§ Whereupon the Yeoman Usher of the Black Rod (Captain T. D. Butler) having come with a message to attend the Lords Commissioners, the Chairman left the Chair.
§ Mr. SPEAKEK resumed the Chair.
§ Message to attend the Lords Commissioners. The House went, and, having returned,
§ Mr. SPEAKERreported the Royal Assent to—
§ SUPPLY, again considered in Committee.
§ Mr. McKENNA(continuing): I was just concluding my observations in reply to the Motion of my hon. Friend, and I had got to the point of suggesting—I will not put it higher—that our total National Debt at the end of March next would be rather less than our total estimated national income; 1291 in other words, we should be in the position of a man whose income was £5,000 a year and whose total debts amounted to £5,000 a year—a position which would not be considered extremely alarming.
§ Mr. G. FABERBut you have to keep the nation alive.
§ Mr. McKENNAIf we compare it with the best estimate we can obtain of our total national wealth—I am speaking now of capital wealth—the proportion of our indebtedness is not really very large. It is estimated that our capital wealth is £15,000,000,000.
§ Mr. McKENNAYes, that is a low estimate. All our estimates are very conservative estimates, and I do not want to overstate the case, and I am certainly within the mark when I say that our national indebtedness will be less than one year's national income, and not one-sixth of the total national wealth. We shall be collecting in one year a revenue equal to 20 per cent. of our whole debt, and we shall be able to pay out of existing taxation the interest on the debt and a considerable sinking fund and still leave a large margin for reduction of taxation.
§ Mr. McKENNAYes, on 31st March next. I do not wish to be open to the charge of optimism, and therefore I express no opinion as to when the War will come to an end. I am merely giving figures as to our position at the end of the financial year. We have every ground to be proud of the way in which British credit has stood the strain. We have raised a gigantic revenue, and we are borrowing these gigantic sums. Of course, we have had difficulty and strain and stress, both internal and external, in working the mere machinery for getting these huge sums, but we are getting the money. We have succeeded in obtaining it at reasonable rates for two years, and I have not the slightest doubt that the British public will continue to show the same readiness and willingness to support their country, both by paying taxes and lending money. I have not the slightest doubt that that we shall be able to maintain our credit right to the end of the War, no matter how long it lasts.
§ Sir F. CAWLEYI agree with the Chancellor of the Exchequer that we have every reason to congratulate ourselves upon the fact that, so far, we have been able to finance this War as we have done. It is perfectly marvellous how it has been done, and I am very glad that the Chancellor of the Exchequer takes the view that we can go on financing it as well in the future as we have done in the past. The right hon. Gentleman rather misunderstood my hon. Friend (Sir C. Henry). The real point of my hon. Friend was that we are paying too much for the money. The Chancellor of the Exchequer did not quite answer the criticism why we had not raised any money since; 15th June, 1915, by loan instead of resorting entirely to Treasury Bills and Exchequer Bonds. The Chancellor of the Exchequer rather took my hon. Friend to task because he suggested that he had to take into consideration in raising any new loan the fact that he would have to raise the interest on the old loan as well. I do not know that my hon. Friend suggested that was a petty or mean thought, but the hon. Gentleman opposite distinctly said that it was a paltry and petty thing.
§ Mr. FABERIf the hon. Member refers to me, I am sure that the Chancellor of the Exchequer could not have had any small motive of that kind.
§ Sir F. CAWLEYI will take it at that. I do not see where the small-mindedness comes in. The Chancellor of the Exchequer had to consider the cheapest way of raising money for the country, and it was his duty to consider the fact that in raising any new loans the interest on the old loan would have to be raised to the price of the new loan. That does not seem to me mean, paltry, or anything else. I do not quite see why the Chancellor of the Exchequer should be so cross with my hon. Friend. The point is whether it is a desirable thing or a necessary thing for this country to finance the War by paying 6⅜ per cent. These Treasury Bills are becoming a very favourite security in foreign countries, particularly America, and taking into account the fact that the people who buy them have not to pay Income Tax it really costs this country about 7¾ per cent. I do not think we ought to have to pay 7¾ per cent. for money from America. I know something about the exchange, but I do not think that explains it. I do not think it is necessary for the country to pay 6⅜ per cent. for the money it borrows. It is not very difficult to raise money 1293 when you have the security of the British nation, and you pay a very high rate of percentage as you are doing now. We are financing this War by paying an exorbitant interest for money which has the security of the British Empire behind it. That is the point which my hon. Friend wanted to make. I quite appreciate and agree with the Chancellor of the Exchequer that these one year Treasury Bills have become a favourite security with regular investors. I am not surprised, because it is a very splendid investment. The British Government are finding everybody with an investment now. It has the security of this country behind it, and it gives an interest which in the past could only be obtained -with a very "dickey" security. I apologise for the use of that word; I mean securities which were considered not quite first class. It may be desirable to get all the money that we can from permanent investors or from the people who have the money, but it is not necessary to pay so much for it. The money might be raised at a less price than it is raised. I will not enter into the question whether short-dated bills are dangerous; but for America or any other nation to hold several millions, as possibly they will do, of Treasury Bills which may become due during a monetary crisis is rather dangerous, and for my part I would rather get the money, if possible, in some way whereby we shall not run the risk of this claim from a foreign country coming upon us at a time when we can least meet it.
Colonel F. HALLI have listened with rapt attention and great interest to the speech which has been made this afternoon by the Chancellor of the Exchequer, and as far as I am concerned I am not desirous in any way of criticising the general policy of the Government, but I cannot help looking at the position in which we find ourselves. The right hon. Gentleman said that before he came to the Treasury he was fully aware that hundreds of millions had been raised by Treasury Bonds. I cannot help thinking that the right hon. Gentleman must have meant in the aggregate and over a long period, because I cannot call to mind anything which hitherto has made it necessary for this Government to borrow hundreds of millions sterling by Treasury Bills for one specific purpose. The right hon. Gentleman is exceedingly optimistic, and I congratulate him, because these are the days when we have got to be optimistic; these 1294 are the days when we have got to tell our friends and our enemies that, come what may, we are in a position to foot the bill, and we will foot it whatever the amount may be. That does not deter us from dealing with these matters to the best of our ability. We are paying 8½ per cent. for money borrowed from foreign countries. The Chancellor of the Exchequer shakes his head, and I dare say he is wondering what I mean. I am not perhaps a lightning calculator and I am not a financier, but I am a business man, and, if I get 6 per cent. for my money and get my interest in advance, that yields me 6⅜ per cent., and to enable me to get 6⅜ per cent. net with an Income Tax of 5s. in the £, the right hon. Gentleman will find, if he looks into it and works it out, that I must have a dividend of 8½ per cent.
6.0 P.M.
I do not like this system of continually borrowing money for these periods. I have no doubt, judging by the patriotism which has been shown by all classes of the community, that people are prepared to invest their money and to lend their money in order that there shall be no financial difficulty with regard to seeing this War through to a satisfactory conclusion, but we have been able to raise £650,000,000 at 4½ per cent., and that loan,. at the present time, stands in the market at only a small discount. We do not know what money we may require by the end of the War. We have got £850,000,000 at the present time in Treasury Bills. It may be reinvested or it may not. That depends upon the basis on which the holders of these Treasury Bonds will place their money in the future when you realise it. The right hon. Gentle man undoubtedly has most carefully considered and weighed what in his opinion, and in the opinion of his advisers, is going to be the outlook of the Money Market in the future. From my knowledge of business, I find money gets stiff, the rate becomes heavy, and it is difficult to negotiate on reasonable terms at the approach of autumn. I cannot help thinking that the Government would do well to carefully consider whether it would not be advisable in the near future to issue a loan bearing a reasonable rate of interest. Undoubtedly, such a loan would be taken up by the investing public, by the bankers, the insurance companies, and the people who have money, and the Government would be certain that they had 1295 got the use of the money for a specific period. If, for instance, they say, "We are going to issue a loan of £1,000,000,000 sterling on a basis of 5½ per cent." I do not suggest that the whole investing public is going to say, "All right, I am coming in, and am going to invest my money at considerably less than I can get elsewhere." There is a point even with patriotism.
The right hon. Gentleman forgot to look round and see what return investors can obtain on their money. If he issued a loan for, say, £1,000,000,000 (using that figure for the sake of argument) he does not know whether he will want it all; I hope he will not, but we do not know how long this War is going to continue. But it would be perfectly easy for the right hon. Gentleman to say that he would take, say, 10 per cent. of that loan on application and 5 per cent. and 10 per cent. at later periods, spreading it, say, over a period of three months. The right hon. Gentleman could in fact arrange to call in his money as and when he wanted it. He would know the state of the Money Market, and would be able to place his hands upon the amount that had been subscribed to the loan when he wanted it. I would suggest that the right hon. Gentleman should consider whether that is not worth some consideration. The right hon. Gentleman spoke lightly, if I may say so to him, when it was a question of anything like £50,000,000. In these days, when stupendous work has been thrown on the Treasury, they seem to be in the habit of brushing aside a sum of anything like £50,000,000 or £100,000,000 sterling. But those are not small sums. One of them may perhaps be only sufficient to enable the War to be carried on for six or seven days, but at all events £50,000,000 is not to be thrown away. It is by obtaining £50,000,000 here and £50,000,000 there that we are going to get the loan. We must conserve our various interests, and not say, "I am going to leave that market open because it is only a matter of £50,000,000 which would be derived from the sale of certain securities." The Chancellor of the Exchequer stated that the percentage of outstanding Treasury Bills was quite small—more or less infinitesimal. To use his own words, I think he said quite small.
§ Mr. McKENNAI did not say so.
Colonel HALLIf the right hon. Gentleman looks at his speech, I think he will find that he said something like that. At all events, he led the Committee to suppose that the amount of the Treasury Bills standing at £850,000,000 sterling was a small percentage of the outstanding debts at the present time.
§ Mr. McKENNAI gave the figures. I could not state it was a small sum, and I did not. I gave the actual figures.
Colonel HALLThe right hon. Gentleman, in carefully reading his speech tomorrow, will, I think, find that I am correct, because I was particularly careful to note what he said. He will find at least that he led the Committee—whether that was his intention or not I do not know—but he led the Committee to think that the £850,000,000 sterling was only a small portion of the outstanding debt. The right hon. Gentleman shakes his head. I would ask him to look into it. I was not desirous of interrupting him while he was making his speech, and I received a reply from him that I could make my own calculations. It is quite true that I could do so, but when he was dealing with the £850,000,000, the amount of Treasury Bills standing to-day, I wanted to make it clear that that was not to be put against the percentage of what would probably be the amount of the total indebtedness of the country at 31st March, 1917. Those figures show me, at all events, that at the present time something like a third of the total amount of the War expenditure is being raised in Treasury Bills. These Treasury Bills go into all sorts of countries. We are prepared to find the money in this country for carrying on the War, and I hope the right hon. Gentleman will carefully consider whether the time has not arrived—I am not asking him to reply, and commit himself now—when we might, and should, be able to obtain the money that is necessary without paying such a huge rate of interest as 6⅜ per cent. net, and which I put down as 8½ per cent. gross. I would also like to congratulate the right hon. Gentleman most sincerely upon the work he has done up to the present time. The work must have been enormous, while as to the machinery we cannot even imagine what it has been. But do not let the advantages which have accrued up to the present lead us into a difficult position. Let us review the circumstances exactly as they are, and follow the maxim I have always been 1297 taught as a business man, "Look ahead, and in making your contracts and subcontracts, see that you never get out of your depth." I do hope the right hon. Gentleman will consider in the near future the issue of a sufficiently large loan to carry him on for a considerable period, not calling in the money till he really wants it, so that the country may get the full advantage from it. I have no hesitation in saying that the patriotism and the self-sacrifice that have been shown by all parties in the past will continue, and that the right hon. Gentleman will have the confidence and assistance of the country in the future as he has had it in the past.
§ Mr. D. MASONI join in the appreciation which has been expressed at the lucid statement of the right hon. Gentleman the Chancellor of the Exchequer. Before I make any observations upon what he said, I would like to support what the hon. Gentleman who has just sat down said in drawing attention to this large floating Debt. I agree with the Chancellor of the Exchequer in his optimism. I was struck the other day by a memorable passage of Emerson which was applied to the position of Great Britain in the past, when she was in some financial straits. It seemed to be appropriate to to-day, and perhaps I may quote it. Emerson said:
I see her (Great Britain) not dispirited, not weak but well remembering that she has seen dark days before, indeed with a kind of instinct that she sees a little better in a cloudy day, and that in storm of battle and calamity she has a secret vigour and a pulse like a cannon. I see her in her old age not decrepit but young and still daring to believe in her power of endurance and expansion.I quite agree with this sentiment, and I quite agree with the right hon. Gentleman in his temperament. At the same time, while agreeing with that sentiment, I am sure, from the courteous way in which the right hon. Gentleman has always welcomed criticism, that he does not think there is any doubt of our ability to foot the bill, and that our criticism is given in the spirit in which, I am sure, it is received, and with the object of making suggestions for the future.It seems to me particularly appropriate that we should now, after two years of war, have a survey of the position. While agreeing with the criticism of my hon. Friend the hon. Baronet the Member for Wellington with regard to the floating debt, I find myself not agreeing with what he said with regard to the raising recently of the Bank of England rate of discount. 1298 I agree rather with the Member for the City of London (Sir F. Banbury) and the Chancellor of the Exchequer. Of course, I know all of us are not in possession of all the facts that were in the knowledge of the Court at the Bank of England when they came to this particular decision, but with the knowledge that we possess I think we are able to say that the principal motive which animated the directors of the Bank of England was that they were faced with a considerable gold drain to America. The Chancellor of the Exchequer lightly referred to that. Certain demands had to be met here, and the Bank were anxious to avert that gold drain, and therefore took what has generally been regarded as the most potent method of restraining it, namely, the raising of the rate of discount. I think the effect has justified the action of the Bank of England, because it has had some influence, though, perhaps, not as great an influence as it might have had, for reasons which I have formerly referred to, and which, perhaps, I may again touch on—but it has had a very beneficial effect on this market in attracting capital to London. Already very considerable sums have, I believe, been attracted to London, and the fact that money was quoted cheap again in New York is, I think, one of the reasons for the Bank of England endeavouring, by a change in the rate of discount, to attract some of that capital to London, where, of course, it is much in request. As far as we know the action of the Bank of England has been thoroughly justified.
With regard to the question of floating debt, the total of it has been given by a number of Members, and we may take it as approximately correct when we say it is something like £850,000,000. But we have to add the other floating debt issued by the Treasury in the shape of currency notes, which now amount to something like £127,000,000. That gives us a total of £977,000,000. I would like just to refer briefly to the second part of the floating debt. I do not know if any hon. Members have observed that last week this issue was increased by no less a sum than £2,118,000; that was in one week alone. As some reference has been made to the recent bank discount and its object, to check the gold drain and raise the value of money here, I think the Members who are cognisant with finance and have a knowledge of the Money Market must know that when the Bank of England 1299 raised the rate of discount with the object of attracting capital here, the Treasury was a competitor of the Bank, as it were, fey adding to the aggregate amount of currency at the rate of something like a million or two millions in a week. The Bank of England action is thereby crippled to a large extent, and its beneficent effect is certainly threatened by this continual addition to the floating debt in the shape of an addition of Treasury currency notes. Dilution seems to be rather a feature of the present Government. The hon. and learned Member for North-East Cork (Mr. T. M. Healy) spoke of the dilution of Courts of Inquiry by the addition of lay members. We have had the dilution of the Army by the addition of conscripts, the dilution of skilled labour with unskilled labour and women, the dilution of Free Trade with an injection of Tariff Reform, the dilution of the currency, and a dilution of the Liberal Government by the addition of many Conservatives. Dilution seems to be the order of the day. This may well be termed a "Dilution Government." The effect which this large addition to the currency has had on prices and other things is worthy of the attention of this Committee. The Government has recently appointed a Committee to consider the rise in the cost of living, which has for its chairman that Free Trade economist the right hon. Gentleman the Member for the Tyneside Division (Mr. J. M. Robertson). Here is one very serious contributing factor to the cost of living. It is well known to those with any knowledge of the subject that if you continue to add to the floating debt by an addition to the amount of currency paper that, of course, affects prices and makes the cost of living dearer for the poor and the old age pensioners.
The Debate has largely turned upon the question of Treasury Bills. What is the position with regard to short-dated paper? The issue of Treasury Bills represents about £850,000,000, and currency notes £127,000,000 odd. I have particulars here of the issue of £10,000,000 of French bills and £10,000,000 of Russian bills which have matured, and which, I believe, have been renewed. I am referring, of course, to the amount of short-dated paper that is in the market. I know that this is 1300 not liability of the British Treasury, but to arrive at the menace—as many of us think it to be—of haying this large mass of short-dated paper in existence, we are justified in totalling up all the loan amounts. I understand that the Allies and the Dominions have given us bills for £450,000,000 for our advances. Perhaps the Chancellor of the Exchequer will give me the correct figure. I think he said that the recent amount of loans to the Dominions and the Allies is much larger.
§ Mr. McKENNAI gave the figure as at the end of this year of probably £800,000,000. My hon. Friend must deduct a proportionate amount for the period of the year that has yet to elapse. Of course, that covers two years and nearly three years.
§ Mr. MASONFor the purposes of my argument I will take the sum of £500,000,000, plus the French bills £10,000,000, and the Russian bills £10,000,000, and our own Treasury Bills of £850,000,000. That will give us an aggregate of short-dated paper existing on the Money Market of something like £1,370,000,000. It was hardly worthy of the right hon. Gentleman that he should enlarge upon paying off some paltry amount of three months' bills as compared with the twelve months' liabilities. That was beside the point. The real point which appeals to many of us about short-dated paper is not the difference between three, nine, and twelve months, but as between twelve months' paper and a loan running for twenty or twenty-five years. If you fund this short-dated paper you have it behind you, and, to a certain extent, your feet are clear. No one suggests that the right hon. Gentleman should not be in a position to finance the War in the future or to finance his purchases in America or elsewhere by means of Treasury Bills. If I apprehend the sense of many of the criticisms that have been offered, it is that hon. Members feel that this enormous mass of short-dated paper is becoming top-heavy. We wish to see a large part of it funded or consolidated into a permanent loan, so that we may feel easier to go forward and be ready to meet any other troubles or events which may still await us. That is the gravamen of the criticism of those who do not like the present position at the Treasury. I do not think the right hon. Gentleman has met that difficulty. I particularly noted what he said in 1301 his reply. He did not meet the arguments of the hon. Baronet the Member for the Wellington Division. He said that the reasons for or against a long loan depended upon whether the market disclosed inflation and whether the Treasury Bills were held by investors, and he also referred to the financing of our foreign supplies, with which I have dealt. He entirely missed the point put before him. It is not that one objects to this method of financing the country. AH Chancellors of the Exchequer have used this very valuable method of short-dated paper for tiding over crises and enabling them to carry on. We think it is being abused, and that it is the aggregate and the overwhelming mass of short-dated paper which makes us vulnerable in many directions.
We do not know who holds this paper or what use may be made of it. We were told when we entered upon this War that our enemies took advantage of the position of the London Money Market. Probably that is true. We cannot always tell when a war is likely to occur, but we do know that we are going to have peace at some time or other. While we cannot always be prepared for the identical day upon which there will be an outbreak of war, we can prepare, to some extent, for peace. What will be the position if we are left with the large mass of short-dated paper to which I have referred? When we are at war, our minds are concentrated on carrying it to a successful conclusion. We may have differences of opinion as to the methods adopted with regard to it, but there is only one feeling in this country as to the object for which we all stand. Peace may come more or less suddenly. When it does come, in this country there will be a hundred and one projects that will call for capital, which will be very much reduced and not at all plentiful. People holding this short-dated or long-dated paper will have very attractive demands for their money, probably more than the Chancellor of the Exchequer has imagined. There will be an enormous demand in the market for money from all quarters of the globe. Now is his opportunity to consolidate or refund this vast mass of paper. It is not so much a question of fresh capital. It would be well if he were to issue a consolidated or unified loan on favourable terms, and to offer to investors who are the holders of this short-dated paper a 1302 fairly attractive loan, not necessarily at a high rate of interest. We have seen that New South Wales is borrowing to-day at 5¼ per cent. More than one speaker has referred to the exorbitant terms—6¼ or 6¾ per cent.—now offered. Those terms are too exorbitant for the British Treasury to pay when New South Wales can borrow at 5¼ per cent. I do not see why the right hon. Gentleman cannot offer a consolidating loan to refund a portion of this paper, say, on a 5 per cent. basis, with a term of five to twenty years, with an option to the Treasury to repay in five years even at a premium which gives the attraction of a fairly long term to the investor. The right hon. Gentleman has told us that a number of these twelve months' Treasury Bills are held by investors. If that is so—the right hon. Gentleman speaks with knowledge—and if the investor is given an attractive loan the right hon. Gentleman will be able to refund, and we shall get rid of a considerable portion of this mass of paper. That will clear the right hon. Gentleman's way for further demands that may be made upon him. The right hon. Gentleman has shown himself thoroughly sympathetic. I think his concluding words were that he would consider the possibility of funding the loan. I hope that he will take that into serious consideration, and that at an early date he will bring forward some proposal of the character I have described.
When considering our own floating Debt we might look at the floating debt of Germany. Finance is international, and when we have peace the barriers will be broken down. Money will not be governed by economic conferences. I have not heard of any economic conference proposal that German money is to be prohibited from coming into this country. Every banker knows that it would be impossible to organise any sort of legislation to place an embargo on the money of Germany or anybody else if it were available in any part of the world. It is very difficult to obtain reliable information as to the floating debt of Germany up to date. I have here an article from the "Gazette de Lausanne," which was quoted in the "Times," and which may be regarded as reliable. Really it discloses the very pitiable condition to which Germany is now reduced. According to this 1303 article, Germany's floating debt at the time of the issue of the fourth German War Loan
§ "Exceeded 1,400 millions sterling, made up as follows:
| Drawn credits, Treasury bonds and bills and notes of private banks | £719,000,000 |
| Reichsbank notes | 224,500,000 |
| Treasury notes | 18,000,000 |
| Loan Bank bonds | 88,000,0u0 |
| Municipality of Berlin notes | 7,500,000 |
| Old Prussian bonds, replacing Loan Bank bonds | 75,000,000 |
| New Prussian bonds | 150,000,000 |
| Former fiduciary circulation | 150,000,000 |
| £1,432,000,000 |
§
I do not suggest that the right hon. Gentleman would meet with the same result as the German refund did, because I think he would be successful, but know that German financiers have been very able, and some of them might make an attempt to follow the lines upon which they have achieved success in peace time. They tried to refund this enormous mass of floating paper. The quotation proceeds:
In order, really, to provide new money for the War, observed the 'Gazette,' it was necessary that the result of the fourth German War Loan should exceed the amount of the short-term obligations—i.e., 719 millions sterling. Well, the amount actually announced by Dr. Helfferich last week was only 530 millions. This, no doubt, is why the Continental critics call it a fiasco.
A country which has a floating debt that is funded and put behind them for a period of twenty years, would stand much better before the world in the matter of credit in the future than one which has not. Although we know that Germany has failed, that is no reason why the right hon. Gentleman should not attempt it, because I think he will succeed. I believe the credit of this country would stand better with a refunding or consolidating loan. We do not know how long the War is going to continue, and it behoves us to put through such a measure now when there is concentration of mind upon it. Opportunities for investment have more or less been closed up in other parts of the world, but that will disappear when peace is announced and competitive borrowing and the demand for capital will increase. Now is our opportunity. Germany will be trying to borrow in the United States, and will enter into competition with us because, remember, we shall have to borrow in the United States when peace is established to enable us to refund and properly finance ourselves for some time to come. As an intending borrower going to the United States, surely we should get our finances in good order now so that we
1304
shall stand better and be able to command the best terms and to borrow on very much more favourable terms than we are doing at present. I congratulate the right hon. Gentleman on his clear and frank method of meeting our criticism, and I would ask him to give to the views which have been submitted to him his most favourable consideration.
§ Sir G. YOUNGERWhile I am sure there is no difference of opinion with regard to the desirability of consolidating our loans as soon as possible, surely everyone must disagree with the hon. Member (Mr. Mason) in thinking this is a time when that is possible. We have just had an advance in the Bank rate. With a 6 per cent. Bank rate it would be the height of lunacy to attempt to consolidate debt and, large though it is, it is a satisfactory feature in the debt that the right hon. Gentleman is able to tell the House that so large a proportion is in one-year bills and not three or six months', which constituted so great a proportion of it in the past. That has arisen, no doubt, from the fact that certain people prefer that form of investment who may invest again after the year has expired, but it was also, no doubt, largely encouraged by the very handsome rate which is paid. But do not let the House forget that the Chancellor of the Exchequer was forced to raise his rates. He had reduced the rates on Treasury Bills when the Money Market permitted him to do so. He had the fullest advantage of that reduction in the plethora of short money which was then available, and if he has been compelled to go to 5 per cent., 5½ per cent., and 6 per cent. rates of discount, he has done it for the best of reasons, that the Money Market more or less compelled him to do so.
§ Mr. MASONIssues have been brought out in peace time and in war time at rates lower than the Bank of England rates of discount. I gave one instance of the New South Wales Loan. It does not depend entirely on the Bank of England rate of discount.
§ Sir G. YOUNGERIssues of bonds are one thing and issues of bills are another. No doubt it is perfectly true that at present New South Wales is borrowing at 5½ per cent. No doubt the Chancellor of the Exchequer, when ho, comes to borrow, is confident that he can borrow at much less than that. It is cheaper to pay 6 per cent. now if he can borrow a little later on at 5 per cent., than to borrow 1305 just now at a higher rate. What the hon. and gallant Gentleman (Colonel Hall) appeared entirely to ignore was the fact that the Chancellor of the Exchequer has so strongly enlarged upon, namely, that he is governed by his foreign necessities and his foreign commitments. That is the important part of the situation. What is the good of comparing this country with Germany? Germany's foreign commitments are very small. They are self-supporting, they produce their own munitions, their own guns, and their own everything, and they grow a very great part of their own food. That is an internal question. If we had only an internal financial situation to deal with the Chancellor of the Exchequer would be in a bed of roses, but he has a foreign situation to deal with. That is the factor which governs the whole situation, and it cannot be ignored by anyone, and certainly the Chancellor has every excuse and reason for taking up the attitude he did to-day and in making the statement he did on the rates he is paying. I hope the increase in the Bank rate is only a temporary measure. It had an immediate effect anyhow. It saved the situation when it was put on. We do not know whether the situation would not have saved itself, but the immediate effect was that gold was not withdrawn from this country, as it threatened to be, and our position is to that extent all the stronger. I could not follow the calculation of my hon. and gallant Friend (Colonel Hall) when he said that 6¾ per cent. discount was equivalent to a gross return of 8½ per cent. Does he think no Income Tax is paid?
Colonel HALLI was particularly careful to say that Treasury Bills which are held by foreigners who pay no Income Tax whatever yield 8½ per cent.
§ Sir G. YOUNGERDoubtless they do, but that does not meet what my hon. and gallant Friend said all the same, because the gentleman who holds these foreign bills has to pay internal taxation, where there is Income Tax, and therefore it is not a fair analogy.
§ Sir G. YOUNGERI do not think so. There is a Dutch tax or a Swedish tax, and therefore it is not the equivalent of what the hon. and gallant Gentleman said 1306 it was. I was particularly interested in the last part of the Chancellor's speech when he told us what the estimated income of the country was, what the estimated capital resources were, and what relation that bore to the debt which we expected to be accumulated against us on 31st March next. He put it truly when he said that a man with £5,000 a year would not seriously feel the burden of a debt of £5,000. Of course he would not, but there is one point about that on which the State differs from an individual. The £5,000 a year is liquid money out of which he can pay the debt and our capital assets are not altogether liquid. That brings me to the point I want to make. Everything depends in this matter on the position we take up after the War with regard to the organisation of our industries and of our whole position. We have to create credit in some sort of way, no doubt through the operations of banking, through the co-ordination of our capital and the comparative ease with which advances can be made by bankers. The whole thing depends on that—upon our treating this £2,600,000,000 of debt as part of the capital invested in the productive industries of this country. If you treat it, apart altogether from the very interesting treatment of the Chancellor of the Exchequer, as capital in addition to the money at present invested, and if you organise those industries properly, if the Government does not stand aside, as it did before, but rather takes a leaf from the German book and assists industry in every way and encourages individual effort and co-operative effort and all that sort of thing—if they see that every possible facility is rendered to the traders in order to increase productivity, I have no fear whatever of that £2,600,000,000 of debt yielding a very large income to this country and very soon liquidating itself. It all depends on that, and I am glad to think that on all hands we are leaving aside our past controversies. I was never a very keen Tariff Reformer at all, and I am not talking of Tariff Reform now, but I am thinking far more of organisation and encouragement, far more of the use of the power and influence of the State and the support of the State in helping individual effort and co-operative effort to so increase production in this country, because it all depends on production. We shall find that this £2,600,000,000, a large part of which has undoubtedly been 1307 wasted in the past, will be more productive than anyone can possibly expect, and will not be a very serious burden in the future.
§ Mr. BRYCEI do not think the hon. Baronet would find any very large number of people in the City to agree with him that the piling up of floating debt is not at present a danger.
§ Sir G. YOUNGERI did not say it was not a danger. I said we all agreed that it is unfortunate to have too large a floating debt.
§ Mr. BRYCEI do not agree with the hon. Baronet. I think a better means might be found of raising money than the method which the Chancellor of the Exchequer adopts. My right hon. Friend described quite truly the attractiveness of the Treasury Bond method, but it has another advantage which has not been alluded to at all, and that is, that it does not really pay Income Tax at all. I am perfectly aware that my right hon. Friend says it does pay Income Tax, and he quoted a Section of the Act of 1832, but that is his interpretation of the Section. It does not follow that the Law Courts would give the same interpretation, and, as a matter of fact, the Commissioners of Income Tax hold that Income Tax is not payable on Exchequer Bonds. Of course, a certain amount of it pays Income Tax. What goes into the coffers of discount owners and bankers and actually contributes to their profit does pay in a sense, but suppose a discount owner holds £100,000 of Treasury Bills and he has a loss in his business. He pays no Income Tax at all on the Treasury Bills. The same thing applies to all bankers and all commercial institutions which deal in money, and which theoretically pay Income Tax on the Treasury Bills. As for the private holders, I am perfectly certain that not one in a hundred pays Income Tax. The Chancellor of the Exchequer says a very large amount of private money has gone into these bills. Certainly, in the course of the last two months a very large amount has gone. People are told they have to pay Income Tax, but they go to the lawyer and he says no, and they do not pay it. Curiously enough it was expected that my right hon. Friend would introduce legislation this year to make it clear, but he did not do it because he was very much afraid that if he did he would stop traffic and would not be able to sell 1308 any more bills. All this question of raising money appears to depend largely upon the way of making most attractive this form of investment. At the present moment the Treasury Bill is the most attractive form of investment, but what does the Chancellor of the Exchequer get out of it? It costs 6⅜ per cent. nominally, and Income Tax at 5 per cent. reduces the net return to 4¾ per cent. or 4⅜ per cent. I did not follow the hon. Baronet and the hon. and gallant Gentleman (Colonel Hall) in their 8½ per cent.
§ Sir G. YOUNGERFive shillings Income Tax is 2½ per cent.
§ Mr. BRYCEIf my right hon. Friend were to issue five-year Bonds free of Income Tax do not tell me he would not be able to borrow as much money as he liked at 4¼ per cent. He would. It is the uncertainty that makes people doubt about funded loans and about Exchequer Bonds. They do not sell Exchequer Bonds now except at a discount. There is no market for them, because you can always get an Exchequer Bond by going to the Bank of England. No one can sell them. A seller has to pay brokerage and so on, and find a buyer. The result is that an Exchequer Bond is not worth 5 per cent. in the market. It is practically unmarketable. But a 4¼ per cent. Bond without Income Tax would be a splendid saleable thing. A man would know that at the end of five years, or whatever the term was, he would get his money intact, and he would know exactly where he stood, and that is what no one knows with regard to any of the Government investments at present in the market. They do not know where they stand and what it is going to be worth after the War is over. I recommend not what the hon. and gallant Gentleman (Colonel Hall) recommended—an Income Tax paying security with the payment spread over a certain time—though that is a good idea in itself—but I recommend a non-Income Tax paying security. As regards Income Tax, the Chancellor of Exchequer is limited to a certain amount, and as regards Exchequer Bonds he will not deduct Income Tax at the source. He is getting on. 1309 I want him to declare that in the next quasi-funding Bill which he issues will be a security which will not pay Income Tax, and will not depreciate. What is the position of other securities? The 3½ per cent. stands at 8 per cent. discount, and the 4½ per cent. at 4 per cent. discount. For Exchequer Bonds there is no market. Treasury Bills are renewable at a discount. If you want to get your money you do not get it on a Treasury Bill. What the country wants is a security of a certain value. That is one reason why the War Savings Certificates have not gone as well as we would have liked. The amount of War Savings Certificates issued is about £14,000,000. It looked like an attractive investment. You have not got at the working classes, for whom these certificates were designed. You have got at people like the hon. Baronet (Sir F. Banbury). I do not know whether he has done it, but I know of lots of people who have done it, who are in as good a position as the hon. Baronet, rich people, who have taken up to the amount of £500. The working man does not see the benefit of it. He is offered for his 15s. 6d. £1 in five years' time. He does not understand that. He wants income, and he will not take it in that way. If the Financial Secretary to the Treasury will inquire, he will find that of the amount of War Savings Certificates issued very little has gone to the working classes. A certain amount has gone in schemes introduced by banks, insurance companies, and others for inducing their staffs to take these War Savings Certificates. I know of one bank which has invested £40,000 on behalf of its staff. That is a capital thing; but out of the total amount of £14,000,000 up to 5th August, I think the Financial Secretary to the Treasury will find nothing like one million has been taken by the working classes. What they want is a 4½ per cent. interest investment of the nature of the Savings Bank interest, something that they can go and draw when they want. You will not get the working classes to come forward with their money by any of the ingenious dodges devised by the Treasury.
§ Sir F. BANBURYmade an observation which was inaudible in the Reporter's Gallery.
§ Mr. BRYCEI think that is quite possible. There is another question. Have the Government been paying too much? I find considerable difficulty in coming to a 1310 conclusion with regard to that. I think on the whole they have paid too much. I do not say that at any particular moment it may be said they have paid too much. Three Months' Treasury Bills at present are worth 5½ per cent. You can go to the Bank of England and get three months' Treasury Bills at 5½ per cent. discount. I know that to-day in America Bank Bills were preferred at 5⅜. I know that an offer was made to-day by a bank of Treasury Bills at 5½ per cent., and Bank Bills at 5⅜ per cent., and they took the Bank Bills at 5⅜. That surprised me. It does not look as if the credit of the Chancellor of the Exchequer in Treasury Bills was so extraordinarily brilliant in America as against Bank Bills. Of course, that is only a momentary position. Looking at the whole position generally, I think it will be seen that we have been and are paying too much. What is the value of day-to-day money in America to-day? Two and a half per cent. In Paris day-to-day money is worth 3 per cent., in Rome 4 per cent. I do not know the price in Holland, but I think it is 3½ or 4 per cent. We are paying 5½ and 6 per cent. interest when money in all these other centres is worth very much less. I think an artificial value of money has been created in England. It is largely created by the necessity we have of maintaining a free market for gold. We are financing our Allies, and I think it is a most extraordinary thing that two of our Allies are hoarding gold. I presume there are bargains made with these Allied countries with regard to our getting advantages for the financial facilities we are giving them, apart from the general support they are giving in the War by fighting for the Allies. I suppose there are some financial advantages. Two of these countries whom we are financing, Russia and France, have got enormous stocks of gold. France has £200,000,000 and Russia has £200,000,000. What in the name of wonder is the use of these hundreds of millions of gold to these two countries? They say it is to maintain their credit after the War. Their credit now is not being maintained by themselves, but it is being maintained by us. We are paying. Why in the world do not they give us some of that gold at a pinch? What is the use of gold except at a pinch? What is the use of bank reserves except at a pinch? Suppose we locked up in a fortress like Spandau one hundred millions of gold. Should we keep 1311 it there like the talent in the napkin mentioned in the Scriptures, and make no use of it? No! We should certainly put it out. When you want your reserves is when the pinch comes. Here these other people are storing up their gold and doing nothing with it. If they gave us 50,000,000 or 100,000,000 of gold it would make an enormous difference in the financial position. I think it is a monstrous thing that while we are financing these countries two of them who are storing gold do not give us any assistance to help us in this gold difficulty. I wish the Chancellor of the Exchequer would impress upon these countries the necessity of doing this. I do not think we have had from Russia and France put together more than 20,000,000 of gold. We want the gold during the War. I do not believe that their having 200,000,000 of gold at the end of the War will make the slightest difference to their credit. I do strongly impress upon the Government the necessity of doing something in this matter.
7.0 P.M.
I cannot help thinking that the position of the floating debt is a dangerous thing. It is all very well for the Chancellor of the Exchequer to say there are permanent investments, and so on, and that the bills will be all right. How does he know? Suppose there is bad news? Suppose there is a defeat? He might not find it easy to get his maturing bills renewed. With respect to currency notes, the position has become quite different from what it was in the past. In the old days I did not think there was much danger. Now the currency notes have become a danger, because they are part of the body of floating debt. I do not quite agree with the hon. Member (Mr. D. Mason). He said there was £127,000,000 of them. He ought to have deducted the gold held against them, which amounts to £28,000,000. Therefore the amount of floating debt involved in these notes is at present £99,000,000. That added to the £856,000,000, which is the exact figure of Treasury Bills, or was on 5th August, makes a floating debt of £955,000,000, or nearly £1,000,000,000 of pure floating debt. If you add the short-term loans of £345,000,000, you get a total floating debt of over £1,300,000,000. If you add to that the funded debt, old Consols, annuities, War Loan, etc., amounting to £1,252,345,000, you get a total debt of 1312 about £2,554,000,000 at the present time. With regard to what the position is going to be at the end of 1916, I cannot help thinking that the right hon. Gentleman is unduly optimistic. I calculate, allowing for all the remedies which are going to be adopted, that the amount of floating debt outstanding will be very much larger than he thinks it is going to be. It is of the greatest interest to this country that we should see its finances put into a sound condition, and, if possible, the immense amount of floating debt greatly reduced.
§ Sir JOSEPH WALTONThere is no subject of greater importance than the policy of war finance. The hon. Member who has just spoken gave some startling figures towards the close of his speech, but I would like to take a somewhat different view. The deficits for the two years ending 31st of March next are £2,545,000,000. Towards that we have £600,000,000 Loan, £50,000,000 Loan, and £312,000,000 of Exchequer Bonds. That is a total of £962,000,000. Therefore, we have to find no less than £1,583,000.000 to clear us to the 31st of March next. Towards that we have War Savings Certificates £15,500,000, and War Expenditure Bonds £17,500,000—that is £33,000,000—reducing the amount undealt with to £1,550,000,000. When I say undealt with, I mean undealt with in a permanent fashion. Towards that we have issued short-dated Treasury Bills to the amount of £860,000,000, and after setting aside those altogether we still have to raise, either by loan or by a further issue of Treasury Bills, a further sum of £700,000,000 to clear us to the 31st of March next, or, with the Treasury Bills already issued, £1,550,000,000. The question is, if the policy which has recently been pursued continues to be pursued and no long-dated loan is issued, we may ultimately be face to face with the fact that we owe £1,550,000,000 on short-dated Treasury Bills. That would, indeed, place us in a very serious financial position.
I am able to congratulate the Chancellor of the Exchequer on the remarkable strength and buoyancy that the country has shown so far, and it must have been a source of deep gratification and some amazement to some of us that the financial position has been found to be so absolutely sound. There is no question of our ability to finance the War, but what I want is that we should finance the War on lines that will enable us to raise the 1313 money at the least cost to the taxpayers of this country, and will also leave us in a position to go in for trade and commercial development at the end of the War to the fullest possible extent. If £1,550,000,000 ultimately becomes a floating debt on short-dated Treasury Bills and the end of the War appears in sight, what will happen? The greater part of the people holding those £1,550,000,000 of Treasury Bills will want the payment of their money, when it becomes due, for commercial extension and development, the purchase of new ships to replace the great losses which we have had, and for promoting our general economic recovery. I should be sorry if we ever drifted into the position that the Government of this country had to default—default only in the sense of deferring payment—and had to say to the holders of their Treasury Bills that they could not pay them then. That is a most undesirable position. If the Government were not in a position to pay off those £1,550,000,000 and had to go to the holders of these Treasury Bills and arrange for a renewal of them when the holders wished to have them paid and use the money for commercial and other reasons, that would be a sorry position into which to let this country drift. Therefore I have advocated for some time past that we ought to raise by long-dated loans a substantial portion of the cost of this War.
If this had been done nine months ago there is no question that a loan could have been issued successfully for a large amount at a lower rate of interest than it is likely to be raised at in the near future, or whenever, it is raised. The fact that we are already paying for twelve months Treasury Bills 6⅜ per cent. whether or not they are subject to Income Tax, certainly debars us from having any hope of raising a long-date loan at the same rate as that at which we could have raised it nine months ago, and I think that the Chancellor of the Exchequer would be well advised, and it would be the soundest financial policy in this country, if at the earliest suitable opportunity a big loan were issued. We do not want in this country to have a compulsory loan, but if we drift along on the lines on which we are going, piling up this huge floating debt of short-dated Treasury Bills, it may become absolutely necessary to have either a compulsory loan or a compulsory renewal of Treasury Bills. Both, 1314 to my mind, would be equally objectionable to the spirit of this country, which has been prepared financially and otherwise, and is still prepared to make every possible sacrifice that is necessary to enable us to achieve the triumph that we must have in this War. I think that this has been a most useful and informing Debate. It was high time that we had this matter of the methods by which we are going to finance the War, whether by short-date or long-late loans, threshed put in this House, and we owe a debt to the hon. Baronet who raised this discussion for having secured this opportunity to the Committee. There is no doubt whatever as to our ability to finance the War, however long it lasts, but that is no reason why we should not endeavour to do it on lines which will impose the least cost on the taxpayers of this country, and will leave us in a position to have that enormous commercial expansion and economic development which we shall need at the end of the War to restore real and lasting prosperity to the country.
§ Mr. SAMUEL SAMUELI have spoken on the subject of Treasury Bills before, and I pointed out the great danger which the country runs in accumulating a large floating debt, which may have to be met at Very short notice. The Chancellor of the Exchequer told me, and he was correct in saying so, that I did not represent the banking and the commercial houses in the City of London; but I told him then that I have been engaged in business and was in contact daily with the banking interests and the commercial interests. There is a great difference between the commercial and the banking interests, and I believe that I am correct in saying that the Chancellor of the Exchequer acts almost entirely on the advice of the banking interests of this country. They mix up two things with these Treasury Bills. They mix up the question of raising money for the purpose of carrying on the War, and we have been told in this House and we have been told in the City over and over again that the other object of these Treasury Bills is to regulate the exchanges in the different markets of the world. I do not wish to say anything offensive against the great bankers of this country, but I may point out that there are very few, if any, of them, who, before the War, had had any experience at all as to exchange in international business, and the consequence is that they have made blunders in the way 1315 in which they have manipulated the rates which the Government have had to pay for borrowing the money.
We commenced at the beginning of the War with a Loan at 3½ per cent. There was no difficulty in raising that loan. The amount was £850,000,000. As I pointed out to the Chancellor of the Exchequer before, the Bank of England, presumably acting in conjunction with the Treasury, put' up the Bank rate and sold Treasury Bills over the counter at 4½ per cent. That was not an unreasonable rate of interest to pay seeing the enormous demands that the Government was making on the country, but without any reason at all the Government set to work, and in the City of London we were alarmed to see that without notice—I pointed this out before—the rate for Treasury Bills raised and the bills put on the market at a very much higher level. The hon. Baronet the Member for Ayr Burghs (Sir G. Younger) said that the Government were compelled to pay 6 per cent, for the Treasury Bills which they had just issued. There is nobody connected with the City of London, outside perhaps the Bank of England and one or two large joint stock banks, who will agree with that opinion. The whole circumstances were well known to those houses which are in constant communication with different parts of the world. In the New York market there were certain negotiations going on. The English Government had to renew certain bills, and the French Government were negotiating a loan, and the consequence was that, pending those negotiations, the rates in the United States were advanced. The Bank of England, knowing little of international commerce, were afraid that they were going to lose gold. They do not appreciate the conditions of war, at least, judging from the way the finance has been carried on. They thought that the methods which were adopted in peace to attract gold to this country would act at the present time. The Bank of England, without knowing the reason of the advance of money in the United States, immediately raised their rates by 1 per cent., compelling the Treasury, if they wanted to issue new Treasury Bills, to give the Bank rate.
Now we have seen throughout every operation which has taken place a desire to control the Money Market in this country. The hon. Member on the Front 1316 Bench opposite pointed out the low rates which are prevalent in Paris, Amsterdam, New York, Stockholm—everywhere but in this country. Why is that? Because the Government of this country have taken it into their heads to control the Money Market of Great Britain, thinking that by that they could control the Money Market of the world. We have been a great factor in the finance of the world, but at the present time, when we have lost our power of commerce, which the Government, of course, knows little or nothing about, we have lost the power to control the finance of the world, or at least the rates which money obtains in the different markets. The Government will realise that, with imports enormously against them, having virtually stopped the exports of this country, and having stopped international commerce by which were affected the exchanges on which different parts of the world have to rely, even with their action in regard to securities, it will be difficult for them to maintain any fixed rate of exchange in any part. In reference to the Treasury Bills which they are putting in circulation, the Chancellor of the Exchequer has presumably analysed them to see where the money is coming from. We know perfectly well that at the outbreak of war this country had been doing an enormous commerce, that we had debts owing to us all over the world, and that trade having stopped a great deal of that money is coming back to this country in different forms. We know that we have lost a large number of steamers and vessels which have been torpedoed, and we know that there are various directions in which money used to be invested which are stopped at the present time. The money which would have been so used is, to a large extent, the money that is being put into Treasury Bills. We know that there are certain sums coming from neutral countries, owing by this country, that are in Treasury Bills. That is always a danger, because the Government know that, so far as neutral countries are concerned, that they may withdraw the support that they have given to our exchange. I know of one instance where the people of a neutral country, friendly to us, have agreed to leave the money in Treasury Bills until after the War. After the War we have to expect a great extension of our trade. I would ask the Chancellor of the Exchequer is he going to wait to float a permanent loan until the War is over 1317 when we know that there will be a demand from all sides, that our merchants will require facilities to take up the trade that has been lying dormant, and that the shipowners will be withdrawing their money for the construction of ships?
The Government will find, I do not doubt for a moment, all the money that they want, but instead of being able to get it as they would have got it, at a reasonable price, they will have to pay what is called "through the nose" for any financial accommodation they require. We see before us the time when there may be a financial crisis in this country if our liabilities are allowed to accumulate in the proportion in which they are accumulating at the present time. There is not the least doubt that, had the Government taken the course of raising a permanent loan, our financial position would have been very much better than it is at the present time. Had the Government not tried to control the Money Market by manipulating the Bank rate, and doing a most outrageous thing for the express purpose of driving up the price of money, we should not have seen that 6 per cent. Bank rate. Had the Government consulted the merchants of this country, who are used, to carrying on international commerce, they probably would have been able to save themselves some of the alarm which they have experienced in regard to the question of exchange. I know perfectly well that measures could have been taken in the first twelve months or so of the War which would have steadied exchange without having to resort to means which the Government adopted, or rather, probably, were advised to adopt; and I am perfectly certain that I am expressing the wish and the opinion of commercial men, if not the banking community entirely, in saying that they would like to see the debt of the country, as at present expressed in Treasury Bonds and short-dated bills, put into a loan for as long a period as possible, so that we shall be in a position to further continue this War, and raise the money we may require, and shall require, without difficulty and without having to resort to a forced loan. We undoubtedly shall have to receive assistance from the Government in regard to currency. I pointed out to the ex-Chancellor of the Exchequer and to the present Chancellor of the Exchequer, on a former Budget, that it was of no use thinking we could see this War through and pay 1318 everything in gold, because we cannot do it. In regard to the Treasury Bills which are in circulation, how much gold have they to redeem them with, if they are asked to redeem them? Under these circumstances it is of no use flattering ourselves that the whole of our liabilities can be redeemed in gold, and the sooner the Government realise the position in which they are placing the finances of this country, and the sooner they take the matter seriously in hand, the better it is going to be for the country while carrying on the War, and when we are in competition with Other countries in the markets of the world after the War.
§ Sir J. D. REESThe praises passed on the Chancellor of the Exchequer, which are so thoroughly well deserved, make me all the more regret that I feel called upon to point out one or two blemishes, in an otherwise praiseworthy record, or, at any rate, take into account certain points of administrative action. I shall be very brief, because I have already communicated with the Chancellor of the Exchequer on the subject. I showed him, and he admitted that, so far as the existing law as regards excess profits is concerned, a firm may make £50,000 one year profit, and lose £50,000 another year. Nevertheless, they will have to pay on excess profits £5,000, because of the provision in the last Finance Act, and because of the fact of the 50 and 60 per cent. calculation in different years. I say nothing more upon that subject beyond the passing statement of the case. The Chancellor of the Exchequer has most courteously answered the letters I have sent him, and has stated that he will endeavour to set it right another time. But that will be too late. What is to prevent his issuing instructions now?
§ The CHAIRMANThe Chancellor of the Exchequer cannot give instructions contrary to the Act. We are in Committee of Supply, and we cannot deal with questions of legislation.
§ Sir J. D. REESI am well acquainted with the fact that we cannot deal with matters of legislation, but I would submit that it is competent for the Chancellor of the Exchequer to issue instructions to his subordinates which would lead to the removal of this hardship, because the construction of the law is not certain, and it is possible that it might be so construed so as not to have the result which I have stated. Therefore, I submit that it would 1319 be competent for the Chancellor of the Exchequer to issue such instructions. I do not wish, however, to argue the point further, but I would urge upon the right hon. Gentleman that, if he can issue such instructions, in common justice he ought to do so. I believe he could do it by administrative instructions, and, so far as I am aware, no legislation is needed to deal with the case. I now deal with the case of the Income Tax collected here from persons resident in England, but deriving their incomes from capital in America. A person has property there, and pays on the three years basis. In reply to the urgent call of the Chancellor of the Exchequer that person, like a patriot, sends home part of his capital, in order to facilitate exchange, to meet the present financial position, and to save the country, and he pays the Income Tax on that capital, which he invests in Government securities here. While he is paying Income Tax here on that portion of the capital he has sent home, and invested in War Stocks, he nevertheless has to pay the full, or only less than full, rate in America, because he is charged under the three years rule. I have put this case before, but I have received no answer, and I take this opportunity, without going into it further, of bringing it before the right hon. Gentleman. If he cares to look up the Debates on the point he will see that I fully stated the case on a former occasion. I trust he will be good enough to look it up, and see whether or not it can be dealt with. I fully believe it can, and without legislation. The only other matter to which I wish briefly to refer is the commission to brokers in connection with War Savings Certificates. The Chancellor of the Exchequer says that we must pay the bankers commission, but we need not pay the brokers, who bring in only small amounts. When a man may not be making his luncheons by his profession, he does object very much that he should not have his little bit of commission on his business, small though it may be. The broker procures money in small sums which in the aggregate is not so large, perhaps, as the bankers bring in, but I cannot see any essential justice in not giving the broker his percentage of commission as well as the banker, and I submit to the right hon. Gentleman that in a matter of this sort this injustice should be remedied, and 1320 there should be little adjustments made in regard to the matters to which I have referred.
§ Mr. HOHLERI desire to raise a very short point, though one of great interest, which has already been referred to by the right hon. Member for the City of London (Sir F. Banbury). I want, however, to raise it in a somewhat different form, and I trust that the Financial Secretary to the Treasury will give me an answer. Under the Finance (No. 2) Act, 1915, for the first time, by Section 22 of that Act, agricultural land was put under the full assessment instead of a third. Had it not been for that Act the occupier would have only been taxed on a third of his assessment. Section 20 (b) of the Finance (No. 2) Act, 1915, provides as follows:
An assessment of any such Income Tax not already made shall be made for an amount exceeding by 20 per cent, that for which it would have been made if this Act had not passed.I contend that those words clearly mean that the Treasury have no right, as they are at present seeking to do, to charge 20 per cent. on the two-thirds increased assessment. This is a matter of great importance to the country, and I am sure the Government would not wish to take money which the Act does not give to them. Before that Finance Act was passed all that the occupier of land was liable to pay was upon one-third of the assessment. Section 22 of the Finance Act of 1915 provides:Sections twenty-six and twenty-seven of the Finance Act, 1896 shall as respects Income Tax under Schedule B have effect as if references to one-third of the annual value were references to the annual value.The Treasury are claiming, without any right of any sort or kind, to add the 20 per cent, to the two-thirds additional assessment which they are empowered to make by the Section I have just quoted. They could not make the assessment if the Act had not passed, and could not make the farmers liable for the additional two-thirds. I may be very wrong and stupid, but I have looked into the matter very carefully. The point concerns me as an executor and trustee, and therefore I am deeply interested not to go wrong on it. It is also a matter which is most important to the whole agricultural community. 1321 Assuming I am wrong on the point I have made, there is another point I wish to submit. Parliament only gave authority to make provision for the last six months of the then current year, while the Treasury are charging 20 per cent, for the period of twelve months. Thus, say, on a sovereign the 20 per cent. would be 4s. for the twelve months, while I contend it should only be 2s. on the sovereign, which would represent the charge for six months. I rely most strongly on my first point that they have no right to make this charge at all, and if I am right in that contention the second point does not, of course, arise. But, even if they are entitled to make the charge, I submit they can only do so for the six months with which Parliament dealt. I would ask the Financial Secretary to give a clear and distinct answer on the point, which is one of such importance to the agricultural community, who have been badly hit over their wool.
§ Mr. OUTHWAITEThe matters raised by the hon. Baronet (Sir C. Henry) seem to me to be of first class importance. I listened to the reply of the Chancellor of the Exchequer, and to my mind he did not meet the hon. Baronet on one single point. I should not have risen except to enter a protest against the tone of the Chancellor of the Exchequer's reply—a tone of what I may call undue optimism and almost of levity in regard to the matter before us. He argued that it was unnecessary at the moment to meet what seems to me is the very grave crisis which has arisen through this enormous piling up of these short-dated securities by saying, "Look at what our position will be at the end of the financial year in March. Our war debt will then only be £3,400,000,000, whereas our national income is £2,700,000,000, and really what does it matter? It is scarcely a matter worthy of our attention, or of any concern." I think that is altogether a wrong point of view for the Chancellor of the Exchequer to take up. Whatever view we may take with regard to the War or the objects of the War, the debt must determine very largely the future of the country. We should hope to have a Chancellor regarding with the greatest concern every question in connection with that debt, because unless it is so you will have extravagant expenditure and the national interest will not be conserved. What I was looking for from him was an explanation in reply to the opinion of every authority, bankers and others as to the action he has taken or non-action, and he provided no 1322 explanation whatsoever about the bankers opinion that these debts should be funded. Why is it that he does not do so? There can be only one reason, and that is that he does not think that he can get the money at what he thinks to be a fair rate of interest. It can only be that he thinks that at this juncture he will be held up to ransom by the financiers and compelled to pay a higher rate than he thinks should be paid in the national interest or that it is fair should be paid. There can be no other reason except that he hopes for an early termination of the War, and that then he will be in better circumstances than to-day. I am rather doubtful as to the wisdom of that point of view. I think it is more likely that he would be able to raise the money under favourable circumstances during the time of war, when we are spending these gigantic sums, than in the time that will come with the cessation of hostilities. Be that as it may, if the Chancellor considers that he should adopt the view so widely expressed that the floating debt should be funded, and that he cannot through administrative methods float his loan at a reasonable rate, then I say he should come down and ask for such powers as have been suggested by several speakers, including the hon. Baronet. By your ruling, Sir, we are not able to discuss the suggestion of a forced or compulsory loan, but I hope that the Chancellor will come to the House and not allow this vast accumulation of floating debts to proceed.
§ Sir C. HENRYI am certain that every Member of the House was pleased to hear the satisfactory statement of the Chancellor as regards the financial affairs of the country. Personally I have never had any doubt, and I have none now, of the fact that, however long the War may last, that the national position is assured. I do not think, however, that the Chancellor quite answered the point I endeavoured to raise, and which is the gravamen of what I said—namely, that the manner in which he is borrowing money and financing by Treasury Bills is expensive, and should be put an end to as soon as possible. He also misunderstood me rather with reference to my criticism as regards the amount of Treasury Bills that were taken by neutrals. Neutral countries are buying those Treasury Bills, for which this country is paying an excessive rate of interest, and that could be avoided, I think, if more logical 1323 and rational means were found of obtaining the money necessary for our finances. The Chancellor of the Exchequer was very indignant at my suggestion that one of the reasons why he did not float a loan was that he was under a commitment to pay any more favourable terms on any future loan to the holders of the loan of June, 1915. Of course I was not criticising him personally. But I do not withdraw the criticism, because it is only reasonable that, in the interests of the Treasury and in the interests of the State, he should not be called upon to pay extra interest on the previous loan until he was absolutely obliged to do so. I think that on the whole we have every reason to be satisfied with the way the matters which have formed the chief subject of this Debate have been dealt with. I understand from the Chancellor of the Exchequer that he fully recognises the undesirability of these Treasury Bills mounting to a much larger figure than at present, and that he is prepared whenever the time is opportune to fund the Treasury Bills by issuing a loan. Tinder these conditions, I beg leave to withdraw my Amendment.
§ Amendment, by leave, withdrawn.
§ Original Question again proposed.
§ The FINANCIAL SECRETARY to the TREASURY (Mr. McKinnon Wood)Perhaps I may now reply to various points which have been raised. The question of excess profits has been dealt with, and I do not think I need dwell on that. The next point was in regard to a man who brings capital over from America to invest in Government securities and finds that he has to pay Income Tax on those securities, while he is still paying in America. I cannot say that I am familiar with the position in America, that particular case, not having been brought to my notice. But it is evident that we are not in a position without legislation to exempt such a man from the Income Tax payable on investments here. The third point was in reference to paying brokerage to stockbrokers in regard to War Savings Certificates. The idea of these certificates was that they should be issued in the most convenient way possible, primarily through the Post Office, and that a brokerage should be given to bankers because they actually performed services, and assisted the Post Office in the issuing of these securities. No such case has been put forward in support of the claim of stockbrokers. The 1324 hon. and learned Member for Chatham (Mr. Hohler) raised exactly the same point as the right hon. Gentleman opposite (Sir F. Banbury) and supported it with the same arguments.
§ Mr. HOHLERI raised two points.
§ Sir F. BANBURYI thought that you could charge the 20 per cent. only for six months, and not for twelve. My hon. and learned Friend goes further, and says not only that you cannot charge it for twelve months, but that you cannot charge the 20 per cent. for six months.
§ Mr. McKINNON WOODMy hon. and learned Friend put before us a very elaborate argument to which I listened with great attention. I think he will appreciate that if this charge is, as he contends, illegal, and such a matter as may be brought up in the Courts to be tested, it would be exceedingly hazardous and rash for me to attempt to enter into a legal argument.
§ Mr. HOHLERMay I draw the right hon. Gentleman's attention to Section 34 of the Finance Act, 1916!
§ Mr. McKINNON WOODThe point is that the Inland Revenue authorities do not agree with the interpretation of my hon. and learned Friend.
§ Mr. HOHLERThen why amend the law? You have it right for the current year, but that will not do for the past.
§ Mr. McKINNON WOODMy point is that if it is a question of such legal nicety, I do not think my hon. and learned Friend will expect me to enter into a legal argument. It is a matter upon which my legal advisers do not agree with my hon. and learned Friend, and I think he must excuse me from entering into an argument on the subject. There is only one further point. I think it was a fallacious argument to say that because Treasury Bills bear interest at 6⅜ per cent., and no Income Tax is payable, the Chancellor of the Exchequer is paying 8½ per cent. As a matter of fact, the great difficulty at the present moment is to deal with the question of foreign exchange. Though it may be quite true that you can raise money in this country so that the ultimate cost to the State is a great deal less than 6⅜ per cent., it does not follow that you are entitled to add the taxes, thereby arriving at the figure of 8½ per cent., and say that the raising 1325 of the money costs the Treasury 8½ per cent. If it is looked at from that point of view, I think the criticism entirely falls to the ground.
§ Original Question put, and agreed to.