HC Deb 11 April 1927 vol 205 cc76-80

I must now turn aside to examine the debt position. On 31st March this year the nominal dead weight debt was £7,554,750,000, as compared with £7,558,500,000 12 months ago, omitting in each case the Death Duty bonds held by the National Debt Commissioners. The Blue Paper, in Table 4, gives particulars to show that the external debt has been reduced by about £9,000,000 to a total of £1,101,500,000. This reduction is partly due to capital repayments of over £5,000,000 to the United States Government and partly to the repayment in February of £5,000,000 dollars of 6 per cent. Notes raised in America in 1917 through the Central Argentine Railway Company. Our principal, almost our only, foreign debt is the debt of 4,500,000,000 dollars to the United States Government. On this we have paid since 1923 about £33,000,000 a year, of which £5,000,000 represents the repayment of capital and £28,900,000 represents the interest at 3 per cent. on the outstanding capital. During the past five years we have paid to the United States Government in respect of this debt altogether about £162,000,000.

As an off-set to this debt, we have our claims against Germany for reparations and against the Allied Powers for war loans made by us to them. These claims are nominally for a much larger amount than our debt to the United States Government, but in 1922 His Majesty's Government declared, in the Balfour Note, that they would not ask for more from their debtors than was necessary to pay their creditors. The outlook at that time was not hopeful. At that date, and until the Dawes plan began to operate in 1924, the receipts from reparations were few and precarious, and the Allies were making no payments at all. The position has certainly improved since then. During the last two years we have been able to make a series of debt agreements with Rumania, with Italy, with France and with Portugal, to which list, I am glad to add, Greece, with whose distinguished representatives we were able last week to sign an agreement. There remain outstanding only Jugo-Slavia and Russia. Since September, 1924, Germany has been fulfilling regularly her obligations under the Dawes plan, and we may assume that she will continue to do so.

Current reparation receipts from Germany during the past two financial years have been: 1925, £6,500,000; 1926, £9,500,000; and in the present financial year they should amount to £14,500,000. On the other hand, the receipts from Allied War debts, in round figures, were: In 1925, £2,000,000; in 1926, £8,000,000; and in the current financial year they should amount to about £10,500,000. Thus against our annual American debt payment of £33,000,000, we have received from Germany and the Allies together during 1925, £8,500,000; 1926, £17,500,000: and during the next financial year we should receive in all £25,000,000.


Germany our best friend!


It will be seen that, although the gap between payments and receipts which, under the Balfour Note, we were forced to call upon our Allies to fill, is being diminished, there has up to date been a deficiency of over £110,000,000, which has had to be borne by the British taxpayer. Further, even if and when we obtain sufficient from Germany and the Allied War debts to cover our payments, past as well as future, to the United States Government, this country will still have to bear not only, of course, the whole of its own War expenses, but the full charge of the War loans advanced by us to our Allies, which amounted in 1919 to nearly £1,500,000,000, and in no circumstances can we expect to receive any contribution to this burden.


The more we are together.


This policy has been adopted by His Majesty's Government, and has been accepted by public opinion in this country, in the interests of the reconstruction and stabilisation of Europe. The sacrifice and effort involved are without parallel or precedent; and, in view of the misconceptions which appear to prevail in some high quarters, I have thought it my duty to re-state the facts in their simplicity.

Within the internal debt, the total floating debt on 3lst March stood at £715,750,000, of which just under £600,000,000 was represented by Treasury Bills. This figure of £715,750,000 compares with the figure of £704,250,000 at the corresponding date in 1926. That increase of £11,500,000 is part of the price of last year's troubles.

Although the nominal total of the debt has fallen from £7,829,000,000 in 1920 to £7,555,000,000 now, the complaint is sometimes made that that reduction is by no means equal to the aggregate of the annual provision by the taxpayer. Some conversions, particularly those of earlier years, have actually augmented the nominal total. The Colwyn Committee has been led to comment on the issue of new conversion stock at a discount. Less competent critics declare that the burden of debt is being rolled forward, and, in spite of all our efforts, has scarcely diminished in volume, but passes on year after year to new and more distant generations.

Let us see how the matter stands. So far I have been speaking of the nominal figure of debt, but I would like to point out to the Committee that too much attention ought not to be paid to that nominal figure. It represents the aggregation on equal terms of every £100 face value of securities, irrespective of whether such securities carry interest at 2½ per cent. or 5 per cent. or whatever it may be. Perhaps the essential fact has been more clearly presented by the statement of the Colwyn Committee that, as compared with seven years ago, when the debt stood at its peak, the effective reduction of the annual debt interest has amounted to £47,000,000 a year. If we allow for the fact that seven years ago we were liable to pay the United States Government not 3 per cent., but 5 per cent., and also allow for the altered rate of exchange, the figure of £47,000,000 becomes no less than £75,000,000 a year. We have, therefore, relieved ourselves by exertions to which all parties have contributed of nearly one-fifth of the annual interest burden, and the question arises, Have we done this, in part at least, by additions to the burden on posterity?

There are two ways in which a gigantic debt may be spread over new decades and future generations. There is the right and healthy way; and there is the wrong and morbid way. The wrong way is to fail to make the utmost provision for amortisation which prudence allows, to aggravate the burden of the debts by fresh borrowings, to live from hand to mouth and from year to year, and to exclaim with Louis XV, "After me, the deluge!" In that way posterity receives an ever-increasing load, and is year by year confronted with a more desperate choice between exhaustion and repudiation. Not only does the load increase, but the power of bearing the load diminishes as national credit deteriorates, and at every stage those who follow are confronted with a more grievous choice between intolerable sacrifices or failure to meet the obligations of the State. The right way, on the other hand, is, by strict and severe provision of Sinking Funds, and by doing the best amid the many difficulties of life to maintain sound finance, to reduce not only the annual interest charge but the rate of interest at which the State can re-borrow and convert, and thus to strengthen the financial power of future Governments and generations to bear the burden which we transmit to them. If this be done, as short-term debts are converted into long, and as old maturities are replaced by new securities, although the burden may descend to new lives and to other times, yet with the burden we also transmit an ever-growing power to bear and discharge it.

Let us assume, for instance, that were able to repeat over the next 20 years the same diminution of interest charges which has been accomplished since the War. Let us assume that peace abroad, that co-operation at home and that thrift, public and private, bring down the rent of money to 3½ per cent. in the next 20 years. The Chancellor of the Exchequer would have at his disposal, without imposing any burden that we do not bear to-day, over £80,000,000 a year in addition to the present Sinking Fund, that is to say, £130,000,000 a year at his disposal with which to reduce, if it were so decided, the capital of the debt. Extend the view another 20 years, let the same policy be maintained, and the debt would be within measurable distance of being redeemed without any pressure or burden on the people of that time greater than we are ourselves enduring to-day. One cannot, of course, expect that posterity will be so scrupulous. Easier methods may come with easier times. The civilisation of these islands, with all its worries and all its glories, may have resolved itself into some much more rudimentary organism. But that will not be our fault, and if we continue to do our duty faithfully, and to use our best endeavours, we may in imagination present ourselves before the remote tribunal of posterity as judges rather than as culprits, and we shall have rendered them no injury by the financial policy which all parties have pursued.