TREASURY BILLS.

HC Deb 19 October 1916 vol 86 cc771-802

Sir CHARLES HENRY

On the Third Beading of this Bill I wish to make a further inquiry on the subject which I raised before the Adjournment for the Recess, in company with other hon. Members—I refer to the question of the extension of Treasury borrowings on Treasury Bills. In the early part of August the amount of borrowings on Treasury Bills amounted to £850,000,000 sterling. Since that time further issues of Treasury Bills have been made, and I believe I am correct in stating that the amount is close upon £1,100,000,000 sterling; so that we may calculate that it is the intention of the Treasury to issue Treasury Bills to the extent of about £100,000,000 sterling per month. I am aware, and the House is aware, that since this subject was last raised, the Treasury has reduced the rate of interest on yearlings, viz., Bills issued for twelve months, to 5½ per cent., and now there is a flat rate of 5½ per cent. for Treasury Bills for all maturities which works out actually at 5¾ per cent. to 5 7–3 per cent. My objection to the continuance of borrowing by Treasury Bills is that by this method we are paying an extravagant rate of interest. I believe most sincerely that the credit of this country is as sound as a bell; I go further and say that it must have surprised the Chancellor of the Exchequer the readiness with which money has been forthcoming for these short-dated securities. The liquid wealth of this country has proved to be beyond expectation. My right hon. Friend will doubtless reply, and rightly so, that through his method of short-dated securities and Treasury Bills he has been able to obtain the necessary amount to tide him over financial requirements. I quite agree, so he has. Treasury Bills have met with a good response, but that is not the point.

When the Treasury offered the terms they did, it was obviously natural that money would be placed in these Treasury Bills and other short-dated securities. I believe that when we started voluntary recruiting, if we had offered the soldier an increased rate of pay, we might have got then a more ready response. I believe that this policy of raising money and of borrowing on short loan securities has been detrimental to the financial powers of this country. I believe that the high rate of interest has, I will not say impaired the credit of the country, but to a certain extent has lowered the financial prestige of the country. The expensive manner of raising money on Exchequer Bonds at 6 per cent. for three years is a method which I must say I prefer to Treasury Bills. I will tell the House the reason why. On these Exchequer Bonds the Income Tax on Bearer Bonds is deducted at the source, but the Income Tax on registered bonds is not deducted at the source, but the holders can be traced. The Income Tax on Treasury Bills is not deducted, and I believe in very many instances they escape coming within the purview of the Exchequer. I know, as I said on the last occasion, that in the case of financial houses the Exchequer will get their Income Tax in their return of profits. But I would like the Chancellor of the Exchequer to assure the House that private holders will have to make a return to Income Tax, because there is a view prevailing that really it is not income but an increase of capital.

I have called attention to the rate of interest paid on Exchequer bonds and Treasury Bills—an extravagant rate of interest, and I do not think the Chancellor of the Exchequer will take exception when I say that the rate of interest he has to pay on these short-dated securities has been instru- mental in decreasing the prices of giltedged securities. Take one example. In June, 1915, the last Loan was issued at 4½ per cent. It was issued at par. I believe I am correct in stating that the amount of that Loan now outstanding is approximately £900,000,000 sterling. About the end of September the price of the Loan issued at par was 92½, That does not tell the exact tale. In that 92½, nearly 2 per cent., or 1½ per cent. to 2 per cent., consisted of accrued interest, so that the discount on that Loan a few weeks back was not less than 9 per cent., which represents a depreciation of £80,000,000 sterling. My right hon. Friend knows perfectly well that when that Loan was issued, the banks and insurance companies and other institutions came forward liberally and subscribed, and I think they did expect more equitable treatment at the hands of the Treasury. I believe one bank alone subscribed £20,000,000 sterling, and, if they held that amount five weeks ago, the amount of depreciation was £1,800,000.

Mr. J. M. HENDERSON

They are at ninety-five.

Sir C. HENRY

I know they are at ninety-five, and I will tell my hon. Friend why. They recovered as soon as my right hon. Friend the Chancellor of the Exchequer made the statement in this House that it was his intention to issue a Loan when the time was opportune. Since then that Loan has recovered. There is another Loan, that of 1914, which was issued at ninety-five. What does that stand at to-day? At eighty-five. I believe that of the 1914 Loan, at the present time, there is outstanding only £62,000,000. The Bank of England entered into an obligation with regard to that Loan to advance up to March, 1918, at 1 per cent. under Bank Bate, the full amount an individual paid for the Loan. The sooner the Chancellor of the Exchequer relieves the Bank of England from that obligation the better it will be. There is another reason why I think this continued borrowing on Treasury bills is undesirable. My right hon. Friend does not know perhaps how many of them are held by neutrals. They go to America—a large number of them are going there. The right hon. Gentleman is not able to say into whose hands those bills get in America. In that country a large section of the banking community—I do not wish to exaggerate, but certainly a section of the banking community in America may be described as pro-Germans, and it may be that a certain amount of these bills get into their hands, and the Treasury might be asked to pay them at a very inconvenient time. I know my right hon. Friend will answer that he has to resort to these Treasury Bills for the sake of regulating the exchange, and I am well aware of the desirability that there should be stability in the exchange. What I want to ask my right hon. Friend is, is it not reasonably possible to find some other form of investment for neutrals which would regulate the exchange? Could he not get a security for issue to neutral countries alone, some external bonds or Treasury Bills? We have at the present time I think—it is only a matter of conjecture—over £1,500,000,000 in short-dated securities, over £1,100,000,000 in Treasury Bills, and about £300,000,000 in Exchequer Bonds. It is appalling to think that we should be confronted with anything like that amount when the War is drawing to an end.

I venture to tell my right hon. Friend that a Loan can be raised to-day with far greater facility than when the War is approaching to its end, or when it comes to an end. I feel sure of that, and I believe it is the opinion of a large number of people in the City. I do not ask him to take the House into his confidence. We do not expect that, but I do think he ought to tell the House what is his idea with regard to this large amount of floating securities. I referred just now to the desirability, if possible, of having special securities for neutrals. If I am correct in saying that the short-dated securities amount to £1,500,000,000, and, at the very outside, £300,000,000 is held by neutrals, it follows that the taxpayer or the country has to pay a rate of interest nearly approaching 6 per cent. to holders of short-dated securities in this country, and I firmly believe, if the Chancellor of the Exchequer or the Treasury had not procrastinated, or rather temporised, all that money would have been available at 5 per cent.

I am now coming to a point in regard to which I hope the right hon. Gentleman will not give me an answer such as he gave on a former occasion. He seemed to think I was not justified in holding the view that his reason for deferring the issue of the new Loan was to be found in the obligation he had entered into with the 4½ per cent. holders, that when the new Loan was issued they should be placed on the same favourable terms. I think the right hon. Gentleman on the last occasion did me a great injustice. He said I inferred he had some personal interest in deferring the Loan. Does my right hon. Friend imagine I would make such a suggestion? It is childish. I say the Treasury entered into an obligation with the 4½ per cent. holders that they should benefit by any more favourable terms as were given in the new Loan to finance the War, and up to the present, despite the high rate of interest they have been paying on short loans, that promise has not been redeemed. I can assure my right hon. Friend that that policy, or rather that method, has created not only resentment but indignation.

I think the House is entitled to know whether the policy of the Treasury, or of the Chancellor of the Exchequer, meets with the full approval of the right hon. Gentleman's financial advisers and experts. I have the highest opinion of the ability of the right hon. Gentleman, and so have my Friends near me, but I think they will agree with me the right hon. Gentleman is not a financial expert, and has not had much experience in real practical finance. When my right hon. Friend was First Lord of the Admiralty—and here let me say that this country owes him a great debt of gratitude which it can never repay for the attitude he adopted at that time, and for the policy which he carried out in face of much opposition, a policy in which we are now reaping the benefit during this War—when my right hon. Friend was at the Admiralty he was no doubt guided in his policy by his naval advisers. I believe Lord Fisher was the First Sea Lord at the time, and the right hon. Gentleman's policy was conducted no doubt more or less in accordance with the advice of the experts. At the present time we have a civilian at the War Office. I have the greatest admiration for the right hon. Gentleman the Secretary for War, but I shudder to think how this War would be carried on if the right hon. Gentleman did not defer to his military advisers. As the naval forces and as the military forces of this country have to be martialled, so, too, have the financial forces of this country. It is of the highest possible importance, and I ask my right hon. Friend whether this piling up of Treasury Bills and short-dated securities has the approval of the best financial opinion he is able to command. I do not expect him to state when he is going to consolidate some of these different short-dated securities by a Loan, but I do appeal to him to have some regard for public opinion. I do not know whether he has any fear that he will not get a fair response to a Loan. I think he will, provided he takes steps to lower the present rate of interest. He can only do so by withdrawing to a certain extent the supply of these Treasury Bills and Exchequer Bonds. I ask him to face the situation at the present time or in the near future, and to provide for future financial requirements by long-term loans. The country, I assure him, recognises his difficulty. So, too, does the City, and they will do all in their power to render him assistance.

Sir THOMAS WHITTAKER

While I agree with a good deal of what my hon. Friend has said, there are some things which he has not mentioned which have an important bearing on this matter. He referred to the amount of money we have here from abroad. There are large holdings in our Treasury Bills by persons in neutral countries, and especially in the United States of America. My hon. Friend in his speech suggested lowering the rate of interest on these short-dated securities, but if that is done he will lose that money which we have got here, and it is very important that that money should be kept here. That is one of the difficulties which the Chancellor of the Exchequer has to face. We have a large amount of money in short-dated securities, and the right hon. Gentleman cannot allow it to slip away from this country for the sake of a ½ per cent. or even 1 per cent. interest. Everybody will agree it is not desirable we should have an ever-increasing amount of money here lent to us on short-dated securities. We have over £1,000,000,000 in Treasury Bills at three, six, nine, or twelve months, and there is a possibility that this large amount might be called up at an inconvenient period. I imagine that is one of the reasons which induced the Chancellor of the Exchequer to arrange this new issue of three-year bonds. Naturally he had to offer a higher rate than on the short-dated securities in order to get the money, if possible, transferred or diverted into these three years' securities. If people are to take their money out of short bills at three, six, nine, or twelve months, and to tie it up for three years, they naturally require a higher rate of interest, and that, no doubt, is the reason why 6 per cent. was offered on these three-year bonds. It was to induce people to" invest their money for three years, and to transfer their holdings in short-dated securities to the longer period bills. At the same time the Chancellor of the Exchequer reduced the rate on Treasury Bills to 5½ per cent. right through, and the object, no doubt, was to give a solid advantage in the rate of interest on three-year bonds. It is not easy to see what else the right hon. Gentleman could have done in order to grapple with the position.

The hon. Member who last spoke complained that there had been a heavy fall in the price of the War Loan, but as he also explained, prices have boomed since the statement of the Chancellor of the Exchequer with regard to his intentions respecting a new Loan. I should like to say how glad I was to hear that statement from the Chancellor of the Exchequer. It was necessary. There is no question there was a feeling in the country that the Government were not going to give holders of the 4½ per cent. Loan the benefit of the option of transferring to a new Loan which had been promised, and the continual issue of these securities going up to 6 per cent. had undoubtedly shaken the confidence of the public who were uneasy, and that caused the fall of the War Loan to 92½ . But as soon as the Chancellor of the Exchequer made his announcement, the price rose to over 95, and it looks as though with the option in hand 95 is somewhere about the price. 'When a country has been borrowing money in various ways by thousands of millions, I do not think you can regard the depreciation which has taken place in the 4½ per cent. Loan as a very serious one. The announcement that the option will be given to the public and that we may look for the issue of a Loan as anticipated, has, I am sure, given the greatest satisfaction. It was very desirable that an announcement should be made, because obviously the price at which the existing Loan stands on the market will have a material effect in determining the price at which the new Loan shall be issued. Therefore it is contrary to the interests of the Government that the existing Loan should fall in market price.

As to the time when the new Loan is to be issued, that, of course, is a matter which the Chancellor of the Exchequer must settle in consultation with his financial advisers. He has at his disposal the very best financial advice in the country, and it is not a matter that we can discuss here with any advantage. One thing may be said—that just recently, while the French Loan was being issued, no attempt could have judiciously been made here to issue an English Loan. We have now to face the general autumn expenditure, and the Chancellor of the Exchequer has to provide for that; and I have no doubt that, if he felt himself free to tell us, he could tell us that there are many other difficulties, in connection with exchange, for instance, to which my hon. Friend referred. The Chancellor of the Exchequer has had an enormously difficult job to face. Nobody in this country has ever before had to raise money by thousands of millions, and I think that when you look upon the matter as a whole, the way in which and the rate at which money has been obtained is a subject for congratulation. No doubt if you could have operated with present knowledge you might have done differently. But you have to act with the knowledge that is available at the moment, and I feel that we ought rather to congratulate than to criticise the Chancellor of the Exchequer. If there was a point of criticism, it was that the public were not quite certain about the redemption. But as soon as Parliament met and the Chancellor of the Exchequer had an opportunity of putting that matter right, he did so; therefore I think he did what could be done in that direction. The rate at which the Loan should be issued can only be settled by careful expert discussion of the situation, and, as I say, I would rather congratulate than criticise my right hon. Friend on what he has done.

Sir F. BANBURY

I think we owe a debt of gratitude to the hon. Baronet opposite (Sir C. Henry) for having brought forward this extremely important subject. I regret very much that there are so few Members in the House to hear it discussed, because there can be no doubt that finance, especially in this War, when many thousands of millions of money have been raised, plays a most important part in the conduct of war. The hon. Baronet stated that he preferred Exchequer Bonds—by which I presume he meant the three years 6 per cent. Bonds—to Treasury Bills on account of the Income Tax He was under the impression that there was considerable loss to the Exchequer owing to the fact that possibly certain people who held Treasury Bills did not enter in their returns to Somerset House the income derived therefrom. I cannot give any opinion on that, but I should have thought that the Somerset House authorities were quite competent to safeguard the interests of the country with regard to Income Tax. I myself have never found them wanting in claiming a sufficient amount. I very often think they claim a little too much; I have never known them to claim too little. As to Treasury Bills, I do not quite know the exact position now. I have never contemplated a situation in which we should find ourselves face to face with an issue of £1,000,000,000 in Treasury Bills. It may be that a considerable number of those bills are held by people who do not make correct returns. I cannot help thinking that the vast majority of them must be held by financial institutions, which have to make a return every year of their profits, and that in that way the Treasury do receive the Income Tax to which they are entitled.

I object very strongly to three-year Exchequer Bonds, first of all, because I think the rate of interest is much too high, and, secondly, because Exchequer Bonds for three years do not appeal to anyone. Treasury Bills always appeal to what in the City is called the discount market. In the discount market there are a large number of people who, having surplus funds, desire to invest them for a few months. Treasury Bills on which they can borrow from the Bank of England are one of the finest classes of security for these particular people. They do not appeal very much to the public, because the public like something longer. But now the Chancellor of the Exchequer has issued Exchequer Bonds for three years. They do not appeal to the discount market, because the period is too long; they do not appeal to the investor, because the period is too short. The investor desires—and I claim to speak with some knowledge of what the investor desires—a permanent loan. As I think I have stated before, the ordinary investor, when he has money to invest, has a very troublous time. He probably sees his banker, who gives him certain advice; he sees a friend who he thinks has great knowledge of City matters, from whom he gets contrary advice; he sees his solicitor, who also gives him contrary advice; if he knows a broker he will obtain advice from him, which in all probability is not the same as that which he has received from other quarters. The state to which such a man is reduced, added to the fact that he does not like to pay commission if he can possibly avoid it, makes him regard with dislike and abhorrence the trouble of investing his money. Therefore he likes to have something of a more permanent character, and he does not like a short three-years' bond. The Chancellor of the Exchequer has, in my opinion, chosen exactly the bond which does not appeal to anybody, and it is for that reason he has had to pay such an excessive rate of interest.

Consider for a moment what the position of the Money Market was when the Chancellor of the Exchequer issued the 6 per cent. Bonds. It is a matter of common knowledge that the public were investing in railway debenture stock and similar stocks giving a return of something like 4¾ per cent. or 4⅞ per cent. Of course, the mere fact of the Government's offering 6 per cent. immediately upset all that market, and made the investor think that he was very foolish to take those classes of securities. After all, it is the Government who set the rate of interest. If anyone now wants to borrow money, those who have it to lend say at once, "We cannot lend it at less than the rate the Government are paying. If they are willing to pay 6 per cent., you must pay us the same or more." Therefore, the mere fact of such a high rate of interest being offered upset the market. It depressed all other securities, and the depression of other securities, especially if you are going to issue another Loan afterwards, is a thing to be avoided. In my day—and I have had some experience of issuing loans—I always advised that the time to issue a loan was when the market was rising, not when the market was falling. I have known people take steps to see that the market was rising, perhaps a little artificially, when they issued a loan. The Chancellor of the Exchequer has done his best to depress the market, and at the same time I understand he has made an announcement that he is going to issue sooner or later a permanent Loan.

With regard to the 4½ per cent. Loan, when the right hon. Gentleman informed the House that he was going to issue that Loan, he stated that he was going to attach to it what the hon. Baronet terms an option. I think the word is a very good one. In the course of my experience in the City I never heard of such an option being attached to any loan. I thought it was quite unnecessary, and that it might involve the Chancellor of the Exchequer in serious trouble later on. I said so in the House, but my advice was disregarded, and the Chancellor of the Exchequer issued the Loan with the option or condition attached. Instead, later on, of fulfilling that option, he continued to issue Treasury Bills to such an enormous extent that I think it was quite reasonable for people who held this Loan to think that that option was not going to be fulfilled. There are in the Act words to the effect that the option is only to be given in case the money is borrowed for the purposes of the War. That might mean that if sufficient short bonds were issued, and they were redeemed after the War, the issue would not be for the purposes of the War, but for the purposes of the redemption of an existing Loan, and therefore the option would not apply. I am not saying that that is so, but I can quite understand a clever lawyer—I do not see one on the Treasury Bench at the moment—arguing that that was the effect of the words. I can also understand a judge saying that Parliament does not put into an Act anything without a meaning. I have often read statements of judges to that effect; I am not sure that I always agree. It is the habit of judges to construe Acts of Parliament with that in their minds. A judge might say, "There are the words, and they have that meaning." Therefore it is not surprising that the ordinary investor, being unable to exercise this option, was frightened when he found three-year bonds at 6 per cent. were to be issued. I did not hear the announcement with regard to the new Loan. Is it quite certain that the Chancellor of the Exchequer is going to do this? I hope it is. I think we ought to have from the right hon. Gentleman a clear statement that he does intend to carry out the undertaking which he gave in connection with the issue of the 4½ per cent. Loan.

The hon. Baronet said that, as far as he knew, there were £1,500,000,000 of short-dated securities at the present time. I do not know whether that is correct. Assuming it is, it is a very appalling fact. If the War ends, as we all hope it will, at a not too distant date, we shall be met with the obligation of redeeming £1,500,000,000 of short-dated securities. Of course, this is only a matter of opinion. I do not set up to be a prophet. No one can say what the state of the money market will be at the end of the War. All one can do is to draw conclusions from what has occurred in the past and from what is going on now. At the present moment there is a Committee called the Treasury Issues Committee, of which I have the honour to be a member. That Committee was set up in order to prevent money being put into industrial securities, or any other kind of enterprise, unless it was in the national interest. That, I think, roughly, the right hon. Gentleman will agree with me, was the purpose of that Committee. We have, I think, exercised our duty to the best of our ability. There can be no doubt that after the War there will be a very large sum of money required for the various industries and the various undertakings in this country which will have to be financed. That is not the proper time to bring in a Loan—at least in my opinion—or for the Government to be obliged to bring out a permanent Loan. We will then be competing with a large number of other people, and the consequence will be that you will have a very large number of people competing for the money, and the rate of interest must go up. For some time I have said that the proper course for the Government—I said it on the Adjournment of the House when we discussed this matter before—

Sir C. HENRY

It was on the discussion of the salary of the Chancellor of the Exchequer.

Sir F. BANBURY

At that time there was considerable investment going on arising from the proceeds of sales. Then, I said, was the time you ought to have brought out your Loan. The Chancellor of the Exchequer replied to me that the sum was not a very large sum. I dare say it was not. But, whether or not, investors were at that moment "on the feed"—and those who go angling know that it is a desirable thing to throw out the line when the fish are "on the feed." The investor was then "on the feed," and could have been caught. That is just exactly what the Chancellor of the Exchequer did not do. I really do regard with very great apprehension the policy of the Government, which appears to me to be the raising of enormous sums of money by short-dated securities which will have to be met at the time when probably everybody else will be requiring money and when a very large rate of interest will have to be paid. I think we owe a debt of gratitude to the hon. Baronet for having brought up this subject, because really it is a very, very serious subject, and it ought to be discussed in a very serious manner. It is not a subject which is well understood by everyone. Hon. Members, however, who understand it, and those members of the financial community in the City who understand it, ought all, I think, to take an interest in the matter and give their opinions upon it. I trust the few remarks I have made, with a view to help the Chancellor of the Exchequer, will be received by him in that spirit.

The CHANCELLOR of the EXCHEQUER (Mr. McKenna)

I share the opinion of the right hon. Baronet who has just spoken that my right hon. Friend behind me (Sir C. Henry) deserves a debt of gratitude for having raised this question. There is no subject which is of more vital importance to the conduct of the War, except the actual fighting in the field, than the due maintenance of our credit abroad. It is of the first importance that this House should be satisfied that the proper steps are being taken to raise the necessary funds to meet our needs. The House has shown to other representative institutions in the world an example of courage and endurance in facing the financial strain. This country has been subjected to heavier taxes, has raised a greater burden of debt, and has been willing to submit to greater pecuniary sacrifices than any other country, simply and solely because the representatives of the people in this House have had the courage to bear the burden. I should be the last one to complain of any advice or assistance that can be offered or obtained in this House, having regard to my own very happy experience during the eighteen months I have held my present office. I therefore approach the criticisms or observations of my hon. Friend behind me in no hostile spirit. On the contrary, I welcome what he said and am glad of the opportunity given to me to state to the House one or two facts.

We have to remember that the amount of money which the State has to borrow is out of all proportion to any borrowings that have been conducted in the past. When the right hon. Gentleman who has just sat down speaks of the conditions of the market in the City he speaks with as great an experience as any Member of this House. I certainly should not for a moment traverse his opinion upon any ordinary technical grounds relating to business in the City. But if he will allow me to tell him one thing, I should say that he does not realise or has a due sense of the proportion of the magnitude of the task which faces us when he says that I should get money cheaper. Very likely he is right if I only wanted a little, or even if I wanted the maximum, or the greatest sums which he has ever known to be raised in the City of London before this War. When, however, he remembers that we have now to raise these maximum sums about once a month, he will see that we have a state of things in which the old arguments as to what rate of interest is properly applicable do not apply. We can only find out by experience, by daily experience which is brought home to me every morning at my table, the result of our policy, as to whether or not we are successful in meeting our needs. Nobody can conceive for a moment that the Treasury which, after all, is supposed to be niggardly, would pay more money than necessary. We know from day to day and from week to week what we have to borrow. We know what we have spent abroad and how many dollars we have to find. I see every morning on my table a daily return of all which we have borrowed the day before and how much we have had to pay abroad, the different kinds of securities borrowed, and the rates of interest we have paid; and we have to judge day by day what we can do. In circumstances of that kind no a priori reasoning is going to help me.

The House of Commons would have good ground of complaint against me if I failed in this matter. After all their interest is, first of all, to see that we have always the means to pay for our sailors, for the Navy, and for the Army, and to give that assistance which we have promised to our Allies. To put myself into that position I have to make sure of getting the money. My hon. Friend behind me said in effect—I am paraphrasing his words—why not establish two kinds of securities, and have two different rates of interest, one for short-dated securities in this country, and one for short-dated securities in America. Has he thought that proposal out? If he means by a short-dated security in America a security that is negotiable in this country it is quite obvious that unless the rate of interest were the same on both the American securities would be taken out at the higher rate of interest and immediately discounted at a lower rate of interest in this country. If they are not to be negotiable in this country he is advising me to do what we have been doing for a considerable time. He is aware of what we have done in issuing Loans in the United States for what he would call short periods. Our last Loan for a two years' period was for 250,000,000 dollars. This is a short-dated security exactly of the kind which he describes. It is a short-dated security only serviceable in the United States, and not acceptable or negotiable here, and there is no reason why it should come into this discussion. The notion that a Treasury Bill should become current in the United States and not here would offer nothing to the United States which they have not got at the present time. My hon. Friend overlooks the most serious factor in the situation with which we are daily confronted. He raised an objection to a high rate of discount on Treasury Bills on the ground that these bills, in consequence of the higher rate, would be largely held abroad. We want them to be held abroad.

Sir C. HENRY

I do not know that I said that. I know there are 300,000,000 held abroad.

Mr. McKENNA

I welcome that, and I hope that there will be 400,000,000 held abroad. It is one of our many objects in offering these securities to the public as a State security that they will be held abroad. My hon. Friend must remember the task with which we are confronted. We have to pay at the present time a very considerable amount day by day in the United States. I suppose it will not last at that rate since this is far the worst period of the year. At the present moment, I suppose, it would not be too much to say that we have to find £2,000,000 a day for every working day of the week. That means a prodigious amount of dollars to find every six days. It would have been believed that task would be impossible had it not been realised that the amount a year ago was a very large Loan. I myself should have said: "I do not see how figures of that sort can be realised." But it is being realised at this moment! There is no reason to suppose it will not continue to be done, but we must have our hands free! We must not be told that we are paying too high a rate of interest. If we do not raise money in the United States it means we must cut short our supplies from the United States, which means we cannot get all we need in the way of steel, wheat, copper, sugar, and other raw materials which, far more than finished goods, are absolutely essential for ourselves and our Allies. If that is the problem which faces us, we have to take that aspect of the case into account. Remember that our problem is not the simple one of raising the necessary money in this country, but of always being sure that we can raise the necessary money in the United States. My hon. Friend asks whether the Treasury policy has the approval of the best financial advice which is open to it?

5.0 P.M.

There have been two opinions expressed in this House, one by my right hon. Friend behind me, and one by the right hon. Gentleman opposite, both of whom are very high financial authorities, and who took almost diametrically opposite views of the action of the Treasury with regard to the particular issue of the 6 per cent. Exchequer Bonds. Of course, we never have unanimous advice from every high financial authority, because the high financial authorities do not agree, but I can say with confidence that the Treasury has the advice, and agrees with the advice, of the best financial opinion on the whole. We have critics amongst the high financial authorities. I do not contend that it is a unanimous opinion, but I can certainly say we have not failed to consult all the high financial authorities, and I can certainly say that the great bulk of the financial authorities have been on the side of the policy which the Treasury has taken. The right hon. Gentleman said that in issuing 6 per cent. Exchequer Bonds we had issued a form of security of which nobody approved.

Sir F. BANBURY

Which appeals to no one.

Mr. McKENNA

It is surprising to say that in a fortnight a security which appeals to no one was sold to the amount of £36,000,000. At that rate of interest it appeals, apparently, very successfully. Does the right hon. Gentleman think I can issue a Bond with any chance of success at a less rate of interest? We were already paying on our 6 per cent. yearly Treasury Bills 6⅜ per cent., and on our two-year War Certificates 6 per cent. We had a series of 5 per cent. Exchequer Bonds, the sales of which were steadily, even rapidly.

declining. We had before us the prospect of the issue of the French Loan on our market, which is certainly worth over 6 per cent.—much over, having regard to the improvement of the exchange which necessarily will take place during the course of "the Loan. So that we had before us a state of things in which we could be confident that 5 per cent. Exchequer Bonds, of which there were already three different varieties on the market, would not be sufficient to meet our demands. Five and a half per cent. would not be as good as our two-year War Certificates. We had no alternative except either to issue a long Loan, or to issue Exchequer Bonds at 6 per cent. We naturally took these Exchequer Bonds at a high rate of interest for the shortest period possible, three years only, in order to issue a security which would cost the least to the taxpayer. There is the other alternative of issuing a long Loan. The right hon. Gentleman laid it down as an axiom with which we shall all agree that it is not the proper time to issue a Loan when there is competition for money.

Sir F. BANBURY

Not the best time.

Mr. McKENNA

It is not the best time to issue a Loan when there is competition for money. The right hon. Gentleman knows that at this period of the year, almost without exception in his experience, the Bank Bate is raised. Every year for the last five years before the War the Bank Rate was raised at this period. It is raised in September or October almost invariably. I have a return for the last twenty-four years, in which I see that in eighteen of those years the Bank Rate was raised in September or October. As I have said, in the last five years before the War it was raised every year in September or October. That means that this is the period of the year at which, in the language of the right hon. Gentleman, there is competition for money. Out of his own mouth he is convicted of the opinion that this is a bad time for the issue of a long Loan. I concur in his opinion, and all my advisers concur in that opinion.

Sir F. BANBURY

Will not the three-year Exchequer Bonds, which have been issued in October, fall due in October three years later, just at the period which the right hon. Gentleman says is a wrong period? No doubt January or February would be considered the best time to obtain money, because generally money is easy at that time.

Mr. McKENNA

I can assure the right hon. Gentleman that all these considerations are not left out. Out of his own mouth he is convicted of the opinion that this is a bad time of the year to issue a Loan—an opinion in which we all concur. As I have stated, it is my intention, and has never been anything but my intention, to ask Parliament to authorise the issue of a new long-dated Loan at a proper time and season, but the Treasury must be left to judge of the right season. We ought not, in the interest of the taxpayer, to be pushed into issuing a Loan against our own judgment, a Loan which for fifteen, twenty or twenty-five years might throw an additional charge upon the taxpayer when the taxpayer may reasonably look to us to safeguard his interest, and to obtain a long Loan for him on the best possible terms. We do not in the least shrink from issuing a Loan on the ground of the pledge that was given, that the old War Loan holders should have the right of conversion into the new Loan, but we are bound to look after the interest of the taxpayer and to choose that period of the year which, in our opinion, will be the best period to issue the Loan. I am just reminded that the 6 per Cent. Exchequer Bonds are not repayable in October, but in February, 1920, which the right hon. Gentleman thinks will be the most favourable time.

The amount of our borrowing has been regular, and, as was pointed out, during the last two months we have increased very largely our reliance upon Treasury Bills. But the case generally is not quite as bad as would appear from the examination of the short-period Loans. We do not get at this time of the year—we have not at any period of the financial year up to date had the full advantage of our revenue. That is a factor which must always be borne in mind in considering what the burdens are going to be on the Treasury in the way of borrowing. During the first nine months of the year our revenue probably will not average more than, if as much as, £7,000,000 a week. I should think that would be on the whole an outside figure. Well, £7,000,000 a week for the whole year would give a revenue of £364,000,000. We have budgeted for, and I believe we shall obtain, a revenue of about £500,000,000. That means that the extra £130,000,000 to £140,000,000 will all come in during the last quarter. Now, however depressing may be the figures of the issue of Treasury Bills during the present War, we hope by virtue of the revenue to be less reliant on Treasury Bills, or any other form of borrowing, to the extent of £130,000,000 to £140,000,000, than we are this quarter. That is a very material fact. That adds once more another argument in favour of the months which are such fortunate months in the opinion of my right hon. Friend.

On one other point I would like to remove, perhaps, some of the gloom from the mind of my hon. Friend behind me. He spoke of the great depreciation of the 4½ per Cent. Loan. The case is not quite as bad as he makes out. In order to effect his purpose he took one momentary fluctuation in the price of the 4½ per Cent. Stock. The sales, as a matter of fact, have been very small. The price has been put down with hardly any dealings, and with hardly any dealings the price went up again. I do not think that any argument can be founded upon the momentary price and the fluctuation of the stock, particularly when the price to-day is 2½ points above the price he named. But even on his own figures his calculation was not accurate. He said it showed a depreciation of £80,000,000. He forgot to take into account that the 4½ per Cent. War Loan was not issued at par, but 98⅞ per cent., and when he deducts dividend at one end he must deduct dividend at the other. I have every hope that we shall see—of course, with fluctuations in the market—British credit stand at a figure which is not represented by 4½ per cent. at 95. We have stood the brunt of the burden, and I have not any doubt that we shall be able to bear the burden during the rest of the War.

Our expenditure, unfortunately, as the Prime Minister stated in introducing the last Vote of Credit, has not, to say the least of it, gone down. Under two heads there has been an increase which cannot be described as other than material. There has been an increase in the expenditure on munitions, and there has been an increase in the advances to our Allies. I am sure that the House of Commons will not grudge an increase of the Budget estimate under either of those two heads. We are all united in thinking that the only limit to the munitions which we should issue for ourselves or send to our Allies is the capacity of the factories to produce them.

This is a war of munitions, and I should not feel that I was justified, at any rate at the present state of the output, in insisting upon any check being imposed upon our supplies. I feel also that our duty to the Allies is such that we are bound to consider their needs and necessities. If additional demands are made upon us, we have to meet them. All these burdens throw an additional charge upon us, but the London market has been able to meet it. Our resources are met day by day. We have not had difficulties in financing ourselves so far, and I see no reason why we should have difficulties hereafter. When the time comes there is no doubt the Loan recommended to the House will be of sufficient magnitude to dispel all the fears which have been put forward by my hon. Friend.

Mr. DAVID MASON

I think the Chancellor of the Exchequer has entirely missed the point of the criticism of the hon. Baronet the Member for the City of London. What was his point? It was that the Chancellor of the Exchequer should deal with this matter now rather than after the War is over. My right hon. Friend was not going into any particular month, and the point which he wished to make, and which the Chancellor of the Exchequer did not deal with in his answer, was that he ought to bring out a long-term Loan, and the Chancellor of the Exchequer rides off by saying that October or November is a bad time to bring out a Loan. This continual trifling with the House of Commons and the criticisms made is rather unworthy of the right hon. Gentleman, and in his heart he must know that he really did not meet the criticisms which have been put forward by my right hon. Friend. I think we are very much indebted to the hon. Baronet who initiated this discussion. We feel that we are going over ground again which we went over in August, but we do this because evidently our criticisms have had no effect, and the answer made was for the Chancellor of the Exchequer to issue 6 per cent. Exchequer Bonds. For the Chancellor of the Exchequer to again refer to what he called the slight depreciation of the 4½ per cent. Loan is beside the point.

The real point of criticism against that profligate and extravagant issue is the effect it has on other securities. The depreciation caused by that has run into millions. Ask any head of a great insurance company or great banker if the issue of a 6 per cent. security does not neces- sarily depreciate all other securities. The result has been to penalise trade, to depreciate securities, and to bring down British credit. One is appalled to hear the right hon. Gentleman tell us that he has high authority, but why does he not quote it? None of us can find that authority. If we go into the City of London and consult stockbrokers, we find one unending tirade against this policy. I suggest to the right hon. Gentleman that what the investor is really looking for is rather a fair rate of interest on a long-term security. He would rather have a long security in Consols or a perpetual security bearing 4½ per cent., or even another bond for a long period bearing 5 per cent than these three-year Exchequer Bonds at 6 per cent. I think that is self-evident, and the advantage to the State and to British credit is that it does not go before the world that the Treasury and the British Government are borrowing on a 6 per cent. basis. You have Treasury Bills now amounting to £1,056,000,000 in short-dated securities upon the market, and we know that the advances made to our Allies and Dominions are to be paid to us in short-dated bills, and when we realise that our short-dated indebtedness approaches to nearly £2,000,000,000, we begin to understand what the problem is. What we feel is that this policy undermines and cripples our financial strength, and while not taking an exaggerated view and urging that this system should be done away with altogether, we suggest that a very considerable part of these issues should be dealt with in the manner suggested by hon Members of this House. The answer to our criticisms was the issue of this 6 per cent. Exchequer Bond.

At this belated period the right hon. Gentleman is good enough to tell us that when a suitable time arrives he will, in conjunction with his financial advisers, consider the advisability of issuing a longterm bond. We ask the Treasury now to discontinue issuing this 6 per cent. Exchequer Bond. Why continue it. The consensus of opinion here and of many high authorities in the City is against it. The right hon Gentleman says that high authorities are divided. If that is so, let us have the high authorities who give that advice. Let us know who it is that seems to know and has this wonderful knowledge superior to all those other authorities who are well known to every average banker and any man who has any primitive knowledge of finance in this House. This con- tinual flouting of the opinion of the House of Commons and the opinions of men who have made some study of this question and have consulted others is not justified. Where is the support of the policy practised by the Treasury? I fail to see it. The Chancellor of the Exchequer refers to some financial authority, but we cannot find this authority. I cannot find him, at any rate, and if the hon. Baronet the Member for the City of London can tell me who he is, I hope he will let us know. After all, we have to judge by the effect of a proposal, and the result of the depreciation of British credit caused by the proposals of the Chancellor of the Exchequer runs into millions.

Mr. HOUSTON

And of securities.

Mr. MASON

Yes, of securities as well. When we appreciate the heroism and self-sacrifice of our soldiers in France to-day and consider what is being done by this financial policy, it makes us feel that we are not playing our part. If you fritter away your resources you show a lack of appreciation of sound finance and you depreciate British credit. If you will not listen to the financial authorities in this House, what are we to do? I submit that the time is approaching when this House ought to have the courage of its convictions and vote against the Consolidated Fund Bill, or any which emanates from the Treasury, when we know that this is the way our finances are conducted. We have now got the Chancellor of the Exchequer up to the point of agreeing that when a suitable time arrives to issue a long-term bond he will consider it, and I wish to offer now a few observations as to the character of that particular security. There are two opinions in regard to that. The prevalent opinion in America is to issue at a fixed period a bond, perhaps running for twenty-five years, with the option of being able to repay it.

The custom in this country and on the Continent of Europe and with the British Treasury is the perpetual security of a consolidated debt. If such a security is issued at a fair rate of interest in the first place it is a perpetual debt, and that makes it popular with the investor. I know the Chancellor of the Exchequer is anxious to attract investors, and if he offers Consols, that, naturally, is a long security at a fair rate of interest. I hope that course will appeal to the right hon. Gentleman, because of the fact that it is a long-term bond. If it is issued at a low price, or if in after years it falls to a low figure, then the Treasury have the supreme advantage of being able to redeem by purchase in the open market such a debt. I do not think such a security is likely to go to a high premium in our time, and the probability is that for many years, as the result of this War, capital will be very much reduced, and the demand for capital may be very much increased. What is the advantage of a perpetual stock? If it stands below par it can be redeemed by purchase in the open market, and if above par then, one method adopted by a former Chancellor of the Exchequer was the process of conversion. The advantage of a perpetual stock as against a stock issued for ten years is that you are not faced again at the end of one period with the task of having to finance or refund the debt. I submit that there is a supreme advantage in having a perpetual stock in the loan to which I understand he is now coming. I hope that point will receive his consideration; and I will just say in conclusion that when one surveys the whole character of the present Treasury finance, when we know that to-day we are, as it were, financially bleeding at every pore, we have, in addition, an issue of 6 per cent. Exchequer Bonds. Why increase the rate of interest to 6 per cent. on Exchequer Bonds? The right hon. Gentleman said It was to relieve the purchase of Treasury Bills, but what do we find? We find that this has not even been successful, and they have gone up by some £40,000,000 or £60,000,000, and now amount to something like £1,056,000,000.

We have at the present time borrowing going on through our 6 per cent. Exchequer Bonds, through Treasury Bills, and through War Savings Certificates, and we have the printing press turning out Treasury Notes at the rate of £1,500,000 a week, depreciating the currency, and, as admitted by the President of the Board of Trade, though the Chancellor of the Exchequer does not agree with him, having its effect upon food prices, thus increasing the pressure upon the poor and leading to further demands for war bonuses and increased wages. How can the right hon. Gentleman expect British credit to improve when he pursues this policy? This is the time, as it always is the time, to press for a greater proportion of the expenditure of the War being raised by direct taxation rather than by this policy of loans. I do not wish to be tied to the particular week or moment, but I suggest that the sooner a long-term Loan is issued the better. The trivial answer of the right hon. Gentleman was to compare this period with previous periods. How unfair is that criticism? The periods with which he compared the present period were all periods of peace. The point which my right hon. Friend opposite made, and the point which I wish humbly to impress upon the right hon. Gentleman, is the necessity of funding this indebtedness now, or as soon as possible, and stopping the issue of these Exchequer Bonds. There are many issues of long-term securities below the Bank of England rate of discount. It is not that which governs the investor altogether. When a great bank or a private individual invests he does not rush to see what is the Bank of England rate of discount. He knows that is a temporary matter; and, if he can get 4½ per cent. on a perpetual security issued by the British Government, he regards that as an exceptional investment which is not likely to recur in his lifetime. I believe the right hon. Gentleman would have no difficulty in funding a great portion of this great indebtedness. He would strengthen the national credit, and it would also put him in fresh funds for carrying on the operations of the War.

Mr. SAMUEL SAMUEL

I have rather a difficulty in speaking on this subject, because the last time I ventured to do so the Chancellor of the Exchequer told me that I represented nobody in the financial world, and I think he said the same thing to my right hon. Friend the Member for the City of London (Sir F. Banbury). I have ventured to point out to the present Chancellor of the Exchequer and to his predecessor the very strong objections that exist in the financial world to short Loans. The reason for the issue of Treasury Bills was never anything more than to tide over the temporary embarrassments of the Government before they received their revenue from taxation or before they wanted to issue a Loan. The Chancellor of the Exchequer told us, and, of course, everybody realises, that the expenditure is abnormal. We require £5,000,000 sterling a day. But we have known that for the last twelve months. We have to provide £1,700,000,000 or £1,800,000,000 per annum to pay the expenses of the War. We were told that by the Prime Minister, and it has been repeated, and unfortunately we have seen by actual operation that it is so. We were told that Treasury Bills were issued to protect this country against the drain of gold to other countries. We were told that the Government were issuing these Treasury Bills to attract money from abroad. At the beginning of the War we had Treasury Bills of 3½ per cent. They were raised without notice to 4½ per cent., 4¾ per cent., 5 per cent., 5¼ per cent., and 5½ per cent., and there is a complaint in the City of London, and, I believe, throughout the whole country among those who come in daily contact with financial questions, that on every occasion when they have come to the assistance of the Government by taking up Treasury Bills they have been caught. We go to the Bank of England on a Thursday morning and buy Treasury Bills at 4½ per cent. or 4¾ per cent., and we find in the afternoon that the rate has been raised, and that the market has been let in.

There is no possible reason or excuse for these violent alterations which are constantly taking place, and, however the Government may have been advised, we know perfectly well that one of the great ambitions of the Bank of England was to get control of the Money Market. We have had it stated that the Bank of England wanted to make the Bank Rate the effective rate on the market. They have never been and they never will be able to achieve that object. What have they done? They have utilised the Treasury Bills and the Treasury for the purpose of trying to achieve their ambition. We know perfectly well that they came to the great banks and told them, "You must not lend your money below 4 per cent. If you have spare money to lend, or if you want 4 per cent. for your money, we will give it you so as to take it off the market." If the Government wanted money, it was hardly the right way to go to work to try to put up the value of money. If a man in business wants to buy any material, he does not go all round making inquiries and send up the price before he goes into the market and buys. That is exactly the attitude that the Treasury have taken up. Knowing perfectly well their requirements, and knowing that if the War goes on for another twelve months they will require £5,000,000 sterling per day, or £150,000,000 per month, or £1,800,000,000 per year, they have put Exchequer Bonds on the market at 6 per cent., getting £20,000,000 in the first week and £16,000,000 in the second. When they issued their 5 per Cent. Exchequer Bonds it was exactly the same.

We know perfectly well the people who invest in that class of security. There is a limit to the amount to which they can go. As a rule they are people who have money temporarily in their possession, like the banks, the great financial houses, and bill brokers. The Treasury Bill has been the most convenient instrument in the market for ages, and a bill broker is in the habit of subscribing for Treasury Bills as the finest security that he can have. Confidence in Treasury Bills at the beginning of the War was shaken for a time by the action of the Bank of England, which for some reason best known to itself on 31st July, when there was almost a crisis in the City, refused to advance money on Treasury Bills, and thus actually helped that crisis. That was the principal cause why we had to have a Bank Holiday for a whole week. We have now to consider how we can best get over our present difficulties. We are told by the Treasury and by the Governor of the Bank of England that the object is to keep the gold in this country. Does the Governor of the Bank of England or do the Treasury believe that the mere issuing of a Treasury Bill is going to keep the money in this country? What is the custom? Bill brokers buy Treasury Bills so that they can borrow money from day to day on that security at the various banks, and have surplus funds which they can lend out. If the market can get a 6 per cent. Treasury Bill, and can borrow from day to day at 4¾ or 5 per cent., it id magnificent business for them. The Government are issuing Treasury Bills now at 5½ per cent. and anybody can go to the bank in the City of London, place those bills as securities, get money from day to day at 5 per cent., and make a profit. The Bank of England have been trying to get control of the Money Market, and to prevent the banks from lending this money from day to day at a low price. The Government will not see this. They continue to play into the hands of the Bank of England, because, I presume, the Treasury do not know any better.

If you ask them who are their advisers, they will give you Lord this and Lord that, and their names no doubt appeal to hon. Members below the Gangway, and to the man in the street, but they carry no weight with people who have daily business relations with the Money Market and the City of London. We want to know the experience of the man, and we can only judge by results whether the advice given to the Treasury is beneficial on the whole to the country. If you ask in the City of London, amongst the banking community, you will find that the names we hear do not carry any weight. We have never been told absolutely who they are, but rumours come out. The other day, for instance, we heard that the issue of these 6 per Cent. Exchequer Bonds was made from Harrogate. The adviser of the Government was taking the waters at Harrogate when the Treasury wanted to consult with him. The Governor of the Bank of England could not find anybody of sufficient knowledge and experience in the City of London, so he went down to Harrogate to get the advice of this great genius on finance, and to see what the results of the waters of Harrogate would have on the finances of the country. That was the history of those 6 per Cent. Exchequer Bonds, and, as has been mentioned, that issue has naturally had the effect of depressing every security in the markets of the United Kingdom. I think if the Government and their advisers were in touch with other countries they would find that it is not necessary to pay the rates they are paying, considering the very low value of money in all the other markets of the world. In Holland, for instance, the Dutch people can borrow money—and I know of English companies that have borrowed money there—at 3½ per cent. Does the Government think that holders of Treasury Bills, even if they were only 5 per cent., would sell them so as to take their money to Holland to get 3½ per cent. for it? In the United States the current rate at present in the market for borrowing and discount is about 4 per cent. The principal thing which should guide the Government and their advisers, if they know the various money markets of the world, is the value of what people can get for their money in other markets. We are not to-day, as we were, the centre of the finance of the world, because even at the present time we find that trade in South America that used always to be financed in London is to-day being financed to a great extent in New York. The same thing applies to, other countries. The restrictions that have been put upon the banking community in this country have had the effect of making merchants in various parts of the world look to other centres for the future. I would ask the Government to carefully consider when they take action what the effect is going to be on the future prosperity of this country.

We cannot afford to ignore entirely the future of this country. Coming back to the question of short loans, and the argument used that the putting of them into circulation was to safeguard the exchanges, I think the Government do not realise the great danger always hanging over their heads with this vast floating debt, It is easy to say, "We have issued Treasury Bills for twelve months." But if anybody were vicious enough to do this country an ill turn, they could come in. three, or six, or nine months and realise those Treasury Bills at any moment and take gold in exchange. You have got to realise that and to take your precautions. The very best way to do that is to issue a long Loan which is not to be redeemed and cannot be utilised in the same way; or you can, if you wish to guard the exchange, give exceptional terms to foreign holders. I know a company myself which went to the Treasury twelve months ago or more and told them they were prepared to take a large holding of Treasury Bills if the Government would guarantee them against the loss of exchange after the War. The Treasury refused to do so, and the money would probably have been withdrawn from this country were it not that a banker in the City intervened and proved to the Treasury it was in the interests of the country to give the guarantee, and they did so. That company did not ask for 6 per cent.; the rate then was 5 per cent. and they were satisfied so long as they were indemnified against loss of exchange. Naturally, when the Treasury Bills were put up to 6 per cent., they sold the 5 per cent. Bills in the open market and bought 6 per cent. Bills in exchange. You may say they were satisfied with 5 per cent., but they had a 6 per cent. thrust upon them.

I believe that if the Treasury were to go the right way about it and to employ business men, they would find that they would be able to make arrangements with a large number of big holders, foreign holders, in Treasury Bills. I know that in neutral countries there are large numbers of neutrals whose sympathies are entirely with this country, and they are only too anxious to help them in every way they possibly can. The Chancellor made a reference to what the right hon. Member for the City said about the time of the issue of a Loan. Everybody knows that there is an annual demand for money in the autumn in connection with the crops. We have to remit for the enormous quantities of grain and other season material we import in the autumn, and that always makes a demand for money. There is that demand this year, but there is this difference; that it is not made in the open market, because the Government have taken that out of the hands of the merchants, and the demand is principally paid for by the Government and their own borrowers. In normal times the bankers and merchants always provided for that demand, because they knew what would happen. The question of the two different securities the Chancellor spoke about would, of course, be an impossibility, unless the Treasury were to make some arrangement with the people who hold Treasury Bills, or Exchequer Bonds, to hold them subject to the rate of exchange being guaranteed until after the period of the War. As to the enormous fluctuations that we have had in Treasury Bills and Exchequer Bonds the Chancellor pointed out, I think with satisfaction to himself, that we have had in Treasury Bills and able sums of money' on those different securities. I am sorry to differ from the Chancellor in his opinion of the results. The bulk of the money is in Treasury Bills, but I think it is an admission of the failure of his schemes when we see that he has had to change so often with so very little result to the benefit of the Treasury. He told us that he found by degrees that the people who were prepared to invest in 5 per cent. two, three, or four-year Exchequer Bonds, were exhausted, and that they had to try further remedies to get those comparatively small amounts. Nobody, I think, will admit when you want thousands of millions that fifty or 100 millions is any good. He had to issue the 6 per cent. Bonds because the 5 per cent. did not find a ready market any more. When he comes to the end of the 6 per cent. Bonds what action is he going to take, and what is going to be the result on the Treasury? Is he going to issue 7 per cent., 8 per cent. and 10 per cent. The Treasury must realise that the buyers of that class of security are not unlimited. The right hon. Baronet the Member for the City said, rightly, that they are not popular.

People want a permanent investment; what they like is a chance of getting something more than they put in. What is popular in the City is an issue of a security at 97 or 98, irredeemable for ten years, and then redeemable over twenty or thirty years by drawings. There is an old adage that hope springs eternal in the human breast, and everyone who buys at 97 is perfectly certain he is going to be amongst the first drawings at 100. My suggestion to the Government is if they want absolute security they must issue a long-term Loan and for a gigantic sum.

Sir F. BANBURY

They ought to have done so earlier.

6.0 P.M.

Mr. SAMUEL

They must have the courage to face the actual position as it at present exists. We have short-term bonds, for these Exchequer Bonds are short-term bonds, of between £1,600,000,000 or £1,700,000,000. We know perfectly well that if the War is to go on for another twelve months we have got to find £150,000,000 per month. Granted that you are going to have the Treasury Bills renewed, as they mature, there is one way, and one way only, for financing that, and that is by issuing a Loan of £1,800,000,000 or £2,000,000,000. You could issue that Loan payable for twelve months by, say, £150,000,000 per month. You have got into the position that you cannot avoid doing something for the holders of the old 4½ per cent. Loan, and you will probably have to issue a 4½ per cent. Loan at 96 or 97, and that would undoubtedly re-establish to a great extent the credit of the country, which must suffer by the Government paying such an exorbitant rate as 6 per cent. for their Exchequer Bonds. I believe that by such a means you will be able to reduce the interest on your Treasury Bills and to finance the War. You would not be able to do it by gold, because we do not require gold for our expenditure in this country. The; Chancellor of the Exchequer told us that our expenditure in America is something like £2,000,000 a day; that means that two-fifths of the total expenditure of the country is going to America. It seems almost incredible, but we have to accept his figures because we have no means of judging for ourselves. As £3,000,000 per day is spent in this country and among our Allies, it is not necessary to have gold for it, and Treasury Bills can be made to supply the amounts required for our foreign purchases by getting the foreigners to do what I know certain people have done, namely, undertake to hold Treasury Bills until after the War. I will again urge, as I have urged before upon the present Chancellor of the Exchequer and the late Chancellor of the Exchequer, the enormous importance of not continuing to run the great risk we are running at the present time of being placed at any moment in a position in which we should have to pay gold in exchange for the securities that might be offered to us.

Sir WILLIAM PEARCE

The hon. Member who has just spoken is a great authority on finance, and I hope the Chancellor of the Exchequer, who I have no doubt had a very good reason for leaving the House, after having told us that he consulted many authorities, will inform himself of what the hon. Member has said. In one part of his speech he dealt with the point I have risen to make myself, namely, that there is a great sense of disappointment at the country having reached at this time a 6 per cent. level, and there is a general consensus of opinion that that has been occasioned by not altogether successful management. I do not pretend to be a financial authority myself, but I meet a great many people who are authorities, and I must confirm what the hon. Member has said, that there is a good deal of dissatisfaction with the advice the Government have taken in these; matters of finance. The general impression is that the Treasury have been guided a good deal too much by the Bank of England. I do not wish to infer for a minute that the Bank of England's advice is not entirely disinterested. I believe it is. But my banking friends' opinions do not agree with the advice upon which the Treasury has acted, and which to a large extent has been given by the Bank of England. One can understand that the Treasury are very content to rely upon the Bank of England's advice, because, after all, the Bank of England are the official advisers to the Treasury, and it requires a good deal of courage, when a point of contention arises, to disregard the Bank of England and accept the advice of the other banks in the City of London. The point I want to make is that I am afraid the Treasury have been relying too much on one set of advisers. It might have been possible, if they had kept a more open mind, to not yet have reached the 6 per cent. plane. This constant change in the rate of Treasury Bills has been most unfortunate. If short-dated Bills had been kept at 4½ or not more than 5 per cent. interest, and an earlier Loan proposition had been made for three years at 5 or 5¼ per cent., the difference in those two rates at the earlier period would have forced a great deal of money into the longer-dated securities. If that sort of measure had been adopted we should not yet have arrived at the 6 per cent. plane.

Another point I wish to make—and nearly every Member will confirm what I have to say—is that there is a real sense of grievance—whether it is right or wrong—on the part of the holders of the 4½ per cent. Stock with regard to their conversion rights. They have always understood that those conversion rights were offered to them as an inducement to subscribe to the stock. I have wondered in my own mind whether, if the Government at an earlier date had offered these people some bonus or inducement to get rid of their conversion rights, it would not have been a wise proceeding. If they had offered some small increase, for instance, in the interest, say, 4½, 4¾, to 5 per cent., to be payable at once on the condition that the conversion rights were given up, the Government might have made a profitable bargain. I assume that eventually they will have to raise a long-dated Loan at a fairly high rate of interest. No one can listen to the Chancellor of the Exchequer without sympathising with him in the great difficulties he has to encounter; but I want the Treasury to realise that there is a sense of disappointment that we have arrived at a 6 per cent. basis, and that there is a very general complaint on the part of subscribers to the 4½ per cent. Stock that they have been unfairly treated.