggested it will be, I hope I shall not be out of order in referring briefly to them. The views of eminent authorities like Mr. Huth Jackson are strongly against this policy, and the Professor of Political Economy in Edinburgh University shows how the continuous issue by the Treasury of these notes has increased prices and thereby enormously stimulated imports, bringing about the very position which this particulor policy is intended to correct. While America and the Argentine are flooding us with their imports, our export trade is undoubtedly crippled by the fact that many of our industrial concerns are engaged on munition and other war work. It is a very serious position into which we have been brought by this action on the part of the Treasury, and I hope that the Chancellor of the Exchequer, even if he is not affected by the arguments I submit, will give some attention to the authorities I have quoted. I believe that the operation will not have the desired effect. It will have some effect, because it will establish a credit and reduce the number of bills which would have come forward in New York. I do not deny it will be a palliative, but to say it will have the effect suggested, and that it will correct the position, as the right hon. Gentleman states, is to delude this House and the country, and possibly himself. I hope he will weigh well these propositions, and that before he undertakes any further operation of this character he will study the effect of the present operation on the exchange, and if he finds that the authorities I have quoted are right, if he finds that the Bill does not have the great effect he anticipates, then I trust he will not ask the House and the country to put itself to this extreme charge again without due consideration. It does have an effect upon our credit; that I think is evident. It is immaterial whether the Loan is issued in London or in New York so far as that aspect is concerned. Finance is an international affair, and British credit is undoubtedly affected by any operations which take place abroad, as well as those which take place in this country. I hope I have said sufficient to prove the contention which I have made, and I would, in conclusion, offer one or two points in regard to the Bill itself. It is not too late yet to make any Amendments. May I ask the Chancellor of the Exchequer if there is any possibility, for example, of fixing the rate of exchange at which the Loan is repayable, or at which the interest is payable?

Mr. McKENNA

The interest and principal are payable in notes.

Mr. MASON

I know that

Mr. McKENNA

In dollars.

Mr. MASON

I am told that we have to pay in dollars, but could the right hon. Gentleman not fix the rate of exchange?

Mr. McKENNA

We have to pay in dollars.

Mr. MASON

The right hon. Gentleman does not understand. It is not an unusual thing when a loan is floated, to fix the rate of exchange on which the principal is repayable. The normal rate of exchange between New York and London is 4.86. I hope hon. Members will readily follow me when I say that if the exchange should go down again to 4.50, or, perhaps, should range somewhere between 4.50 and 4.60, when we come to repay this Loan it will involve an additional charge upon this country in providing sufficient sterling to convert it into dollars in New York. The right hon. Gentleman does not follow the point.

Mr. McKENNA

I have followed the hon. Member. We shall still have to find the dollars. We pay in dollars.

Mr. MASON

The right hon. Gentleman says we pay in dollars, but he surely knows that he does not provide the actual dollars. He provides sufficient sterling to convert it into the dollars. Does he suppose that he has to collect the actual dollars?

Mr. McKENNA

I have to pay in dollars, and in New York. How we get the dollars is another matter.

Mr. MASON

I am suggesting to the right hon. Gentleman that one very great advantage of insuring against loss, when he comes to provide his dollars, is to fix a rate of exchange. He does not appear to see that. Of course, I cannot help it if he does not understand. To tell me he has to pay in dollars is only telling me what I know. I suggest to him, if it is not too late, that we might get an arrangement made with the proprietors of the Loan that the liability should be at a fixed rate of exchange. I hope I have made it clear to those who know finance that this is not an unusual suggestion to make. It has been done before, and it is a means of insuring yourself against any further depreciation in the currency which may be brought about by further action on the part of the Treasury. I think the fact that the right hon. Gentleman apparently does not follow me shows that he does not quite understand me. He seems to think it a matter for merriment? If he can find any cause for merriment in the matter he is welcome to it. I suggest that perhaps he might give a little attention to such books as Goschen on Foreign Exchanges, and then he would readily follow my point. I do not wish to be in any way offensive to the right hon. Gentlemen, but when he interrupts me to tell me he has to pay in dollars I am bound to make good my point.

Mr. McKENNA

If we have to pay in dollars, the hon. Member's notion of a fixed exchange is excluded; you cannot have both. I thought when I said that we have to pay in dollars that I had, ipso facto, told him in so many words that the notion of fixing the rate of exchange was excluded.

Mr. MASON

It is no use the right hon. Gentleman saying that it cannot be done, because it has been done.

Sir R. BALFOUR

I think my hon. Friend (Mr. Mason) is under a misapprehension. From his point of view, he has made a statement as to a guaranteed rate of exchange in the case of our lending in the United States. In the present case, however, we are borrowing from the United States in dollars, and we have to pay in dollars. That is the whole case. The hon. Member is surrounding the matter with a great deal of unnecessary perplexity.

Mr. MASON

With all due respect to the hon. Member who has just interrupted me, I can only say again that it has been done. You can fix the contract at a fixed rate of exchange. If the Chancellor of the Exchequer tells me he is unable to do it, or that the Americans will not agree to it, that is another point. I say it is possible to do such a thing and to arrange such a bargain. That is all I wish to say on that point. Although the right hon. Gentleman did not tell us, I suppose that the right to convert this existing Loan into 4½ per cent. loan will be at par. I presume the holders will have that option. I hope the right hon. Gentleman will consider the other causes which have brought about this unfavourable rate of exchange, and bear them in mind in any further measures which he has to put forward.

Mr. THEODORE C. TAYLOR

Before dealing with the main point which I propose to raise, I might ask my hon. Friend {Mr. Mason) this question: Does he want the British Government to borrow, say, 500 dollars from a man in the United States and to pay him back something less than 500 dollars?

Mr. MASON

Certainly, not less.

Mr. TAYLOR

Perhaps more? I do not want to pay him either more or less, and neither does the Chancellor of the Exchequer. We go to the United States and we ask to borrow money from them. We undertake to pay them back, in their money, and it is ridiculous to talk about fixing the exchange. That is our affair and not theirs. I know perfectly well what the hon. Member has in his mind.

Mr. MASON

What is it?

Mr. TAYLOR

I imagine the hon. Member has this in his mind. Some of us sell goods to other countries and we have to be paid in their money. My own firm used to sell goods to Austria, forty years ago, and we had to be paid in florins. We had an arrangement with the bank there that they should pay us at a rate of exchange fixed at the time of our sale. All the same, we had to take their money. It is true that that was a kind of guarantee against loss; but it would not be fair, and it certainly would not be conformable with the practice of any Government, to go to the citizens of another country and say, for instance, "We want to borrow 500 dollars from you. We propose to pay you back at the close of the period in an uncertain sum. You may only get 480 dollars back." That would be a ridiculous proposal to put before the people of any country from whom we wanted to borrow money.

Mr. MASON

It has been done.

Mr. TAYLOR

I want to make a practical suggestion to the Chancellor of the Exchequer. We all want to reduce the amount of our imports from other countries of munitions as well as anything else. I want to tell the Chancellor of the Exchequer that we are paying with British money for the import of articles for war use for Allied Governments that could be made in this country, and that would be made in this country if our Government arrangements, or the arrangements of the War Trade Committee, were conducive to that business. Only last week—and I can give this for a fact—5,000,000 yards of cloth were ordered in the United States of America for Allied Governments in Europe, and that cloth could have been made in the West Riding of Yorkshire. There are mills to-day in the West Riding almost standing idle. Better class worsted mills in the Huddersfield district are short of orders. These mills are not getting the orders. The orders are going to the United States. I imagine we find the money; I am not certain about the exact method of payment for these 5,000,000 yards, but I am certain that those goods could be made in Yorkshire as quickly as and more cheaply than in the United States. I am in the trade, but I do not want these orders for myself. It is for other manufacturers I am speaking. In Huddersfield the better class worsted makers—I could mention most eminent firms in the trade—have very few orders to go on with, and some of their workpeople are under notice because they have no work for them. Owing to the stupidity of our own arrangements here, these orders are going to America. Someone has to find the money, either by Loan or someway else, to pay for these goods. It surely would be a better way to give the orders here, instead of sending trade over there to keep their people going, while our people are short of work. I feel I ought to tell the House of Commons— and the Government ought to know—that in August I was told by a buyer of cloth for an Allied Government, for whose purchases, I believe, we are finding the money, that they could get goods ordered by them from the United States, and made there, into Havre, where they want them, quicker than they could get permission from the British Government to enable them to buy goods from the Lancashire manufacturers.

Mr. SPEAKER

This has very little to do with the Bill. They are important and interesting questions which the hon. Member is raising, but they are very remotely connected with this Bill.

Mr. TAYLOR

This Bill is a Bill to raise credit in the United States and to borrow money there with which to pay for goods which come to this country from the United States. I was pointing out what seemed to me to be a very glaring instance of unnecessary purchases of goods from America, thereby increasing the amount of money we have to borrow there and bringing nearer the time when we shall have to float another loan there. It seems to me, with all due respect, that this has surely as much bearing upon the point as a great deal we have heard lately.

Mr. SPEAKER

I was taking exception to the hon. Member's complaint about the length of time it takes to obtain a permit. That seemed to me to be a matter of administration—he can criticise the administration of the Office concerned—but really it is not connected with the Chancellor of the Exchequer or with this Bill.

Mr. TAYLOR

I apologise for misunderstanding your interruption. I am sure we all agree that it would be very desirable for us to buy fewer commodities in the United States and to make more of these commodities here. Whether it is done by the Government or private individuals, we have to find the money to pay for all goods we import into this country that otherwise could be made by our own people here. I cannot imagine any British interest that is advantaged by the purchase of goods in any other country where we have to borrow money or create a credit in order to pay for them, if those goods can be made in this country. I do not know whether the question has been raised as to temporary bills, but I think that is an expedient that our Government might very well adopt to save the borrowing of further large loans like this. We shall certainly have to have further loans, either in this country or in the United States, or somewhere, because there is a lot more money to be raised. I think, therefore, that this expedient of paying for goods in the United States by bills, if you like six months' bills, renewable from time to time, is desirable. I believe if these bills were made renewable, say, as three or six months' bills, in New York, we could create a large credit in America at a cheaper rate than these permanent Loans. Bankers and bill brokers who deal with these matters— I am only an ordinary business man myself—know much better than I the use that is made of these convenient instruments of exchange. I am not aware whether this has been put forward in the present Debate, but I submit it to the Government as one of the expedients that would assist us in preventing the necessity of raising another very large Loan very soon. I press on the Government that this state of things should not continue, and that we should not buy on Government account in the United States or elsewhere articles that can be made at home.

I am a Free Trader, and do not want any protection of any kind, but the Government themselves, when it comes to their own purchases, might see to it that there was no unnecessary purchase in America of articles that could be made here, which purchase is bound to affect the exchange between the two countries. I do not suppose that we would try to control the action of private individuals as to what they should buy, but where the Government's own action is concerned, no matter what the cause, we should not see what I consider to be the shameful spectacle of increasing the exchange against ourselves by the purchase on a very large scale in America of goods that could be made at home by our own people who are wanting work. The Lancashire cotton trade has been very badly hit by the lessening of the export trade of cotton goods to many countries, not merely to European countries. The alteration in the exchange and in the general arrangements of business, and the increased cost of shipping, have very much lessened the export of cotton goods, upon which Lancashire relies mainly for its prosperity, so that every reasonable occasion should be availed of to preserve such trade of our own as we have, and with this object all purchases of any thing required by the Government or by our Allies which can be made in this country should be made in this country. This preference is in the natural order of things, which should not be interfered with, whereas the system of getting in the United States these very goods which could be made in Lancashire and Yorkshire raises the exchange still more against us. I put this forward as a practical means of lessening the difficulty in which the Chancellor of the Exchequer is, and in which I suppose he will continue to be until the War is over.

Mr. RUTHERFORD

It is quite true, as has been remarked by more than one speaker, that it has come to many of us as a very great shock that the joint responsibility of England and France, or even the sole responsibility of either of them, should have to pay such a large rate of interest, and should have such difficulty in raising a Loan of any dimensions whatever, and also should have to pay no less than 2 per cent. as a guarantee. If, eighteen months ago, the hon. Baronet who represents the City of London, had been told of anything like these figures, probably he would have described anybody who so addressed him as being a lunatic. But we have been shocked by a great many other things. We find to-day that we have some millions of men serving in the Army. Such a thing as that would not have been dreamed of at any time within living memory, and I think that we ought to be grateful to the Chancellor of the Exchequer for pointing out in such simple and conclusive language the reasons why this has come about. We have been obliged to go to the United States for a large number of things which we could not supply ourselves to an absolutely unprecedented extent during the last few months, and we are faced with a state of affairs in regard to the exchange which almost threatened to put an end to business, not only from our point of view but to make it very difficult to be worked out from the point of view of the Americans. We have also got to remember that anything in the nature of a Loan of £100,000,000 to a foreign country in the United States is something of which they have had no experience. In those circumstances it is a good thing to be able to put this Loan before a large number of people who have no experience of such a thing, and who have never invested in anything of the kind before, and it has been exceedingly difficult to ensure that it should be absolutely subscribed.

After all the 2 per cent. that is being paid is not so much in the nature of guaranteeing commission as I understand it, as a sum of money that is being paid in order to help the placing of the Loan, and, of course, to prevent the possibility of its not being fully subscribed. There is only one point in connection with it which I regret. That is that it was not made possible to take all that might be subscribed, simply guaranteeing the first £100,000,000. I think it conceivable that, if it had been put in that shape, we might have got a few extra million pounds over the £100,000,000. We should be very grateful to the Commission. They have had very difficult work. I have been personally in communication with some leading people in the United States about various matters, during the last two or three months, and I can assure the House that, from reliable private information, there is not the slightest doubt that the representatives over there have done uncommonly well. They have had an exceedingly difficult task. They have had to persuade people, who were probably anxious to make a good investment, to overlook the difficulty of seeming to take sides in the War. But we ought also to be grateful, not merely in our minds, but we ought to take every opportunity of expressing it, to the people of the United States for entertaining this Loan and for backing up the financial houses that are giving this guarantee. It is a solid expression of sympathy on our side that they should give us a Loan of £100,000,000, and personally I look upon it as one of the brightest features of the last few days that our Commissioners have succeeded in making a Loan of such a sum in a neutral country like the United States.

Lieut.-Commander WEDGWOOD

I am afraid that I do not quite follow the hon. Member for Liverpool in his approval of this Loan and the terms on which it is effected. But I do not want to go into the question of the Loan, which is past. There we are committed. What I desire to speak about is the question of further Loans on the same lines in America. It seems to me that we have rather rushed into this borrowing of money in America without making up our minds perfectly clearly as to what price we are to pay for having that Loan. It is said that we are borrowing the £100,000,000 in order to restore the American exchange. The American exchange at present amounts to an import duty on all goods we get from America. We are importing more from America, and exporting less to the tune of £140,000,000 a year. We have all our normal imports from America to consider, and we are also importing a large amount of Government stores. On all these goods we pay more because the American exchange is against us. The question is how much more are we paying on account of the American exchange?

Mr. McKENNA

May I correct the hon. Member in one respect? So far as the Government purchases are concerned we are not paying for them according to the exchange. We are paying for them by credits which we have raised in the United States.

Lieut.-Commander WEDGWOOD

I am very glad to hear that. In that case we are not borrowing the money from America in order to make cheaper the goods which we purchase.

Mr. McKENNA

Not for munitions of war.

Lieut. - Commander WEDGWOOD

Then it is solely to benefit the private purchasers of American goods in this country. We are, roughly speaking, paying 1 per cent. more than what we borrow the money for in this country, so that we are paying about £500,000 a year in order to make cheaper the goods of private persons purchasing in America. We do not know how much cheaper we shall make them. Apparently the borrowing of this money has not yet affected the exchange. Of course, it cannot be expected to affect the exchange until the matter goes through. But at any rate we know that the borrowing of this money is to make cheaper the goods that are bought by people here, and cheaper by a certain amount, which would be shown in the rise of the American exchange. I want to put in my word of protest in this way. People are apt to think that this one loan is going to restore the American exchange. It cannot have that effect at all. It can only raise it slightly, and you have got to go on borrowing money from America to make up for the whole change in the character of our trade with America if you are going to restore the exchange to its pre-war condition, and this means going on borrowing further sums of £50,000,000, on each of which sums we are to pay £500,000 per annum more than we should do if we borrowed the money in this country, in order to put the exchange right. There is before us a constant series of loans in view. I want to protest altogether against these efforts of the Government to put the exchange right. I want them to leave the exchange to the natural effect of the laws of supply and demand. If you do that you automatically restrict imports from America. At the present time imports from America are going down and must be going down, simply because we have to pay so much more for all the goods which we get from America. That automatically restricts imports from America and also automatically increases the exports from this country to America. The exchange, being against us, acts adversely on all American export and favourably on all imports into America. That is the result which would be achieved by a heavy tariff on American goods coming into this country. That, too, would restrict the imports from America, and that, too, would have a disastrous result, as the present rate of American exchange is having, on the export of goods to this country from America.

I speak here as a Free Trader who does not wish to step in, in the first place, for the benefit of the export traders of America. It is not our business to step in to restore the exchange to the pre-War level, in order that the exporters in America may sell us more goods than at present. We are actually facilitating the import of goods from America, and we do not want to have that, because if we do we shall have the exchange going a good deal worse against us. You are trying artificially to interfere with the balance of trade, whilst the exchange itself is automatically doing that for us. The exchange is automatically restricting imports from America, and you are going to try to alter the exchange by a very costly Loan in order to import more from America at a cheaper price. To that I am opposed. I do not want to benefit the manufacturers of America. I do not want to give a bonus of £500 a year to American traders to send goods to this country. I prefer that the trade between America and this country should be regulated automatically without the interference of the Government. There is an impression that there might be a sudden collapse of the American exchange, that it may fall away altogether, and ultimately disorganise trade entirely. I think that the exchange is a perfectly gradual thermometer, which registers automatically the increase of imports and the decrease of exports. The prices of food-stuffs that we get from America have risen, and if the exchange goes worse and worse against us they will continue to rise more and more, and, until the import of food-stuffs from America is checked and we get more from somewhere else, we will have to pay more in this country.

The first object of the series of loans is to benefit the American exporters, and to get goods for this country, which would not otherwise come, at their own price. Let us look at the other side of things. We are not only benefiting their export trade, but also those particular classes of people in this community who consume goods coming from America. We buy wheat from America, and besides dealers in wheat there are other classes of this country who particularly benefit by this Loan, by the restoration of exchange, and by goods coming from America in greater quantities and at cheaper prices. Among those classes is the cotton trade of this country, who want to get their cotton cheaper. There are various other trades which depend for their staple goods on American manufactures. Those particular trades will get benefit out of this Loan, which the whole of the community are going to pay for to the tune of £500,000 a year for this Loan alone. Certain particular interests are going to benefit. That is contrary to the doctrine of Free Trade, and only what you would naturally expect when a Government interferes arbitrarily with the automatic balance of trade—that is the rate of exchange of the dollar and the pound between the two countries. Therefore, for both those reasons, I hope the Chancellor of the Exchequer will reconsider the policy of pushing forward a long series of further Loans from America, even if he gets next time the terms he has got on the first occasion. I would far sooner see the exchange acting gradually and automatically in respect of the trade between the two countries. I am more inclined to that prospect, because, according to the Chancellor of the Exchequer's own words, the fall of exchange will not affect the price we have to pay for munitions obtained from America. It is only the ordinary civilian trade between this country and America, and that will right itself, as it always rights itself under the automatic action of exchange.

If, however, the Chancellor of the Exchequer has again to go to America, as is quite possible—he might not be able to borrow cheaper here—I hope that his appeal will be put before America in rather a different spirit from that of his first appeal for American funds. I know an enormous number of friends in America, very good friends, and I know perfectly well that the sentiment of America is very strongly with this country. They have already put their hands into their pockets, and provided probably more money for the charitable purposes of the War than the whole of the rest of the world. They have proved throughout their history that appeals to their best nature, appeals to them on idealist grounds, is a great deal more likely to be successful than an appeal made on material grounds. I think they are very often wrongly judged, and very apt to be judged, largely, as a nation of shopkeepers, just as we are; but, after all, the Americans and ourselves are the only peoples in the world who do not base their whole financial action and policy on materialistic considerations. The people of the United States are not only a philantropic, but an idealistic people. I do not think that this Loan has been put before the Americans in a way which would be likely to get their support.

The Loan has come before them through great financial houses with German names, or people with great interests, whom thousands of Americans have very good right to distrust. These people, if appealed to by the English Government, could subscribe to a Loan if they were given the chance. They could subscribe to a Loan raised here, and there might be a Loan raised in their own country, if you like. I believe these people would invest in a Loan on the same terms as the English Loan, for they would be far more likely to be attracted, not so much by the rate of interest on the money, as by a desire to help in what they know is our struggle for freedom over here. A great many of them think that America ought to be in this War, and fighting at our side. These people are just the people who would help us financially if we get into difficulties, and who would put their hands into their pockets and lend us money on the same terms as we are lending it to the Government. I do not suppose that there is anybody in this House who did not put his hands into his pocket for the last War Loan. We invested in that Loan, not because we could not get better terms elsewhere, but because we felt that it was our duty to do so. The Americans feel like that, and if an appeal were presented to them by the English Government to lend money for the successful prosecution of the War, I believe that they would lend not merely a hundred millions, but a far larger sum without the necessity of a 2 per cent. guarantee.

Mr. SHIRLEY BENN

As I have lived a great many years in the United States, and know something about the United States, I should like to say one or two words. I will not criticise the transaction that has been closed, but I would suggest that the financial houses who have underwritten this Loan will very probably find that they have made a very good bargain. The United States last year exported a thousand million dollars more than they imported, and there should be a vast sum of money in America which can be used for investment. I would like, therefore, to suggest to the Chancellor of the Exchequer that he should not, if he goes to the States for further Loans, he should not limit the underwriters of those Loans to those who have underwritten the present Loan. You want to spread those Loans, because, as the hon. Member who spoke last pointed out, the feeling of at least 80 per cent. of the people in the United States is thoroughly pro-Ally, and I believe they would be perfectly willing to invest in further Loans if they were offered. The fact that 5 per cent. has got to be paid is, in my opinion, not at all to be wondered at, because at the present time in America more than 5 per cent. can be easily obtained with satisfactory security. I speak with knowledge about it, and I think if we have got this Loan at 5 per cent. we have done a very good piece of business.

Question put, and agreed to.

Bill read a second time.

Resolved, "That this House will immediately resolve itself into the Committee on the Bill.—[Mr. McKenna.]

Bill accordingly considered in Committee.

[Mr. WHITLEY in the Chair.]

cc1271-6
1. CLAUSE 1.—(Power to Raise a Loan in America.) 1,757 words