§ MR. BOTTOMLEY (Private Notice)
asked the Chancellor of the Exchequer what is the reason for the further increase to 5½ per cent, in the rate of discount for Treasury Bills, and whether this will not have the effect of nearly doubling the item of £5,000,000 estimated in the recent White Paper for additional interest during the latter half of the financial year; whether the object of the increase is to facilitate borrowing or to improve the adverse exchanges, and whether he is aware that it has already had the effect of causing an increase in the Bank rate and a serious fall in the price of Government securities.
§ Colonel WEDGWOOD
May I ask whether, seeing that I have a question on the Paper on this subject for next Wednesday, a question on exactly the same ground ought to be put by private notice, thus cutting out my question for Wednesday?
The raising of the rate for Treasury Bills was inevitable if the raising of the Bank rate, of the necessity for which the Bank of England convinced me, was to be effective. The hon. Member is mistaken in thinking that the raising of the Treasury Bill rate, which was posterior to the rise in the Bank rate, caused the rise in Bank rate. The estimate of the Debt Charge for 1919–20, as 48 revised in the White Paper, included a margin for contingencies which should cover the extra cost of Treasury Bills. Any additional cost to the Exchequer in the current financial year would be repaid many times over to the nation and also to the Exchequer, if the steps which have been taken succeed in reducing credit inflation and lead to an earlier restoration of an effective gold standard. It is, of course, impossible within the limits of an answer to a Parliamentary question to state fully the reasons for the rise in the Bank rate, but I may observe that a rise in Bank rate is not unusual at this time of the year.
§ Mr. BOTTOMLEY
Is it not a fact that the rise in the Bank rate followed a previous increase in the rate on Treasury Bills, and is not this the second increase since September? May I also ask whether the statement that it was inevitable is not really answered by the fact that the sale of Treasury Bills immediately prior to the increase was larger than before?
There has been one rise in the Bank rate and two rises in the rate on Treasury Bills. It is perfectly true that the previous rise in the rate on Treasury Bills was not preceded, except for a few days, by a serious falling off in the amount of Treasury Bills sold, but the hon. Member proceeds on the assumption that it would have been sufficient to have sold as many new Treasury Bills as old Treasury Bills which fell due. That would have been a mistake. We have also to provide for debt falling due in other ways.
Does the right hon. Gentleman connect the increase in the Bank rate with the increase in the rate on Treasury Bills, or with the particular gamble that is now taking place on the Stock Exchange?
The first rise in the rate on Treasury Bills was made by me because I was not getting a sufficient amount from Treasury Bills. I therefore had to increase the terms which they offered. The rise in the Bank rate was made in view of the general financial con- 49 ditions, and the governor of the Bank convinced me that it was necessary. It was made before the second rise in the rate on Treasury Bills, but, of course, when the Bank rate rose, I should not have got muck money from Treasury Bills until a corresponding rise had taken place, because it would have been anticipated. Let me add that, owing to the immense amount of short-term borrowing by the Government, no rise, in the Bank rate can be effective for the purpose for which such rises took place before the War unless corresponding action is taken by the Government in respect of Treasury Bills.
§ Colonel WEDGWOOD
May I ask the right hon. Gentleman whether the House is not entitled to know what additional expense is involved to this country owing to the rise in the Treasury Bill rate, both in this year and in the normal year of which he speaks, and whether the House has not a right to pronounce its objection to this extra tax in the interests of the bankers of this country, seeing that it is primarily caused by the increase of the Bank rate proposed by the Bank of England?
My hon. and gallant Friend is basing his question on one or two false hypotheses. He assumes, if I rightly understand him, that the rise in the Treasury Bill rate was made in consequence of representations by the Bank.
The two things are not the same. The interest of bankers is cheap money. It is a great mistake to suppose that they need dear money in order to make their profits. I anticipated quite as much criticism from joint stock bankers as from anybody else when I raised the Treasury rate. As regards the knowledge which my hon. and gallant Friend asks for, he is proceeding on the assumption that it is possible for fallible human beings to prophesy. If he will tell me how long the high rate will prevail I will tell him the exact cost for that period.