CLAUSE 28.—(Depreciation Fund.) (Hansard, 3 July 1917)

§ The CHAIRMAN
With regard to the Amendment standing in the name of the hon. Member for Coventry (Mr. D. Mason), the first part would be equivalent to a direct negative to the Clause, while the second part involves a charge on the Exchequer and is out of order. I understand the hon. Member will raise the matter on the Question that the Clause stand part of the Bill.
I have also a manuscript Amendment which is out of order. It proposes to raise the question of Premium Bonds, which is outside the scope of the Clause.

§ Mr. HUME-WILLIAMS
I submit that on this Clause, as it stands, that Amendment should be in order. It is a Clause empowering the Treasury to raise loans either for the purpose of repaying into the Consolidated Fund amounts drawn out of it or to provide funds to be expended out of the Consolidated Fund. All this Amendment does is to define the way in which it can be raised, and, that being so, I venture to submit that it is in order to discuss one of the ways in which the powers taken by the Government under this Bill could be applied.

§ The CHAIRMAN
I am afraid not. The point was raised last year, and I then pointed out that this Sub-section (3) of the corresponding Clause last year applies only to borrowing money in the form authorised by legislation by the Government, and it is quite clear that a departure in the nature of Premium Bonds is a proposal which cannot be introduced by the six words proposed in this Amendment. It must be brought in on a Loan Bill as an actual proposition.

§ Mr. HUME-WILLIAMS
May I venture to express the hope that in these circumstances the Government will see their way to give some opportunity to discuss this important question.

§ The CHAIRMAN
Perhaps the hon. Member will put down a question about that?

§ Mr. D. MASON
I quite appreciate your ruling, Mr. Whitley, with regard to my Amendment. My object in putting it down was, firstly, that I have no objection whatever to a Sinking Fund. In fact, I support a Sinking Fund, but to have a Sinking Fund now, when you have a deficit of 1,000 or 1,600 millions, is, I think and could show, absurd. We have just passed Clause 27, which the Committee no doubt observed, was for the purpose of suspending the New Sinking Fund, created, I think, in 1876 for a charge of some £28,000,000, and which, naturally, the Treasury has suspended for the reasons I have just mentioned, that you cannot have an effective Sinking Fund when you have a deficit, as we have at present, of 1,600 millions. I think to create another Sinking Fund in the next Clause seems to me really incredible, if one did not see it in print, because not only does 1050 the Treasury propose to have this Sinking Fund, but in the terms of the Clause, Sub-section (3), Members will see it is stated there that the Treasury may, if they think fit, at any time, for the purpose of providing for the issue of sums out of the Consolidated Fund, under this Section, or for the repayment to that Fund of all or any part of the sums so issued, borrow money in any manner in which money is authorised to be borrowed for the purposes of the present War, and all sums so borrowed shall be paid into the Exchequer—that is to say, that the Government actually propose to ask this House and the Committee to give them power to borrow money on the one hand and repay the existing debt on the other. I confess I did not think any body of men would be asked to subscribe to such an absurd proposition.
It may be argued that this is part of a bargain which the Treasury is bound to carry out, because of the fact that they have given this guarantee or entered into this undertaking in the prospectus issued to the public when the war Loan was issued. I turn to the actual prospectus itself, because I certainly would be the last person to suggest, or be a party to the suggestion, that this Government, or any Government, should be false to its pledges or to any guarantee it had given to any person. I respectfully submit that this undertaking is a qualified undertaking, and I shall read it to the House so that they may judge for themselves whether the House or the Committee, or the Government, has entered into any undertaking or guarantee. The words of the prospectus are: For the purpose of providing against depreciation in the market prices of the loans, the Treasury undertake to sot aside monthly a sum equal to one-eighth of 1 per cent, of the amount of each loan to form a fund to be used for purchasing stock or bonds of either loan for cancellation whenever the market price falls below the issue price. I shall be able to show that this purpose is not carried out by any action on the part of the Treasury. On the contrary, we are at present faced with a permanent deficit of some 1,600 millions. Add to that the charge of one-eighth of 1 per cent, per month, or 1½ per cent, per annum on the total amount of the loan which is something like 2,000 millions, and you have an additional charge of thirty millions for our existing obligations to borrow. You disturb the market, as you are bound to do, and it tends rather to depreciate the stock. I, therefore, contend that the undertaking is a 1051 qualified one, and that there is no obligation at all, because the purpose, as so specifically pointed out, was based upon doing something which would prevent depreciation of the loan.
My contention is that this action, apart from being an additional cost to the taxpayer, is pernicious and unsound, and is quite contrary to what it was intended to do when the Treasury issued their original prospectus. It might be contended that the bondholders themselves would take exception to this repudiation, but I have pointed out that there is no bargain. In addition I personally, as a bondholder, happened to have occasion the other day, in changing investments, to give up some American securities to the Treasury and invest some £20,000 in War Loan on behalf of my wife, and I do not desire the Treasury to carry out this obligation. I do not regard it at all as an advantage and I question if anyone outside a lunatic asylum would ask the Treasury to add to the charges of the State by entering upon a transaction which tends to depreciate my stock. I do not desire then to do this thing. Then why in the name of common sense do they ask us to do it? It does not benefit us who are bondholders. I ask any bondholder who may have invested in War Loan does he think that any Government which adds to its charges in time of war, when it is faced with a permanent deficit, by taking money from one hand and putting it into the hands of another is going to advantage or improve the price of the stock. It is incredible that any Government should ask us to subscribe to a transaction which does nothing to improve the price of the security, which adds to the charges, which are already very heavy, in financing and carrying on the war, and which instead of having a beneficial effect on the stock has a most pernicious effect.
I might be asked "What proof have you that these arguments which you advance are sound arguments?" I can only refer to past precedents. It is a most extraordinary fact that history seems to repeat itself because almost the same things occurred in the time of the Napoleonic wars. Pitt for the time being was lured into the creation of a Sinking Fund to help him to get rid of his debt, but it is a curious fact that actually almost a similar proposal was made at the time of the French war to that which is made here, and a Dr. Price, something like one hundred years 1052 ago, suggested with regard to our loans then existing that a sum should be set aside from the rest of our annual revenue and appropriated for the purchase of stock at the current prices, this system to be inviolably followed in time of war as in time of peace, and money, when wanted, to be raised by new loans as if no such fund existed. Hamilton, who criticised both Pitt's Sinking Fund and this proposal of Dr. Price, laid down the principle that in time of war when the expenditure exceeds the revenue the preservation of the Sinking Fund and consequent increase of loans is a system from which no advantage can arise. If it could be conducted without expense it would be nugatory. As it is necessarily attended with expense it is pernicious. Much has been said by Dr. Price and others of the advantage which a Sinking Fund produces in supporting the price of stock. That is precisely what the Chancellor of the Exchequer said the other day was the reason for this fantastic proposal. Hamilton went on to say: It is incapable of producing any such effect. The price of stock depends on the proportion of supply and demand. Whatever sums are brought intothe Money market and applied by the Commissioners for the purchase of stock, equal sums are withdrawn from the Money market by the additional loans required to replace what is invested in the hands of the Commissioners. That I think is surely conclusive evidence that I am not alone in advocating this proposal. This happened one hundred years ago, but the Government does not appear to have learnt from experience, and again we have to go over the old ground and press these old arguments. I am sorry that my hon. Friend the Member for Greenock (Major G. Collins) is not present. He is so zealous an advocate of economy that I had hoped to have his support on this occasion, when there is an opportunity of perhaps saving the State from the necessity of borrowing something like £30,000,000; I regret his absence, but possibly some of those hon. Members associated with him will support me. They will have an opportunity of showing their sincerity in supporting this proposal. In 1828 a Finance Committee was appointed for the same reasons as are advanced in favour of the Committee which the hon. Member is anxious to form. The finding of the Committee in 1828 was along the lines of the remarks which I am now submitting to the Committee. In their Report they made an appeal against any such schemes as are now being suggested by the Treasury. They said: The Committee does not hesitate to declare that they cannot, under any circumstances, recommend a sinking fund not provided by a real surplus of revenue.…They have already stated that they 1053 could not, under any circumstances, recommend a system involving the principle of raising funds for the extinction of debt by the creation of it in another shape. That is precisely what the Government propose in this Clause. We are actually asked to-night to give the Government power to go into the market and to borrow and incur fresh debt for the purpose of paying off old debt. This proposal is realty to enable people who own the existing War Loan to sell it to the Treasury, and as the Treasury, in order to obtain the funds to purchase the old Loan, is now selling Treasury bills of three, six and twelve months, we have the process reversed by this Clause, because the Government go into the market to borrow on three, six and twelve months Treasury Bills, and they use the proceeds for the repayment of these long-time Loans. Could there be anything more fatuous proposed by any sensible or sane Government or any Government pretending to be sane or sensible? To me it is incredible that we should be asked to-night to subscribe to a measure which will have no permanent effect upon stock, because if I go into the market and deplete the market to the extent of another £30,000,000 I depress my stock, which must remain permanently at a discount. How then, in the name of common sense, can the stock go to a premium? The Government is a continuous borrower. It has to pay about 5 per cent, for twelve months Treasury Bills. If the War goes on another year the Government will probably have to pay 6 per cent, for accommodation, and then we shall have the spectacle of this Government going into the market and paying 6 per cent, for Treasury bills to pay off a Loan bearing interest at 5 per cent. It is inconceivable that we should be asked to subscribe to so fatuous and unsound a proposition.
If this Sinking Fund is adopted in times of peace I should like to see it applied to all Government Debts. If it was not so applied, and you were in normal times, and had a surplus revenue over expenditure and were justified in using a certain amount of that surplus for the support of a Government stock, you would have this particular security rising above the other securities, and you would have the Government artificially rising one stock, while people would be selling that and investing in the lower price stocks. When it 1054 was proposed after the Crimean War to set aside £1,000,000 to redeem the war loan of £60,000,000, Mr. Gladstone suggested that it should be made available for all Government loans as it might be inconvenient if it applied only to one loan. It is a, very important matter to suspend the necessity for borrowing £30,000,000 additional. If the investor understands the position he will welcome anything which lessens the charges on the Treasury.
The Chancellor of the Exchequer on a previous occasion took exception to my describing the proposal in his prospectus as an immoral procedure. I adhere to that description. I heard nothing from the Chancellor of the Exchequer to show that it was wrong. He said that this particular form of Sinking Fund was not going to deceive investors. I submit that it did deceive investors and that it was used for that purpose by people who advocated support of the War Loan, even by members of the Government itself, who apparently did not seem to be aware of the ordinary elements of finance. One of the members of the Government went down to his constituents and told them that this was a security which would appreciate and could not possibly depreciate. That is the kind of security that we have all been looking for the whole of our lives. It is extraordinary that men occupying responsible positions in the Government of a great Empire like this should show such ignorance of the ordinary elements of finance. It makes one despair of the future of sound finance in this country. I hope, therefore, that the Chancellor of the Exchequer may see his way before the Report stage to suspend this operation until we come to a period when we have a surplus of revenue over expenditure.

§ Mr. BALDWIN
Our view is diametrically opposed to that of the hon. Member for Coventry. We believe that if we accepted the Amendment we should be committing a breach of faith with the investors. We said in the prospectus that a definite sum would be set aside for the purpose of maintaining the prices of the Four per Cent, and Five per Cent. Loans, and having regard to the words of the prospectus the Government regret that they are unable to accept the Amendment.

Mr. HENDERSON
I really did not know there was so much to be advanced in support of the Amendment as has been stated by the hon. Member for Coventry.
1055 Really the Clause is a piece of window-dressing, and reminds me of the stock jobber who, asked to settle something on his daughter, said, "I've got nothing, but I'll settle £50,000 Consols on her." It is a piece of window-dressing that might very well be left out.

§ Mr. HOGGE
I have not spoken to-day on the Finance Bill, and I am very much impressed with the length to which my hon. Friend the Member for Coventry, has gone back in his financial researches. I got up, however, not to address myself to his argument, but to appeal to the Chancellor of the Exchequer to accept a Motion to report Progress. The Government have had a very good day, and have got a long way. I do not think there is any fractious opposition, and we have got over the most critical parts of the Bill. In view of the fact that we will lose our last trains if we are kept here, I think the right hon. Gentleman might consent to report Progress. He must himself be tired. He has sat here all day very courteously replying to all the arguments, and, in view of the small attendance and the fact that he has made very good progress, I think the Bill might now be left where it is, and after disposing of this Amendment, the right hon. Gentleman might consent to report Progress.

§ Mr. BONAR LAW
I always desire to meet reasonable requests, but on this occasion I regret that my hon. Friend has broken his record of not having spoken today at all. At eleven o'clock I indicated that I wished to get the Government's new Clauses, and I sincerely hope that no attempt will be made to insist upon reporting Progress.

§ General CROFT
I think the Chancellor of the Exchequer will agree that the early rising last night was through an unfortunate misunderstanding, which was indeed most unhappy from the point of view of those who have been trying to urge the importance of the subject of double Income Tax within the Empire. There is really no Party opposition, and as it is after half-past eleven o'clock, I think the request to report Progress is a reasonable one. This is a question which excites interest throughout the length and breadth of the Empire, and which at the Imperial Conference assumed very large proportions. As the Chancellor is aware, owing to the new difficulties with regard to the Press, it is 1056 practically impossible for any report of this Debate to appear in the newspapers to-morrew. I ask him, knowing that his heart is always with those who desire to be fair to the Empire as a whole, to consider the way it will be regarded by the enormous number of people interested in this question if the Debate should take place at this time of night.

§ The CHAIRMAN
I allowed the original question to be put to the Chancellor of the Exchequer, but we are now on the Question that Clause 28 stand part of the Bill, and those other questions are not really relevant.

§ General CROFT
I beg to move, "That the Chairman do report Progress, and ask leave to sit again."

§ Sir G. TOULMIN
I think the hon. Gentleman is mistaken as the new Clause is not coming on now.

§ Mr. BONAR LAW
I think my hon. and gallant Friend is a little unreasonable, but I quite recognise the importance of this subject, and I am willing, if this appeals to the Committee as a whole, to agree not to take the particular Amendment so that the discussion will not take place now.

§ Mr. McKENNA
I think my right hon. Friend has made a very fair offer, and, speaking for myself, I agree with it.

§ General CROFT
As far as I am concerned—and I think I am speaking for my friends—we appreciate very much the spirit in which the Chancellor has met this question, and we will do everything in our power to limit our speeches when the Debate takes place on Thursday.