§ Resolution reported, "That there shall be charged for the year beginning the sixth day of April, nineteen hundred and sixteen, and for any subsequent year for which Income Tax is charged, on the income derived from any stocks, shares, or 360 other securities which the Treasury have declared that they are willing to purchase in connection with any arrangements for the regulation and maintenance of the Foreign exchanges, an additional duty of Income Tax at the rate of two shillings in the pound, and that no person shall be entitled to any exemption, abatement, or relief under the Income Tax Acts in respect of such additional Income Tax.
§ And it is declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."
§ Resolution read a second time.
§ Sir F. BANBURYI beg to move to leave out the words "and for any subsequent year for which Income Tax is charged."
The effect of this Amendment would be to limit the Resolution to this year, and I think, in all probability, it will be agreed to.
§ The CHANCELLOR of the EXCHEQUER (Mr. McKenna)indicated assent.
§ Question, "That the words 'and for any subsequent year for which Income Tax is charged stand part of the Resolution," put, and negatived.
§ Sir F. BANBURYI beg to move, after the word "any" ["from any stocks, shares, or other securities"], to insert the word "American."
The object of the Resolution is to allow the Government to obtain securities in the American market in order that they may regulate the American exchange, but as the Resolution is drawn any securities of any description might be taken. I feel sure that was not the intention of the Government, and in order to make that quite clear I propose to put in the word "American." I do not know whether the right hon. Gentleman will accept the Amendment.
§ Mr. McKENNA indicated dissent.
§ Sir F. BANBURYIf the right hon. Gentleman desires. I will also put in "Canadian."
§ Mr. McKENNA again indicated dissent.
§ Sir F. BANBURYThen I shall have to move the Amendment to put in the word "American." I should be quite content 361 to accept the word "Canadian," or, if the Sir F right hon. Gentleman wishes it, "South American," but I should have thought that America almost included Canadian and South American States which are in the continent of America. I am quite willing to make that clear, but I think it ought to be limited to a certain defined class of securities, and that the Government should not have the right to hold over the holders of securities undefined powers of this sort.
§ Mr. McKENNAMy right hon. Friend has given no reason for the limitation which he has moved, except the general one that the Government ought not to have the power to hold this rod over the holders of securities other than American securities.
§ Sir F. BANBURYThe object of this Resolution is to regulate the American exchange. Securities other than those which are dealt with in America are useless, and therefore there can be no objection as far as I can see to limiting it to those securities which are necessary for the purpose which the right hon. Gentleman has in view.
§ Mr. McKENNAAs I understand my right hon. Friend's argument, it depends upon the question whether other securities are or are not useless. If he finds on investigation that they are useful, he would agree to the general words as they stand. I can assure him that they are useful. We are advised from America that not only American securities, but a great many other securities in America would be accepted for sale or for deposit as security for a loan, and it is quite impossible at the present time to say which securities would not be accepted. I could not recommend the House to limit the Resolution in the manner my right hon. Friend has suggested, because the effect of it would be to limit our power to obtain credit in the United States, and that is the sole object of this Motion. The right hon. Gentleman agrees that it is desirable we should have I would not say almost unlimited but very large powers of raising credit in the United States for our own needs and the needs of our Allies. One of the main sources of our credit in the United States arises from our power to sell or to pledge Securities, and therefore we require the larger words of the Resolution.
§ Sir F. BANBURYI do not propose to press the Amendment, though I do not agree with the statement of the right hon. Gentleman.
§ Amendment, by leave, withdrawn.
§ Sir F. BANBURYI beg to move, after the word "purchase," to insert the words "or borrow."
This is more or less a drafting Amendment, and the right hon. Gentleman, I think, has forgotten to insert these words in drawing up the Resolution. Unless they are inserted, I am rather afraid that it might be open to the Treasury, not only to borrow the securities, but to charge the people the Income Tax too. I wish to insert the words so as to make it quite certain that in the event of any person lending a security to the Treasury he will be free from the liability of paying the additional 2s. Income Tax.
§ Mr. McKENNAI am surprised that the right hon. Gentleman who does not like this proposal should now suggest to the House that it should be extended. We only propose that the subject should become liable to this tax in cases in which we offer to buy. He wants the person to be liable not merely when we offer to buy, but when we offer to borrow. He really wishes to extend the scope of the Income Tax. I do not know that I should very much object to it, but there is one difficulty, it might increase the charge.
§ Mr. SPEAKERI have to raise an objection. The right hon. Gentleman will be imposing a fresh charge.
§ 4.0 P.M.
§ Sir F. BANBURYMay I point out that the Treasury have given notice that they are prepared to purchase certain securities, and that they are also prepared to borrow securities. Would not a case arise such as this? Suppose I was to pledge with the right hon. Gentleman some of the certificates which he has given notice he is prepared to purchase. Could he not say, "I have given notice to purchase this particular security, and, therefore, it is liable to be taxed." That is the reason why I want to put in these words. I venture to suggest I am not imposing an additional charge if my reading of the effect of the Resolution is correct.
§ Mr. McKENNAI do not disagree with the arguments of the right hon. Gentleman. It might happen that one set of 363 securities were subject to purchase and another set subject to lending. In the case where it is only subject to lending it would be an increase of the charge.
§ Mr. SPEAKERThe right hon. Baronet will not be precluded raising this question in Committee.
§ Sir F. BANBURYMay I put another point of order? Suppose the Chairman of the Committee rules I am imposing a charge; what is going to happen then? I shall not be able to raise it.
§ Mr. McKENNAThere are only a limited number of cases where the same security is on both lists, and we propose to deal with them in the Clause.
§ Sir F. BANBURYThen I ask leave to withdraw my Amendment.
§ Amendment, by leave, withdrawn.
§ Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution, as amended."
§ Sir F. BANBURYWhen the Resolution was before the Committee I ventured to strongly object to it, and the opinions I then gave have not, to my mind, been dealt with satisfactorily by the Government. I had hoped that the Government to-day would have announced that they did not intend to proceed with the Resolution. It is quite evident that they have in the last month or two received a large number of securities, and I am not at all sure it is necessary that they should continue to press this Resolution, as they can get all the securities they want without it. If that is not so, then I think the Chancellor of the Exchequer ought to give us some assurance that he cannot get the requisite amount of securities before we do agree to the Resolution. If it is the fact that he can get the requisite amount without it, would it not be very much wiser, before proposing what is undoubtedly a penal tax, to drop the Resolution for the time being. The right hon. Gentleman later on could bring it in again, if necessary, although slightly differently worded. There is no question that the idea of going to certain persons and saying to them, "Because you have by some chance got your money in a certain form you are to be penalised in the interests of the State." That, to my mind, is perfectly unjustifiable, and I believe it would have a very bad effect on the investment of money in 364 securities of this sort. The right hon. Gentleman, I am sure, at the present moment, in view of the financial situation existing between this country and America, does not want to establish any sort of feeling in America that American securities are to be tabooed. But this is certain to be the effect, and people are not likely to invest in securities which may be taken away from them or which they may be compelled to sell at a lower price than they gave for them, merely because it is said that the British and American Exchanges should be equalised.
I was able to sell the right hon. Gentleman some securities at a profit, therefore I was not penalised or hurt in any way. But there are cases in which securities have depreciated considerably since the War broke out. I know of one case where they have depreciated 10 per cent., and the person to whom they belong is to be made to cut his loss, whereas, if he held on for a certain period, he would recover his money, because it is a security redeemable at par, and he has only to hold on for a short time and then he would be morally certain, as far as anything can be certain in this world, to obtain his money back. But he is now to be compelled to sell to the right hon. Gentleman at a loss of 10 per cent. It does seem very hard that people should be penalised in that way, when, as I think, there is no justification whatever shown for our agreeing to a tax of this description. Of course, there are many difficulties with regard to borrowing securities. The better plan for the Government to pursue is to borrow; they are then free from liability to loss. If they purchase they may have to sell at a considerable loss because of the fall in prices between the time of purchase and the period of resale, and that considerable loss will have to be made up by the taxpayer. If, however, the Government borrow the securities there can be no loss to be made good. If the Resolution had been limited to borrowing with the understanding that the securities should be given back to the lender at the expiration of a certain period I should have had nothing to say against it; but I have not been able to get the right hon. Gentleman to agree to that proposal. I can only repeat that the Resolution will place people who lend securities in a very difficult position, and this applies especially to trustees. In a case I know of, one trustee is at the other end of the world, the second is wounded and a prisoner in 365 Germany, and the third is fighting in Mesopotamia. It is, therefore, quite impossible to get these people together in order to enable them to deposit the securities. That is only one case with which I happen to be acquainted, but probably there are a good many others. Bearing in mind all these facts, I say it is a great mistake on the part of the right hon. Gentleman to insist upon proceeding with this Resolution. Would it not be possible for the right hon. Gentleman to give us some undertaking on this matter? Does he propose to move a new Clause to the Finance Bill, or will the matter be dealt with in a separate Bill?
§ Mr. McKENNAA new Clause.
§ Sir F. BANBURYWill the right hon. Gentleman in the meantime consider the possibility of abandoning this proposal or making some alteration such as I have described in the terms of the Resolution?
§ Mr. D. MASONI hope the right hon. Gentleman will consider the very proper suggestion made by the right hon. Baronet (Sir F. Banbury). I was very pleased to hear that the right hon. Baronet disapproved of the Resolution on the ground of its injustice. Anyone who takes the trouble to read the speeches delivered when the Resolution was originally introduced will find that the universal opinion is embodied in the speech we have just had from the right hon. Baronet. To penalise one section of the community who have invested in these particular securities is most unjust. I go further than the right hon. Baronet. I say that the Resolution will do the exact opposite of what the Chancellor of the Exchequer expects from it. As I understand the proposal its object is to do something to check American imports and to correct the Exchange. This method of procedure will do exactly the reverse. What takes place when there is an enormous export from America to this country? The American exporter goes to New York and endeavours to sell his draft, and the British Treasury—instead of allowing the Exchange to more or less follow its normal course by which the American exporter would be penalised to the extent that he would not be able to sell his draft as well as he will be able to under this method—practically say to every exporter, "We will guarantee you that you will be able to sell your draft at 4.76½." I saw it stated in the "Statist" a fortnight ago that the excess of exports over imports this year will total 366 something like £500,000.000, so what the right hon. Gentleman proposes to do cannot possibly permanently cure the situation. So long as the supply of securities continues you can artificially hold up the Exchange, but my point is that that does not get rid of the difficulty, on the contrary it exaggerates the trouble and it plays into the hands of the exporter, as anyone who understands the rudiments of business will admit. I have endeavoured to put that point to the right hon. Gentleman, but I have never been able to induce him to meet it. I am inclined to think he does not understand the position. I notice he laughs at that, but he can be condemned out of his own words, because he told the House on a recent occasion that the object of the Government was to prevent the Exchange going higher than 4.76½, because they did not wish to encourage and stimulate American imports into this country. That is a condemnation of his scheme out of his own mouth. If the Government are averse to allowing the Exchange to go higher than 4.76½ surely it follows if the Exchange falls imports will be still further retarded.
I feel very strongly on this point. The right hon. Gentleman apparently agrees with me, yet he still persists in his policy. He will perhaps tell us that his object is to prevent the export of gold. He has not prevented the export of gold. A considerable amount of gold has already gone. Hon. Members here will endorse what I say when I say that gold has almost disappeared from circulation. It has either been exported or has disappeared from circulation. That disappearance has been accentuated largely by his own policy. He went out of his way to issue these Currency Notes. By issuing all these Treasury Notes and by the diminution of the currency he practically drove gold out of circulation, yet now he asks us to support this scheme because it possibly may prevent the export of gold. My contention is that if he had allowed a certain amount of gold to go out, perhaps that would have corrected the Exchange. It would have tended immediately to raise rates in London. It is impossible to raise rates for money in England now. The Bank of England tried in London the other day to get up the rate of discount, but failed. How can you do that? These Currency Notes now amount to something like £115,000,000. I would beg hon. Members to give some attention to this problem. I submit that the unsound system which 367 we are pursuing, this profligate finance, this extravagant borrowing, although I know the strength of the British finance—
§ Mr. SPEAKERI think the hon. Member is getting rather far from the terms of the Resolution now before us.
§ Mr. MASONI am very sorry. This is part of a general policy. I will, however, endeavour to confine myself to the particular point before us. I have tried to show, and apparently the right hon. Gentleman agreed with me, that this policy of penalising holders of American securities, instead of relieving the position and retarding the import of American exports, tends rather to stimulate it. It provides a ready market for the American exporter where he can always sell, and it retards our export trade. We are very anxious to increase our export trade. We have not an unlimited supply of American securities. We do not know how long this War may last, and eventually we may be thrown back upon our own resources. By artificially raising the rate of exchange we are penalising our own exporters. If the exchange were allowed to pursue its regular course, it would be in favour of our exporters. This measure plays into the hands of the American exporter, instead of doing what we wish to do, namely, stimulate British exports. If the right hon. Gentleman will show me any flaw in my argument I shall be the first to admit I am wrong, but I have given a great deal of study to this problem and have had a considerable amount of experience in connection with this particular question, and I utterly fail to see what reason there is for this measure. I am told that we have to pay for munitions, but if anyone would take the trouble to study the figures and details of these American exports he will find they include motors, accessories, drills, tools, all description of Manchester goods, while hosiery goods, formerly purchased from Germany, are now coming from America, and also boots and shoes. Enormous quantities are being poured into this country because of the policy of the right hon. Gentleman in creating here one of the best markets in the world for America.
It may be asked what remedy have I to propose in order to correct the exchange? I have endeavoured to suggest one or two remedies. I admit the position we are now in. It is one of artificial prosperity and of extravagance, which has been 368 stimulated by this policy, because the working classes and others have been entirely deluded by the position, which it has created. They have been paid very high wages and very naturally they are spending those wages. All this still further goes to increase the demand for these American exports. If you had considerable taxation imposed upon all classes it would be far better, even if the working classes had a graduated tax on their wages rather than taxes on their food. If we were to stop the policy of playing into the hands of the American exporter, and retarded the supply of goods coming into the country, that would go a long way towards meeting the position which the right hon. Gentleman is now endeavouring to correct. I agree that at this stage, when we have created this position, we cannot suddenly reverse it, but to proceed as the right hon. Gentleman obviously intends to proceed, by bringing out new issues of securities and still further exhausting the resources of this country, means that we shall be using up our resources and still further placing debts upon the backs of the people in this country in a most extravagant form. One knows what takes place after the securities have been sold and the insurance companies and others have obtained the money for them. They invest it, purchase Exchequer Bonds, and help the right hon. Gentleman to place large loans. While we wish the right hon. Gentleman to finance the War to the best of our ability, we do not wish him to extend the loans. This policy stimulates that most unsound method of financing the War, of issuing an excessive amount of loans, instead of financing it by taxation. I fail to see what justice there is in penalising one section of the community. If there is anything wrong we all ought to bear our share in the rectification. I oppose this Resolution because I believe it will be calculated to do the exact opposite to that it is intended to do.
§ Mr. G. FABERI did not expect I should live to see the day when I should support a Resolution of this kind, but I do. Sometimes, when I have listened to my right hon. Friend (Sir F. Banbury), I have thought he has forgotten the kind of War which is going on and that we are fighting for our very existence. He talks about the hardships incurred by some people in having to part with their American securities. We all have to put up with hardships nowadays. Those of us who are too old to go into the trenches have to do 369 their duty at home, whatever be the hardship. You may say there is inequality of sacrifice, that the person who has American securities will suffer, and that the person who has some other securities which are not wanted for the moment will not suffer. Of course, there is inequality of sacrifice in this War. Do not hon. Members know that? If I may introduce the personal element, what does my right hon. Friend imagine that the profession to which I belong has had to suffer in this War? Do we squeal? No! It is our country first and last and all the time.
§ Mr. FABERI appreciate the point the hon. Gentleman made just now, and I say this to the Chancellor of the Exchequer: You must not play the spendthrift with the American securities you are taking from private owners, either by way of loan or buying outright. If you play the spendthrift, it is the wickedest thing you can do. We are riot at the end of this War. We have to get to the long last. We have got to win. The late Chancellor of the Exchequer talked earlier in the War about the silver bullets. The American securities, when held by the Government, are a form of silver bullet. Take care you do not waste it. What do I mean by that? I mean this: Do not allow American imports to come here unless they are vital to this country. If you do, you are accepting what is not vital and you are paying out what is vital—in fact, you are paying out your very vitals. It is the same as gold, and something which the Americans will accept in return for what they send. They will accept gold, but you cannot send gold. My hon. Friend (Mr. D. Mason) said you do not wish gold sent out. Of course you do not. The Government have got to keep it and hoard it to a certain extent for that reason and many other reasons which we all know and I need not enumerate.
Do not suppose that an American will accept our home securities? The hon. Member knows that he will not look at them. What will an American take? He will, of course, take his own securities. He can borrow upon them, or, having bought them outright, he can sell them, and America will have them. No doubt an American will take other securities, such as Japanese. The Government must not limit their power to American securities only in correcting the exchange. They must have in their breeches pocket 370 not only American securities, but any other securities Americans will take for the goods they send us. I do not like this procedure, because I hate interfering with private property, but we are not in the piping times, of peace. The world is upside down now, and is never going to be the same again. The sooner everybody, including some old Tories, in this House, recognise that, the better it will be. In Heaven's name do not imagine that these American securities which you are either borrowing or buying are going to last for ever! You should treat them as something like rubies—above price. Discourage America by every means in your power from sending out what we do not want for the conduct of this War. If you treat American securities which have hitherto been in the hands of private citizens as if there were no end to them, as if you could go on merrily buying, buying, buying from America, then there will come a day, a terrible day, when you no longer have anything with which to pay Americans. The goods perhaps will be vital to us then. What will happen to the exchange then? Therefore there should be thrift, thrift, thrift all the time in this matter. I support the Resolution because it is vitally necessary.
§ Mr. ANNAN BRYCEI suppose that everybody, except the hon. Member for Coventry (Mr. D. Mason), will agree that it is absolutely necessary for the Government to take these powers. At the same time, I think the Government would do well to listen to the suggestion made by the right hon. Baronet (Sir F. Banbury) that they should either withdraw or postpone the operation of this Resolution until they have made up their minds on the exact details as to how it is going to operate. At the present moment the City and England generally is in a state of absolute confusion of mind with regard to how the provisions of the Resolution are going to operate. We do not know, for instance, how the holder of a sum less than £l,000 in any particular security is going to lend it. He cannot lend it under the terms of the Resolution, and there must be some arrangement made by which that person shall either escape the penal 2s. or be able to lend his securities. We heard for the first time to-day that the Chancellor of the Exchequer wishes to impound any security of any amount, whether American, Canadian, South American, British, Japanese, or Chinese, or anything else. Is everyone going 371 to be liable, without notice, to pay the extra penal 2s. after the 30th June? We have only eight days to find out which of our securities are going to escape this penal exaction. Further, no arrangements are being made by which anyone can prove that he has offered the Treasury securities. The Chancellor of the Exchequer has promised several times to state the arrangements which have been made to that effect, but they have not yet been formulated, and the consequence is that you see in the financial columns of the newspapers every day questions with regard to this particular point. I put down a question today which was not reached. Perhaps the right hon. Gentleman will be able to tell us how the holder of any particular security is to prove from coupons payable after 30th June whether this penal tax is or is not to be deducted. We do not know that at present, nor do we know how the holders of less than £l,000 of any particular securities are to know whether they are going to be penalised or not, how they are going to lend it, what the regulations are for lending it, or whether they are to be allowed to lend it or not. Until these points of detail, which are exceedingly important, are cleared up, it is quite impossible for anyone to imagine that a far-reaching Resolution of this kind can possibly be put into effect in eight days from this time. The right hon. Gentleman said to-day that a number of these matters were still under consideration. How long a time is he going to allow for people to know before 30th June whether they are going to have to pay or what they have to do? I do not think in other respects the scheme has been well thought out. We are continually having fresh lists issued of what the Chancellor of the Exchequer will and will not take. Can there not be a final and definite list for the information of the public with regard to which particular securities this penal exaction will or will not apply?
§ Mr. BROUGHTONAs the Resolution probably affects me more than any single individual in England, I feel that I ought to say a few words. In 1912, after twenty-five strenuous years in the United States, I returned home. Everything material I possess is American. I am perfectly willing to give it up. There is no hardship in this matter at all. Before this Resolution was proposed I trans- 372 ferred what—I hope I may say modestly—was, I believe, the largest sum of American securities in the hands of any private individual. Have I lost anything by it? Nothing at all. I have gained in interest and I have gained in capital. Take any first-class American bond, like the C. B. and Q. What happens when you exchange those? I will tell you what happened to me last week. I exchanged New York City bonds maturing in 1963, for which I gave par, and which pay me 4½ per cent., into Exchequer bonds at 113½ paying me 5 per cent. I did the same with C. B. and Q. bonds, and you may take it from me that anyone that owns American securities paying 5 per cent. or less makes by this exchange. If, on the other hand, he is the holder of good preferred stocks, like the U.S. Steel preferred, or the preferred stock of the Great Northern Railway, and taking the present rate of exchange into consideration, he loses on that transaction, but by and large he makes, and there will be no loss at all, and I believe that the Chancellor of the Exchequer will be well advised to stick to this Resolution. We have all got to give up a great deal in these terrible times. Is it as much to ask me to give up my securities as to ask someone to give up his life? There can be no such thing as equality of service. There can only be equality of service among certain groups of people similarly situated, and if the Government says to the holders of American securities, "We want these," they must give them up cheerfully, and there is no hardship in it. I do not wish to elaborate the point. I can only say I am very familiar probably with every American security. My whole life has been spent there. I had, until I exchanged these, no English possessions at all, and I am very glad to have this opportunity of exchanging them. There is no time in the last ten years that if I had wished to sell my securities I could have sold them under more favourable conditions than to-day.
§ Sir J. WALTONI rise to suggest to my right hon. Friend that it might be wise to defer this matter till the further Finance Bill which is to be introduced at the end of July.
§ Sir J. WALTONI was not aware of that. The threat of this penal tax has certainly brought forward a perfect 373 avalanche of American dollar securities to be placed at the disposal of the Government. So great has been the avalanche that it seems to me it will be a long time before the officials dealing with the matter in that particular Department will be able to get through the huge accumulation of work that they have before them. I feel in regard to this penal tax that there is no justification for it on the ground that the holders of American dollar securities have not been most willing and ready to part with the whole of them for the national service. I offered him American common stock in the very best railways more than six months ago. I have repeated that offer over and over again during the six months, and have not been able to get it entertained or taken up, and if my case is a sample of what other holders of American securities have done, there is no justification whatever for this penal taxation. I view it with alarm, because it is a differentiation of taxation as applied to American securities against other securities, and I cannot be certain that the people of America will not resent this very strongly indeed. We have already had placed upon the dividends coming to us from America a tax of 1 per cent. May they not retaliate if this differentiation of 2s. is placed on American securities by levying a much higher tax than 1 per cent. on all the dividends which are sent from America to this country? I feel that there are important matters of that nature in connection with this proposal which deserve more consideration and closer examination than they have yet had. I am only speaking of what has been said to us in this House, of a certain difficulty of getting to know exactly what the Government wants and what they do not want, and especially hard do I consider this proposal to be upon the small holders of dollar securities. Why cannot the right hon. Gentleman tell us at once whether the limit of $5,000 is to be reduced or not reduced? I endeavoured to arrange for a friend $3,000 of one of the very best securities, and the reply I got was that the Government would not buy them, and they could not be lent to the Government because they were not of the amount of $5,000. Can he not to-day clear up that little matter arid let us know exactly where the small holders of these American dollar securities stand, because it is a great hardship to them, especially if, not knowing how to deal 374 with the matter by reason of it not being made clear what powers or rights they enjoy, they will, be subjected to hardship which I am sure he would not willingly impose upon them. I hope he will also be able to show that this penal tax of 2s. on American securities is not regarded by the American Government as a differentiation against their interests, and that they will not retaliate by imposing a higher duty on dividends on American securities sent to this country.
§ Mr. J. MASONIn the critical position in which this country finds itself, I am sure nothing ought to stand in-the way of the State getting money in the way that is necessary to it, and I do not believe that the holders of securities which are available for the purpose the right hon. Gentleman has in view are in the least reluctant to lend those securities. If he finds it necessary to take steps, as he now proposes, to remind them of the necessity in which he finds himself, I certainly have nothing to say. The hon. Gentleman (Sir J, Walton) has talked about the special taxation of American securities. He has probably overlooked the terms of the Resolution, because it includes all securities of every kind and of every country. I think we ought to take into consideration the far-reaching effect that this may have in two directions. As respects the question of securities of the United States and foreign countries, I have absolutely no objection whatever to including all those, because possibly the securities of other countries may be useful for the purpose we have in view, but when we come to the securities of our Dominions and of this country you have to take into consideration the possibility of very important enterprises falling under American direction, and there is nothing, I believe, that some of our compatriots in the Dominions are more frightened of than that their great enterprises should fall into American ownership. I believe the right hon. Gentleman recognises that fact, because in the case of certain Colonial securities he has refused to purchase and has only offered to borrow. But he must not lose sight of the fact that borrowing means possible purchase under certain circumstances. He has been obliged in all cases where these securities are to be borrowed to take powers to sell them if it becomes necessary. We all admit that the necessity is not likely to arise, but still there is the possibility, and I should have 375 been very much more pleased if it were possible that all securities of the great Dominions should be left out of this scheme as long as possible. I had much rather that other foreign securities were included. That same argument of the question of America getting possession of large interests in the Dominions would apply equally to British securities if they were likely to be used for this purpose, and there is not the slightest doubt that bonds and other first-class securities of British enterprise would be very acceptable to Americans, and might, if they were taken in large quantities, lead to a very considerable number of bonds, both in this country and the Dominions, falling into the hands of Americans. But I am not really afraid for a moment that the danger is a really acute one. It is suggested that Canadian securities are going to be used on a large scale for the purpose of being pledged in America. If that is so, it is perfectly obvious that pledge may result in a forced sale that will arouse a considerable amount of dissatisfaction among our fellow subjects which we are very loath that they should feel.
§ Mr. MACMASTERI have listened with considerable interest to the Debate, and especially to the statement of one hon. Member (Mr. Broughton) that there had been no more favourable time in the last ten years for the disposal of American securities than the present. If that is the hon. Member's experience, it is the experience of very few others. I happen to know of the great decline that has taken place in the value of American securities. With respect to the individual transaction that he refers to, namely, that in the case of shares bought at par he was able to dispose of them at 113 in the purchase of Government securities, so as to make an investment which yielded 5 per cent., he must have omitted the material fact that the security bought at par must have enhanced very considerably in order for him to be able to sell them and obtain securities at such a price. I object to this tax because I think it is unfair. One must look at the result of the tax. The Government are attempting to obtain these American securities in order to overcome their own necessities. They simply make a convenience of those who may hold American securities, and they say to these people, in effect, "You must either lend or sell or submit to a tax of 2s. in the 376 £." If the necessities of the country are great, and I admit they are, for we are fighting for our existence, then that argument, if it is applicable at all, must be applicable to all who own property, whether it is in the form of securities or in any other form. Why should the Government go to the holders of this particular set of securities and say, because it is particularly convenient to them, "You possess this property, therefore you must be subject to a special tax of 2s. in the £ unless you part with this property." The Chancellor of the Exchequer not only said that, but he went a stage further in the main consideration of this Resolution some time ago. He said, "If 2s. in the £ will not do, we will make it 5s.; if 5s; will not do we will make the tax 10s.; and if 10s. will not do we will make it 20s. in the £. In other words, the Government holds a bludgeon over the heads of every person who holds our American securities.
I am entirely in sympathy with the observation of the last speaker (Mr. J. Mason) that this tax is calculated very materially to affect investments in our great Dominions. In addition to that, there is a substantial fear—I have very good reason to know it—in the Dominion of Canada, which I know well, of our securities there getting into American hands. That apprehension is not without foundation, because in the case of two of the great railways in that country we are aware of what, apparently, were raids to secure the stock in the past, which would have given the holders a clear monopoly of the shares of these great enterprises and the right to subordinate the operations of the Canadian railways to the operations of the American railways. That is a real apprehension which prevails there. It is said that the Government require these securities in order to steady the exchange. If that is so, equally so might the Government acquire any other securities to steady the exchange. As has been pointed out, there are many Americans who would be quite pleased to get some of the securities of our great British railway companies, and of other corporations in this country. In fact, many of them already hold them, and if they hold them why are not the holders of these shares to be subject to a like obligation to contribute in the way that is indicated by this Resolution? When you ask for these shares, in what position do you put the holders? Suppose a holder lends his shares to the 377 Government. The Government takes the shares to the New York financial market, and they have to pledge them with a banker there for the advances of money which is required in order to provide funds there to pay for purchases of munitions and other things required for the purposes of the War. Suppose that these are not redeemed. Suppose a great calamity overcame this country. I do not wish to anticipate such a thing, but when you are looking at business you must look at it from every point of view. Suppose we are not successful in the War, what would be the result? These securities would be thrown upon the market, because the Americans would sell them to the best advantage at the time. If you leave them for two years on the American market you deprive the owner, from whom you have taken these shares, of many uses that he might make of them. He might want them for security in his own business. If he had them he might be able to take advantage of any rise and fall, and trade with them, by which he could realise a profit. But he is deprived of that in the meantime. In consideration of that you offer him at the end of the time 2½ per cent. above the price of the ordinary market of the day.
The very fact that this tax is imposed or held over the heads of investors in good Colonial and American securities has a tendency to depress them. It has that immediate effect. It is said that this is going to steady the rate of exchange. I very gravely doubt that. I have had some, talk with certain people on this matter as to whether this operation of the Government is going to have any very material effect on the rate of exchange. It is true that, for the time, they will provide a certain amount of ready money, but I very much doubt whether it is going materially to affect the rate of exchange. Let us suppose that it does, what is the effect of that? It may benefit the country to a small extent, but what is the effect on the private individual, the holder of these securities? Everybody who knows anything about finance and markets in finance in this country and the United States and Canada knows that the effect of this operation will be that the holder of dollar securities is going to get, so far as he is concerned, less value for his security than if the securities are given up to the Government. Therefore, he suffers a disadvantage in this operation. If the Government are going to reap an 378 advantage from the operation, if it is going to sustain the exchange and the public chest is to benefit by that, I think it would be much more reputable for the Chancellor of the Exchequer, seeing that the country is going to benefit by the taking of this property, to provide that there is going to be a profit to the lender. Personally, I have no very great apprehensions about the situation. I believe we are going to win the War, and I do not think that these securities will be lost. But from a basic point of view I maintain that this is not proper and legitimate taxation. It is discriminatory taxation. It is taxation against particular stocks and against a particular class of our own people in order to provide the money to carry on the burdens of the War, and it is of a character likely to deter investment in our own Dominions and, perhaps, to have more serious consequences.
§ Mr. McKENNATo listen to the speech of the hon. and learned Gentleman (Mr. Macmaster) one would, imagine that he had never heard of the Defence of the Realm Act and the operations that have taken place under that Act for nearly two years. He speaks of it as a novelty, to take property at the market price, and' paid for by the Government for the service of the War. Every kind of property has been taken. Every kind of property has been commandeered, and we have found occasion to take it at prices far below the prices which we are paying for the securities which we now ask the public to let us have.
§ Mr. MACMASTERWhy do not you take all shares?
§ Mr. McKENNAWe do not take all property. The Government take things as they need them. The Government have taken horses as they need them. The Government have taken land as they need it. The Government have taken men as they need them. There is no sacrosanct division between the ages of nineteen and forty-one and other ages, yet all men between those ages, who are physically fit, are taken. We do not take all men, and we do not take all property. Nobody has ever disputed the right of the Government to take such property as it needs for the service of the War. Then why, forsooth, are we suddenly to turn round and to have these extraordinary feelings about certain shares or securities? 379 Why are we, when we have given up other property, when we have given up the lives of our relatives, and we are willing to give them, for the service of the country—why are these shares suddenly to have a mark put round them, with the warning, "Advance so far but no further. You may not, in the interests of the State, touch a single share which belongs to us"?
§ Mr. MACMASTEREnlarge your circle.
§ Mr. McKENNAWe will enlarge our circle as the need requires it, and we will set no limits to the circle as need requires it during the War. I listened with admiration to the speech of my hon. Friend (Mr. Broughton). I agree with every word he said. We need to be economical in the expenditure of our capital, and it is our capital that we are expending. We will expend it, and we are willing to expend it, in the service of the War and for the service of ourselves and our Allies. The hon. Member for Coventry (Mr. D. Mason) told us that he had studied this subject, and that he had had considerable personal knowledge of it for a considerable time. When? In war? The whole of his argument was directed to the conditions of peace, and had not the slightest relation to anything that is taking place to-day, in time of war. I can tell the hon. Member and the hon. Gentleman (Mr. Macmaster) that we need this money in the United States in order to create a dollar balance. It is not used merely for the purpose of maintaining the exchange. It is not used for the purpose of paying for our ordinary commercial imports. It is quite true that it affects the exchange, because by means of our dollar balances we pay in dollars for the direct purchases of the Government in munitions and other commodities which we require, and we pay the advances which we make for our Allies. The result is that the gigantic purchases which the Government makes for ourselves and our Allies do not come upon the exchange market at all, but we leave the exchange market in the main to be dealt with in the ordinary operations of commerce. The hon. Gentleman says, "Let the exchange drop, and you stimulate exports in this country." That is a peace doctrine. We do not need to stimulate exports now; we are exporting to the utmost of our ability. We have got orders, if we could only fulfil them, and 380 there is no stimulation needed. What we lack is labour and capital, particularly labour for exports. It is not stimulation that we need. We are in the condition now that we have got a demand for our goods far beyond our capacity to supply. What we have got to do is to pay for all these vast masses of imports on Government account, and we must do that, unless this Government is to default, which I do not think we shall do.
Thanks to this House, which will always provide the Government of the day with the necessary means; thanks to this House, whether by taxation or by obtaining these securities, we shall always be able to maintain our credit, and to have dollar balances in the United States. Then, with these dollar balances, week by week, we can pay the gigantic bills which become due. If that is not a process which this House thinks desirable I am bound to say this House will not be taking up the attitude which I have known it to take up ever since the beginning of this war. We are not asking for more than we need. One hon. Member asks for a definite statement, once for all, what it is that we require? We do not know what we want. How can I tell how long the War is going to last? Hon. Members may be assured that we shall not take, at any given moment, more securities than we need for the immediate future. Of course, if the War goes on for an indefinite period we shall have to issue more and more new lists of securities we require in order to create the dollar balance which is our absolutely first and necessary requirement.
§ 5.0 P.M.
§ Mr. McKENNAHow can I? How can I tell at what rate the goods are going to be delivered from the United States? I have to pay the bills when they become due. I must keep a considerable balance in the United States in order that I may never be caught short. The right hon. Gentleman would weigh our liability in scales which are unsuited to the occasion, which is not a commercial transaction of the ordinary kind. We are dealing with figures of a magnitude which in the whole history of the world has never been known before. You cannot treat these questions in the way in which the right hon. Gentleman proposes to treat them. We have 381 to ask the House for confidence. The House has given the Government full confidence in the past. I plead for a continuance of that confidence. This Resolution has had the effect, I am thankful to say—not from fear of the tax itself, but because the existence of the tax has brought home to the minds of owners the need which we have—of causing a very large amount to come in to us, but not more than we need. I do hope that the incoming and inpouring will continue at the unreduced rate for some weeks to come. We certainly need all we can get. Now the hon. Gentleman asks for information in certain details as to the operation of the tax. The Resolution in itself effects nothing. The operative part of this business is to be effected by the Clause. As soon as this Resolution is passed, if the House is good enough to pass it, we shall introduce a Clause which will be on the Paper to-morrow. Then my hon. Friend will see precisely what it is we propose to do. But it would not be in accordance with ordinary practice, and I doubt if it would be in order, to enter into details of the Resolution itself, or with regard to the matters which are contained in the Clause which will be on the Paper to-morrow.
§ Mr. BRYCEMay I put it to the Chancellor that if this Resolution is on the Paper to-morrow, and is discussed for the first time on Tuesday, then there would be only three days before this tax will become effective? Surely the poor holders of these securities ought to have more than three days' notice of what is going to be done?
§ Mr. McKENNAI think that when the hon. Gentleman sees the Clause he will appreciate that the point which he now raises is not a substantial one.
§ Mr. HOBHOUSEI think it quite natural that my right hon. Friend should have taken exception to some of the remarks which were made and have spoken with some little warmth, but, if I may say so, I think that he mistook the temper of the House, because the House will give the Chancellor of the Exchequer now or at any time any powers which the House thinks necessary, or which he recommends to the House, for carrying on the War. But there is a point which I do not think the Chancellor of the Exchequer quite appreciates. He knew himself what was the form in which this Resolution was going to be presented to the House. I think 382 that Members came down here this afternoon thinking that the Resolution was going to apply to American securities and American securities only. I am sure that the hon. Gentleman will agree with this. This Resolution was not available to every Member of the House. It is not on the Paper.
§ Mr. SPEAKERThis is the Report stage. The Resolution is taken in Committee.
§ Mr. HOBHOUSEI am quite aware of that. I do not wish to labour the point, but I do not think that the terms of the Resolution were generally available to the House. For that reason I do not think that Members of the House were fully aware of it. I am going to ask my right hon. Friend's attention to three short points. In the first place, since this will apply to all securities, American, Foreign, or British, and especially to British securities, it follows that upon all British securities which are required by the Exchequer automatically a charge of 2s. in the £ is placed, and this may amount, if the right hon. Gentleman so pleases, to an increased Income Tax of 2s. in the £ upon all British securities. That is in the mind of the Chancellor of the Exchequer, but it is possible, as is clear from reading this Resolution, to place upon all British securities which are not offered by their owners an addition of 2s. in the £ to the Income Tax. Surely that is not the intention. I have heard that opinion expressed behind me. I think that it will relieve a certain amount of apprehension if the right hon. Gentleman at some time or another would make it clear that that was not his intention.
§ Mr. McKENNAI will make it clear at once. British securities certainly might be affected in that way.
§ Mr. HOBHOUSEBut it is not the intention of the Chancellor of the Exchequer, as I understand, to include British securities in this list, and so get 2s. extra Income Tax upon those securities.
§ Mr. McKENNANo, certainly not to get the 2s. tax, but only such securities would be included in the list as would be useful for raising money in the United States. The Resolution says so.
§ Mr. HOBHOUSEIt only says such securities as the Treasury may place upon the list, and not that they are going to be 383 useful or not. What happens in the case of British securities? The securities which will be offered for sale in the States will be the good securities and not the bad securities. The United States will not look at the bad securities. You would therefore take from off the British market all the good securities you want, in addition to American securities, and you would sell or pledge in the United States all the good British securities and leave the Home market nothing but the worst securities. That is the second consequence of including British securities in this Resolution.
§ Mr. McKENNAWhy not?
§ Mr. HOBHOUSEI can conceive that it would be a very bad thing for British trade if we sold in the United States all the good securities in the market here and left to the investor in London nothing but the worst securities. I cannot conceive anything worse for British traders. I do not think for a moment that that ridiculous position will arise, but it certainly may arise under the present Resolution if passed.
§ Mr. McKENNAI may read the middle part of the Resolution—"which the Treasury have declared that they are willing to purchase in connection with any arrangements for the regulations and maintenance of the foreign exchanges." It is quite impossible to say what securities are required.
§ Mr. HOBHOUSEWhat is quite certain is that they will require nothing but good securities. They will only take the pick of the market. They are not going to take anything else because they cannot pledge it. A third point which arises, and which has already arisen, is this: You have already forced the sale of certain American securities. The persons who have received payment for those have to find some investment for the proceeds of the sale of those American securities. They have sought it in various industrial enterprises of the best class in this country, and there has already been quite a sharp rise in the shares of those concerns. You take for the purpose of American Exchange the best class of English securities in the Home market. You force the owners of these securities to realise, and they will always have to find another investment in this country. They cannot find an investment abroad. A 384 man may say, "I will invest half in Exchequer Bonds and the other half in something else." The result will be that you will unduly depress the value of those securities which you take for the purpose of your exchange and unduly increase the market value of those securities which you leave behind. Those are three results which I do not think were anticipated. One I know has happened already. The other two I know, further, will happen, though such has not been the intention, I believe, of the Chancellor of the Exchequer. I think that some declaration on this point should be made by him later on when he comes to the Clause in the Finance Bill.
§ Question, "That the House doth agree with the Committee in the said Resolution, as amended," put, and agreed to.
§ Ordered, that it be an Instruction to the Committee on the Finance Bill that they have power to make provision therein pursuant to the said Resolution.