HC Deb 27 June 1927 vol 208 cc57-111

Motion made, and Question proposed, That a sum not exceeding £198,158, be granted to His Majesty, to complete the sum necessary to defray the Charge which will come in course of payment during the year ending on the 31st day of March, 1928, for the Salaries and other Expenses in the Department of His Majesty's Treasury and Subordinate Departments.—[Note:£120,000 has been voted on account.]


I beg to move to reduce the Vote by £100.

It is now some years since we had an opportunity of having a discussion on the Treasury Vote, although this is one of the Estimates which may give rise, and ought to give rise, year by year to Debates of first-class importance. We have asked for this Vote for the purpose of discussing one or two questions which have recently been raised by hon. Members in different parts of the Committee, and the two questions on which, personally, I invite an expression of opinion from the Chancellor of the Exchequer are, of course, purely administrative in character but of great importance. They relate, in the first place, to recent changes in the higher personnel of the Civil Service, and, in the second place, to the decision which the right hon. Gentleman intimated, in reply to my hon. Friend the Member for Finsbury (Mr. Gillett) regarding the request or suggestion of Mr. McKenna made at the annual meeting of the Midland Bank shareholders for some inquiry into the position of our central banking institution in Great Britain, as compared with the American Federal Reserve system, and the bearing of both on our industry and commerce, more particularly on the depression of the past five or six years.

The second of these questions is undeniably far more important, but if the Committee will bear with me, I will at the outset briefly discuss the first—that relating to changes in the Civil Service personnel. We in the House of Commons are intimately associated with the Civil Service, and we know that the Treasury, as the Department which includes the Controller of Establishments, is the Department—particularly that branch of it which is under the Financial Secretary to the Treasury—which has a very great responsibility for the efficiency of the service and for its encouragement from time to time. I begin this afternoon by making it plain that we on this side of the Committee do not join in that consistent attack which is made on the Civil Service by certain organs of the Press in this country and by a certain section, though I trust only a limited section, of public opinion. It is plain to all of us that if the Civil Service is to reach its highest efficiency it must be safeguarded, since it cannot reply for itself, against unfair attacks of that description. Although we are not here to suggest that the members of the Civil Service do not from time to time, like all of us, fall into error, the object of raising this question is one which is wholly sympathetic to the Civil Service as such. We approach it purely from the point of view of the public interest, and certainly from the point of view of the efficiency of the service.

Some time ago, there was announced in the Press a series of changes in the higher administrative personnel, which could not fail to attract the attention of Members of Parliament. On that occasion seven or eight changes of great importance were announced, and, in particular, there were changes which involved the resignation from the service of the Controller of Finance at the Treasury on his acceptance, as from 1st August, of a post in the Bank of England, and the combination of the duties of Controller of Finance and Controller of Supply Services at the Treasury under a civil servant of great distinction who, up to 1st August, will be Chairman of the Board of Inland Revenue. The change involved at the same time the resignation of the Controller of Supply Services—of course, both of these resignations being purely voluntary in character. In one case it meant that an official was leaving the Civil Service to become our representative on the Anglo-Persian Oil Company, and in the other case, the official who will leave the Civil Service is proceeding to a great sphere of influence and public service in this appointment in the Bank of England. While these things are perfectly true, the changes for the State are of very great significance. Other changes were announced at the same time, the details of which I need not specify, but one of them involved the transfer of the Secretary of the Mines Department—that Department being then, as now, under sentence of death—to the Chairmanship of the Board of Inland Revenue, and a number of other transfers of that kind.

4.0 p.m.

Let me approach one or two of the questions which we have particularly in mind. Hon. Members will begin by wishing to retain for the service of the State the ability and power and experience of those civil servants who have been for many years in our employment. Certainly, when we compare the attractions which are offered by outside employment in certain cases to leading civil servants with the emoluments even in the higher branches of the Service, we are obliged to confess that it is surprising, on the whole, that more men do not leave the Service. That there is a certain encouragement in superannuation and other rights is not denied, but those rights are being increasingly provided in outside employment. Men are content to remain in it because they love the Civil Service, because they like the form of the work, and, on the whole, the loss to the State under that head is comparatively small. But these changes at this juncture are important. The point which arises here is whether we do all in our power—and I am not referring here to the salary and other emoluments—to give them that encouragement to remain in the Service, and whether a good deal more might not be done under that head? I am driven to the conclusion that one of the indirect effects of this form of agitation or attack, continued year by year, is to dishearten men who have been energetic and public-spirited in our service, and perhaps to encourage them to look for other employment outside when they have still great duties which they might render to us. Be that as it may, I feel that the overwhelming opinion, probably the unanimous opinion, of this House is that we must set our faces against campaigns of that description, and more on that head need not be said this afternoon.

We come now to the other consideration. Most hon. Members, if they were asked what is the general practice or policy of encouragement in the Civil Service, would say that, probably, to the best of their knowledge, the Service is very much like an ordinary business undertaking where men are trained up in one department or another, and are led to hope that if they render efficient service, they will, in due course, be at the head of the departments to which they are attached, or, it may be, at the head of an adjacent department for which their experience qualifies them. That has been the theory held by a large number of Members of this House, although we recognise this afternoon that frequently departures from that theory and practice have been made by the appointment of men to certain departments or branches of our Service or by their transfer when a course of that kind was deemed to be desirable. The recent leading changes, almost wholesale in character, raise the question in many minds in this House, and I think in many minds outside, as to whether there has been any great departure from this principle within the Civil Service? Within recent times—and here, of course, and throughout the speech. I make no reflection upon individual civil servants, because I have no reason to have other than the highest admiration of their work—but within recent times it has been suggested that there has been a tendency to build up a group of what we might call general managers, within the Service, that is, men, no doubt of outstanding ability, who have served in different departments, and who might be regarded as a group—I will not, say a pool, because that is now, perhaps, an inaccurate word to use—for appointment to different departments as may be deemed desirable by Ministers of the day, with whom the responsibility must rest, on the advice of this group or body of leading civil servants themselves, in so far as that advice is invited or tendered in making the appointments.

That is, in reality, the important consideration which, I think, the Committee should have before it this afternoon. What method is best calculated to get the maximum return from the Civil Service in the way of the discharge of public duty, and to encourage the personnel of of the service itself? Will that be better encouraged by adhering, as far as we possibly can, to the system of departmental promotion, or will greater encouragement come from the presence of that group of what I call general managers who are available for appointment as heads of those departments on something like the principle which, a week or two ago, when these changes were announced, was apparently in force? I make it plain that this is a matter of very great difficulty for any Member of the House of Commons. It is not a question in which we can draw a hard-and-fast line, but I would be inclined to say that, before we part to a substantial extent with the system of steady departmental promotion, we should have one or two important points in mind. There cannot be the least doubt that the most efficient discharge of duties in the Civil Service to-day, at a time when the functions of the State have enormously increased depends, to a great extent, upon a considerable amount of specialisation, that is, the civil servant is trained in a department; he grows up through years of experience in that department; and when, on that principle, he arrives at the top, he will be familiar not only with the details of the department of which he has been a member, but also with the broad policy which is particularly what is under examination when he comes before the Public Accounts Committee of this House to-day rather than strict figures of Departmental expenditure. When we look to post-War conditions the plea for that specialisation becomes even more pronounced.

I can best illustrate it by describing one of the important changes which have taken place. Notice that under this scheme—and of course it is altogether administrative in character; there is no question of legislation—the Government will combine—here, of course, the Chancellor of the Exchequer is responsible—the duties of the Controller of Finance with those of the Supply Services, and to that combination, which means a far greater strain upon the holder of the office, you bring a distinguished civil servant who has been Chairman of the Board of Inland Revenue. The thought that would occur to anyone who has had even a brief experience of the Treasury, and must occur to many Members of this House, is that while admitting the ability of the Civil Service in adapting itself to new duties—I am not raising any point of that kind this afternoon—in the Controllership of the Treasury you have an official who is in immediate contact with the Bank of England and must deal with fundamental problems of our national finance. In the second place, the Controller of Finance is responsible to a large extent for inter-Allied financial problems, for the discussion of reparation problems with other nations and for a wide variety of issues of first-class importance, involving directly and indirectly thousands of millions of the money belonging to the people, or likely to belong to them—I hope some of it will—in times to come. Surely, it is plain that in circumstances of that description it will be in the national interest to rely upon an official who has the necessary experience or what I will call the historical background for the discharge of the duty, and I would say that, however able he may be from every point of view, it would be very difficult indeed for the holder of that combined appointment to place his linger readily and easily on all the facts and all the evidence in the very difficult times in adjustment of our relations with the Bank of England, in currency policy, and in other matters to which this country is moving. Did the Government have that in view when these changes were made, and was the element of the departmental experience, which is of vital importance in this connection, sufficiently emphasised? I think that the House of Commons, and probably the country, will expect an expression of opinion from the Chancellor of the Exchequer this afternoon.

There is another side to this question. I alluded a minute ago to the fact that this office had been combined with the control of the Supply Services. What in practice, does that mean in our national finance? In this Department of the Controllership of the Supply Services you have a leading civil servant who is responsible for a general review of all that relationship which exists, between the State on the one side and the local authorities on the other. And when you consider what the local authorities are spending, and what the State is contributing to the local authorities, you have there, again, £1200,000,000 or £300,000,000 of expenditure of one kind or another every year. Moreover, at this juncture, that problem is under close inquiry and investigation, because the Government indicated some time ago that they proposed to find, if they possibly could, some method of replacing the existing system of percentage grants by a form of overhead or block grants.

That inquiry is proceeding at the present time. Whatever the decision, it is of vital importance to the Chancellor of the Exchequer, and it is certainly of vital importance to the local authorities, especially if it means the transfer of certain burdens now borne by the State to the local authorities. There, plainly, you have a point of very great importance at a time of difficulty in industrial recovery, when rates, in many cases, are a greater burden than the burden of national taxation itself. Just at this juncture, when you have those very difficult questions before the people—and they are largely matters of finance—you combine these two offices, and you bring to the two offices a man for whom many of us have the greatest regard but who has not been in Departmental touch with these problems in recent years. Far be it from me to suggest for a moment that that distinguished civil servant will not be equal to the strain. That is not my case. My case is rather to ask whether there is not great danger or some risk to the national interest in the combination, and in placing the chief responsibility in one who has not the historical background in strictly Treasury experience which many believe to be necessary in the circumstances described.

That is a concrete illustration that I give of the importance of this change. It may be necessary, to some extent, to modify the old system of Departmental promotion, because I do not suppose it is disputed that certain Departments in the past tended, under that system, to drift into not the strongest personnel by any means by which they might have been manned, and that outsiders—within the Service, of course—had to be called in. Be that as it may, even if you do modify the system of Departmental promotion, are you not going too far in setting up a group, or attempting to set up a group, of general managers, if the effect of that is going to be to make a considerable section of the administrative class of the Civil Service feel that, however hard it works, however efficient it is, and however well it exerts itself to study its subject, it cannot reach the head of the Department in which its experience has been built up? That calls for the serious consideration of this House.

I come, in the second place, to what is the more important part of our appeal. and here we are dealing with a subject of very great technicality, in which large numbers of business men, a large section of the movement to which I belong, and many others are keenly interested at the moment. At the annual meeting of the shareholders of the Midland Bank, Mr. McKenna made an elaborate plea for an impartial inquiry into our system of central banking, by which, of course, he meant the Bank of England, and the working of our general credit and currency system, and when my hon. Friend the Member for Finsbury asked the Chancellor of the Exchequer whether he would be prepared to facilitate an inquiry of that kind, the Chancellor replied that at that stage he did not think a sufficient case had been made out He went on to add that he was nervous, as I gathered, of the unsettling effects that such an inquiry might have in many directions, and on these grounds—and probably on others for all I know—the request was refused. That was, of course, an administrative act on the right hon. Gentleman's part; it was a Departmental decision, and it is, therefore, perfectly appropriate matter for debate when we take the Treasury Vote this afternoon. But here is an issue of first-class importance to British industry and commerce and also to the employment of large numbers of our people because there is a widespread opinion in business and other circles at the present time that some part of our depression—I could not measure the amount—is due to the currency and credit policy which we have pursued in this country in preparation for a return to the gold standard since 1921.

Let us be perfectly clear and fair as to the nature of Mr. McKenna's appeal. This, of course, is no party matter, because men in all parties agree with it, and in all parties there is very considerable difference of opinion. I am going to try to state the case as impartially as I can, in order that from the right hon. Gentleman we may get some expression of the Government's views. Mr. McKenna took the year 1921, and he referred to the divergence, as he described it, between American credit and currency policy under the federal reserve system since that time, as compared with the policy which we have pursued in Great Britain—admittedly a policy pursued by successive Governments, and designed to restore our credit and to provide conditions that would lead to an easier return to the gold standard, adopted in the decision of the Government in April, 1925. He then went on to contrast the apparent prosperity of the United States of America, on the one side, with those five or six years of industrial depression in this country on the other. Making allowance for the exceptional period in 1924, in which there was some little interruption of that prosperity in America, most hon. Members will agree that the United States have enjoyed remarkable material success, and we, on the other side, have made very little inroad upon the unemployment and the depression which have overtaken us. I do not ignore—and, of course, it would be perfectly idle to ignore—the extent to which we have been adversely affected by industrial dislocation. Whatever view we take of the causes of that dislocation, its economic effects are perfectly plain to everyone, but even when allowance has been made for that, it is possible to raise a very large question as to whether there is anything in this divergent currency and credit policy which will partly explain our difficulties, as compared with the United States.

A great deal of discussion has taken place since Mr. McKenna made that speech. The speech was diametrically opposed to that of another chairman of one of the leading banking institutions, and I would say that on that ground alone you have a case for inquiry, because plainly, when you have two of the leaders of the large banks, two of the Big Five in this country, laying down manifestly contradictory doctrines, what is ordinary business in this country to believe, and what are the masses of the people to believe? I should think nine people out of ten would say that if these great authorities differ, the very least you can undertake is some kind of inquiry, at least to ascertain the facts, because we want every instrument we possibly can get for the restoration of our industry and commerce, and it is my belief that the recovery will come, not by one route, but by several routes. And if this is a conceivable route, it is worth exploration. Those two authorities were in flat contradiction.

The CHANCELLOR of the EXCHEQUER (Mr. Churchill)

What two authorities?


Mr. McKenna and Mr. Goodenough. So that, prima facie, you have some kind of case for inquiry, even if nothing more was said. Pursuing the argument a little further, we have to recognise, of course, the very great difference in American conditions. America got, as we know, an enormous quantity of the world's gold, and she still holds it, and it might be argued that American prosperity has been due to some extent to the use of that gold reserve, at all events, for the purposes of moderate in flation. Most of the authorities seem to argue that America has steered clear of inflation, except perhaps to a very limited extent; that, in point of fact, she has sat on the gold reserve for the express purpose of keeping free of a difficulty of that kind; and if you take the price level as a test, I am inclined to agree that on that test she has established a very large part of her case. Then we have to keep in mind that America has had the advantage of debt settlements, which compare rather favourably with such debt settlements as this country has been able to obtain, and it is also true that we are, I am afraid, now certain to make a very large part of the financial sacrifices arising from the War.


How has America the advantage?


In that they have achieved settlements, and we still have settlements to achieve.


The right hon. Gentleman must compare like with like; he must compare the American settlement with Italy or the American settlement with France with the British settlements with those countries.


What I have in mind this afternoon is the general problem of War contributions and debt settlements, and I would be inclined to say that, on all the analyses, America is comparatively in a much better position to-day than this country.


The only respect in which she is in a better position is because of the settlement which she has made with Great Britain, and it is not open for Great Britain to make a similar settlement with Great Britain.


No, but the point I am making is that, taking everything into account, America has—I will put it another way—shouldered very much less of the burden, proportionately, than has fallen to us in this country.


That is quite true.


All these considerations are present in the American situation, and probably to some extent they undermine, or at all events modify, the comparison upon which Mr. McKenna embarked; but in the long run he came down to this, that when an analysis was made of the currency and credit operations under the federal reserve system, as compared with what we had in practice in this country under the Bank Charter Act of 1844, there was a greater elasticity in the American system, and that is the argument which has since been generally used. There, again, you have a mass of technical detail, and I certainly will not attempt to detain the Committee with it this afternoon. I am perfectly well aware that high technical authorities dispute that contention, and that they argue that we have just as much elasticity in credit and currency in this country under our system as they have under the federal reserve method in the United States. Be that as it may, there remains a body of opinion which attributes at least a part of that American prosperity in those years between 1921 and the present day to a greater freedom within the federal reserve system than we have enjoyed in the corresponding period, even when allowance is made for the difference in position between the two countries, and so they throw in their lot with the Chairman of the Midland Bank in favour of this inquiry.

Now, may we turn to the nature of the reply which the Chancellor of the Exchequer gave? He said that it might have an unsettling influence in many directions. I can only try to indicate what probably would be at the back of his mind in this connection, but I imagine that he had in view the danger of any statement which could be interpreted as implying even a bare possibility of inflation in Great Britain. A speech was made some years ago by a Conservative Minister now outside this House—he was then, I think, a Member of this House—who suggested that our currency and credit policy might be altered in such a way as to provide for some inflation, and I very well remember the anxiety that was caused at that time and the steps which were taken almost immediately to correct the impression he gave. Now it is, of course, only fair to Mr. McKenna, and it is only fair to our own judgment in this matter, to say at once that Mr. McKenna had not in view either inflation or deflation. In that speech to the shareholders of the Midland Bank both were excluded, and speaking quite for myself, from this part of our argument to-day they are also excluded.

I think that this inquiry can proceed without any risk of that kind, but even if the Chancellor took another view and felt that there was a danger in it, he might very well say that the possibility of even mild inflation was excluded, but that on the technique of the inquiry he was willing to proceed, and by that I mean the operation of the Bank of England system and the extent to which there is in fact avoidable restriction in the holding of the gold reserve and the regulation of our credit and currency policy. The plea for that inquiry has been supported by facts of impressive importance within recent times. It was pointed out some days ago at a gathering in London that of all the numerous countries which had embarked upon a reconstruction of their financial machinery since the War, very few, if any, have adopted the exact form of central banking system which is in force in this country. In point of fact, the schemes which have been put into operation are very much nearer to the American federal reserve method, and, if that be true, we are bound to ask whether all is finally well with our machinery.

May I urge one consideration in conclusion? The Chancellor of the Exchequer may say that this is a very risky moment even for an inquiry, because, as the Committee know, we are approaching the time when there will be an amalgamation of the currency note issue and the Bank of England note issue and determination of the very important question as to the point at which the amount of gold behind that amalgamation is to be fixed. Of course, it is plain to all or us that before this Government, or any Government, can approach a decision in this matter they must themselves engage in very elaborate private inquiry into the problem. My case this afternoon is that so far as there is any material for those inquiries which is available for the guidance of industry and commerce it should be placed at their disposal now. Even if industrial dislocation passes away, even if we get rather more favourable access to markets than appears to be possible at the moment, we shall be admittedly making a very small inroad upon what I would call deadweight unemployment. I do not fear, speaking again for myself, a slight increase in our price level in this country as altogether undesirable if that increase means a compensating stimulus to industry and commerce. If hon. Members will recall what was written by Sir Josiah Stamp in a minority report of one of the investigations into the coal problem, they will remember that the operation of this preparation for a return to the gold standard was there related, in a very clear way, to a first-class industrial issue; and that, of course, is only one illustration. If there were to be some change in the price level, what we have to do to-day in an inquiry of this kind is to weigh up the advantages and the disadvantages of that change. The Chancellor of the Exchequer may say that that will involve burdens for the State, and it will be to some extent going back upon all that we have done in the restoration of our credit.


I say it would involve a reduction of wages.


I am not sure it would, but, on the other hand, so long as this depression lasts the State has to carry very heavy burdens of an entirely or very largely unremunerative character; because to-day our financial system is honeycombed by a mass of outlay on unemployment benefit and by ill-concealed subsidies of one kind or another which to some extent might be reduced—I should think would be largely reduced—if we could stimulate industrial recovery. Though these serious problems, which I have done nothing more than summarise this afternoon, are the ingredients of controversy at the present time, I want the Chancellor of the Exchequer to believe that, much as we are opposed to this Government, they have not been presented in any purely party spirit. The right hon. Gentleman knows that within his own circle of advisers, those advisers which are at the disposal of every Chancellor of the Exchequer, there is wide difference of opinion, and the Association of Engineers, through one of their spokesmen in London the other night, indicated very clearly that in their belief, speaking for a large number of industrialists in this country, a case had been made out for the kind of inquiry which Mr. McKenna had in mind. It seems to me that it is insufficient for the Government to turn round and say that the effect would be unsettling. The unsettling effects of unemployment and distress, the loss of markets, and all the rest of it, are with us; and my view is that if we make the inquiry on proper lines, avoiding, for the purpose in mind, inflation on the one hand or deflation on the other, and confining it to the technique of this central institution, we may arrive at facts of first-class importance to British industrial recovery, and in that way may open out rather brighter times for, at all events, the million people who are still unfortunately unemployed.


I had no idea that this particular subject was to be raised this afternoon, but I do congratulate my right hon. Friend the Member for Central Edinburgh (Mr. W. Graham) on bringing up these two important matters. I do not propose to deal with the first point he raised, with regard to the Civil Service. He knows far more about the Civil Service than I have the opportunity of knowing, but nobody can do anything else but praise the Civil Service for what it does in this country. His second point is, indeed, a most technical one, but it is a most important one, and is affecting this country probably far more than the Committee realise. As he says, this is no party question. Strange to say, only to-day, although, as I say, I did not know the matter was going to be raised, I put down two questions which really affect what my right hon. Friend has said. In the first question I asked the Chancellor of the Exchequer if he can state the pre-War currency per head of the population and the currency per head of the population on the 31st March, 1927 (notes and gold). I have not yet received the answer to that question because, naturally, it involves a large number of figures which could not be given on the Floor of the House. My second question was to ask the Chancellor of the Exchequer as the recent Whitsuntide demands brought the Treasury note issue to within about £1,000,000 of the fiduciary maximum if he will consider setting up a committee to consider this technical financial problem. My right hon. Friend the Financial Secretary to the Treasury said in reply to this question it was not unusual for the maximum fiduciary issue to reach near the limit during the holiday period. That is quite right, but I do not think that the maximum has ever before been so near the actual limit in the Whitsuntide holidays, and that makes one feel that this question should be looked into and be the subject of an inquiry. The Cunliffe Committee, which reported in 1918 and again in 1919, stated, as far as I remember, that the fiduciary issue should be settled after there had been £150,000,000 of gold reserve in the Treasury for a certain period, the actual period not being mentioned. To the best of my recollection, in December, 1924, the Treasury had a little difficulty in regard to the maximum limit of the fiduciary issue, and the actual amount went within £45,000 of the maximum limit, and I think that was after the transfer of a very large block of Bank of England notes to the support of the fiduciary issue. The fiduciary issue was fixed, as far as I remember, at £248,000,000 for 1925, the limit for 1926 was £247,000,000, and the limit for this year is £246,000,000.

I contend that my right hon. Friend the Member for Central Edinburgh is correct in saying that the system is not elastic enough. We have the experience of the Dawes' Report. So far as I remember, the Dawes' Report, which set up a central bank in Germany, gave elasticity to the fiduciary issue in Germany. There was to be a fixed amount, and if the fiduciary issue went beyond a certain amount the central bank had to pay a commission on or an increased interest on the amount by which it exceeded the actual limit. The federal reserve system, also, is more elastic than our Bank of England process, and the American is almost the same organisation as was set up under the Dawes Report. The question comes down, really, to the credit of the country, and the amount of credit a country can stand without inflation. I do not want inflation, but I like elastic credit. We have got to consider even the arrangement that was made recently between the Governor of the Bank of England and the President of the Bank of France. I contend that was a welcome arrangement, because it meant closing up the War debts between the Bank of England and the Bank of France, but the position affected our credit very considerably. After the arrangement had been made, France purchased about £11,000,000 of gold from ourselves or the United States of America, and that affected our credit. Anybody who watches the price of Treasury Bills will know that the price went up about 10s. after France started to purchase gold in this country. In regard to the United States of America, when severe depression was experienced there in 1921, and there were a large number of unemployed, I understand that a certain amount more gold was used, and eventually that gold gave more credit and work and employment expanded into the United States. Employment was found for the men and women who had been out of work. Like my right hon. Friend the Member for Central Edinburgh, I think there is a matter for inquiry, especially as Mr. McKenna, the Chairman of the Midland Bank, differs from Mr. Goodenough, the Chairman of Barclay's Bank. Both these gentlemen are men of experience in regard to matters of credit, the fiduciary note issue, and technical subjects like that, and I hope the Chancellor of the Exchequer will set up a Committee to go into this technical subject.

I will leave this question now, however, because I feel it is almost too technical to debate in Committee here, and turn to a few questions in regard to this Estimate. First of all, I notice that the Advisory Committee under the Trade Facilities Act expended £5,736. The total amount allowed by the House of Commons for trade facilities was £75,000,000; according to the last White Paper the actual amount was £74,251,000, and that will be gradually reduced. I note that there are nine officials attached to that department of the Treasury, and that the legal expenses are £4,500. Why are these legal expenses necessary? What are the losses in connection with the Trade Facilities Act? What is the position of the Newfoundland Paper and Power Company? How is the large amount of £9,500 representing appropriations-in-aid made up? I should very much appreciate it if, when the Chancellor of the Exchequer or the Financial Secretary comes to reply, he will give me a few more details with regard to this Trade Facilities Act.

I come next to the offices of the Cabinet Committee, the Imperial Defence Committee and Civil Research. These three departments are lumped in one as far as the details are concerned. The total amount of expenditure is £18,679, with 42 officials. I am unable to gather how many officials are attached to the Committee of Imperial Defence, but I remember hearing a speech made in another place by Lord Oxford and Asquith on the 22nd, March, 1927, in regard to national expenditure, and he stated as follows: I refreshed my memory to-day as to what was the staff of the Committee of Imperial Defence. When I was first actively concerned in it, 1906–7, the staff consisted of one secretary, two assistant secretaries, one confidential clerk, and one boy. Four men and a boy was the total staff of the Committee of Imperial Defence who were engaged in thinking and planning and performing all these functions which my noble Friend so eloquently described. I have the figures now for 1913—seven years later, and the year before the War broke out. In 1913 the staff had reached the following dimensions: One Secretary, three assistant-secretaries instead of two, one confidential clerk, one military clerk, one assistant-clerk (who may have been the boy who by this time had grown up). In other words, we started with four men and a boy and we finished up with a staff of seven. That was the view of Lord Oxford and Asquith. Perhaps my right hon. Friend could state how many officials are now attached to the Committee of Imperial Defence, and perhaps he would kindly give to the Committee the actual staff attached to the Treasury on the 31st March, 1914, and the cost of that staff. I would appreciate very much a reply to these questions in due course, and I feel confident that if an inquiry could be set up as suggested by the right hon. Gentleman the Member for Central Edinburgh it would be an asset, and a good thing for this country.


I desire to associate myself with the proposals which have been put forward by my right hon. Friend the Member for Central Edinburgh (Mr. W. Graham). With regard to the second question which he raised, I wish to put forward the matter from a slightly different angle. Recent experience of this country has shown how dependent we are upon movements abroad with regard to our credit and our financial position. It is only a few weeks since there was a considerable flutter in the money market when it was known that several millions of gold were being withdrawn from this country. This incident was described by the hon. Member for Ilford (Sir F. Wise). The bank rate, instead of falling, remained stationary, and conditions generally became more stringent. As a result any fillip that might have been given to business with the season tended not to come into being, business became stagnant, and trade and industry generally were handicapped in a way that always occurs when something in the way of deflation takes place.

When the mystery came to be revealed and it was found that the reason for this withdrawal of gold was due to the French Government, to some extent the feeling of anxiety was checked. But. I would suggest that so far from being a relief, the business and the banking world ought to have felt even greater apprehension because in my view it is not actually what was done, but the potentiality of what might be done that gave the greatest alarm. I understand that the French Government have in this country balances of over £100,000,000 sterling. Whether that be right, or an exaggeration I do not know, but at any rate they have a very considerable amount and, of course it is open to them at any time to withdraw a considerable part, if not the whole, in the form of gold. That case does not stand alone. All over the continent of Europe and other parts of the world, there are countries which are considering the obtaining of a larger amount of the yellow metal. Only recently India has determined, in effect, to go upon the gold basis, and although the Government of that country have not decided to obtain a large stock of gold up to the present, they may any day come to a decision that they desire a large gold reserve. What is true of India is also true of other countries.

This is an exceedingly serious problem, more particularly for this country, which is so dependent upon exports, and therefore upon some price level which can remain stable and can be relied upon. In this connection I am reminded of the case of Egypt. It is essential to the people of Egypt that the River Nile should keep up a certain level and in consequence of that the Egyptian people recognise that they must at all costs preserve a reasonable flow of water in the Nile. I remember not long ago when there was some question in this House of threatening the Egyptian people with a loss of water supply it became a matter of first-class importance. At once the Egyptian people proceeded to take action to obtain assurances that that threat would not be carried into effect. In this country the very life-blood of trade and commerce depends upon maintaining a stable level in prices which depend upon the quantity and the flow of gold. That is essential to trade, and if the unemployment problem from which we are suffering at the present time is to be remedied, it is essential that we should get control of these supplies of gold.

In the days before the War this country was the world centre of finance, and the financial policy adopted here was the one which ruled throughout the world, and we had our own say in the matter. The situation, however, has changed since the War, and now we cannot control the whole situation ourselves. While going all the distance which my right hon. Friend the Member for Central Edinburgh has outlined, I should like to go one step further, and I ask the Government what steps they are proposing to take to rationalise the supply of gold. When I say "the supply," I do not mean the production of gold, but I mean the supply in the various countries. When I use the term "rationalise," I do not mean to ration, but I use the word in the sense it was used at the Economic Conference at Geneva. There it was pointed out that to secure world production for the benefit of the peoples of the world, it was necessary to rationalise industry, and in the same way I suggest it is necessary for all countries, and particularly for this country, to rationalise the supply of gold.

It will be remembered that several years ago at the Financial Conference which was held at Genoa it was proposed that the Bank of England should organise a conference of the central banks of the world, and that at that conference should be discussed the best method of doing what I now call rationalising the supplies of gold with a view not merely to stabilising the exchange, but to stabilising the level of prices throughout the world. I suggest that the time has come, in fact it is much overdue, when that conference, for which a desire was expressed several years ago at Genoa, should now be brought into operation. It is possible that in answering this point the Government will say that such a conference is, in fact, actually proceeding, because today in New York, I understand, there is a conference of representatives of the banking systems of the United States, France, Germany, and of this country, meeting in conclave on this very question. But, in my view, that private and unofficial conference is not adequate because it is not representative of all the principal countries in the world, and more especially it is not adequate because it is purely private. I agree it may be desirable that we should have some private preliminary conference, but it is of the utmost importance that you should follow that up by a public official conference in order that these problems may not only be discussed, but that the findings, and the main grounds for them, should become public property so that the agreements which have been reached£it may be originally in private conferences£may ultimately be put into concrete and public form, so as to be available when the time comes.

I desire to raise one other point besides those which have been raised by my right hon. Friend the Member for Central Edinburgh. I wish to refer to the method of keeping some of the accounts in relation to the Sinking Fund. The Sinking Fund is a highly technical proceeding which the general public have an idea is of a fairly simple character. The general public are of the opinion that the Sinking Fund is the amount by which the National Debt is reduced each year, that is to say, the amount by which the liabilities of this country are discharged. I have known even financial experts in this House who took that view. For example, some £40,000,000 was paid to the Sinking Fund last year and people are of the opinion that the National Debt of this country was discharged to the extent of £40,000,000 last year.


The amount was £23,000,000.

5.0 p.m.


Yes, I am wrong, the amount was £23,000,000. The impression that the whole of that went to the discharge of the liabilities under the Sinking Fund is entirely erroneous. The actual fact is that for many reasons it was far less. We have, in the first place, various specific Sinking Funds, and in recent years the number of these Funds has increased. If hon. Members refer to the Return issued by the Treasury, it will be found that some £40,000,000 or so are specific Sinking Funds, and the balance is nominally paid for the discharge of general debt. In the old days when Sinking Funds were first introduced, the idea was prevalent that all you had to do was to create a Sinking Fund and that automatically proved beneficial, although at the same time you created new debts to an even greater extent than the Sinking Fund you put on. I think that idea has been exploded in theory, but to some extent in practice it lingers on; for last year in particular, in spite of the Treasury Returns, this balance was certainly not available for a general reduction of debt, for a far larger amount of new debt was created to take its place. I am quite prepared to admit that it would not be possible to make a Sinking Fund which exactly accorded with the public belief so long as—

The CHAIRMAN (Mr. James Hope)

I am sorry to interrupt the hon. Member's argument, but I am not quite sure whether he is not now criticising the various Statutes which establish the Sinking Fund. I should like to know whether that is so, or whether what he is criticising has something to do with the administrative discretion of the Treasury.


I was leading up to that in a few moments, and I think you will find that I am entirely in order, for I propose to deal with the form of certain items which are included in the Treasury figures. I am not criticising the way in which the Sinking Fund is administered, but a certain method of accounting which is producing the wrong impression as to what the Sinking Fund actually is. I was proceeding to say that it would not be possible to get a Sinking Fund which exactly accorded with the public idea of a Sinking Fund unless you were entirely to change the whole method of keeping accounts in this country, and to substitute for the receipts and payments accounts which we have at the present time, a system which would correspond more nearly to a balance sheet and a profit and loss account. I do not deny that there might be certain advantages in that, but I think the disadvantages would be far greater. I think, however, that it would be possible within our present method of receipts and payments to bring the Sinking Fund much more nearly into line with popular interpretation. Leaving the matter of fresh borrowing for fresh objects definitely outside, there are three matters in which it seems to me that our present method of dealing with accounts is undesirable. In the first place, there is the question of the ideal which we ought to be set before ourselves, of keeping the total face value of the debt as near as possible in correspondence with the amounts claimable on redemption. The standard case where that proposition is not observed is that of the Five per Cent. War Bonds redeemable at 105. The face value that obtains now, instead of being the amount of redemption of 105, is 100, and that leads to a considerable error in the total value of the debt. The procedure is this. Sup posing the stock were issued at 95, redeemable at 100, it would appear in our account of debt as 100 and the 5 per cent. premium on repayment would be shown properly in the account. As, however, it is issued at 100, redeemable at 105, it still only appears at 100, the whole amount of redemption not being shown in any way in the account. In that way, at the present time, the position of the country is rendered in the account more favourable than it actually is to the amount of £20,000,000.

The next point to which I want to draw attention is I think in some ways of still more importance. That is the matter of the Savings Certificates. I think it is highly important that the interest which is actually debited in the year òught to correspond as nearly as possible with the interest accruing in the year, but when you come to the Savings Certificates that is not at all the case. Let me first of all quote figures. The estimate of interest which is going to be charged to this country during the year 1927–1928, on account of Savings Certificates, is about £9,000,000. The estimate of the actual interest that will accrue upon outstanding Savings Certificates during the year is as much as £24,000,000, so that there is a discrepancy of no less than £15,000,000 between the two amounts. In the previous year the amount estimated was £7,000,000. The amount actually spent was £12,000,000, and the amount accruing was probably not far short of £24,000,000. The Chancellor of the Exchequer, in his Budget speech, made special play of the fact that the amount expended, £12,000,000, on this account, was considerably in excess of the amount that had been estimated of £7,000,000, and yet even the full amount spent was in fact millions below the amount that actually accrued. The reason for this discrepancy is as follows: The amount which is actually debited against the interest, is the amount of interest on these Savings Certificates which are paid off during the year, that is to say, only those Savings Certificates which are cashed come into the account at all, and in some the interest is for one year, in some for five years, some for 10 years or possibly more; whereas the actual amount that accrues is one year's interest on the whole Savings Certificates outstanding. Of course I know that if the Savings Certificates were a constant amount, and if roughly the same number were being bought each year as were paid off, the discrepancy would not be very great, but, as the amount of Savings Certificates is rapidly increasing, we are constantly debiting ourselves with far smaller amounts of interest than actually accrue during the year. If the holding of Savings Certificates increased and a very considerable part of our National Debt took the form, as it well may, in years to come, of National Savings Certificates, we should be living entirely in a fool's paradise in this matter. In one of the Debates, either in Committee or on the Floor of the House, I had the good fortune to have the presence of the hon. Member for the City of London (Mr. E. C. Grenfell) when speaking on this point, and I am glad to say that he entirely agreed with me. He suggested that there should be an increase of the Sinking Fund to the amount of £10,000,000 to meet this matter. I do not suggest that now, because I should be out of order in doing so, but I do want to point out that our method of keeping accounts in this matter is not a very satisfactory one. It is not easy I know to arrive at a satisfactory method, although I think a more desirable method could be found. For instance, whereas a Savings Certificate is now bought for 16s., I do not think it unreasonable if it was put down at 20s. from the time it was bought, in much the same way as a Treasury bill would be handled. If it were done in that way here you would get something much more near to the correct amount than is done at present. The Chancellor of the Exchequer may not think that a good plan, but I hope he will, at any rate, consider whether some other method could be adopted which would correspond more nearly to the actual facts as to the amount of interest really accruing than is done at the present time.

I have taken up a great deal of time over this, and I, therefore, will not deal at any length with my third point. It is the issue of loans at a discount, and I am very pleased to see that it met with the strong condemnation of both the Majority and the Minority Reports of the Colwyn Committee. I hope the Treasury will very seriously consider rigidly refusing to adopt this method of issuing loans in the future

To sum up what I have been trying to say. On the first point, the Chancellor of the Exchequer and the Financial Secretary to the Treasury have been asked to take steps to rationalise the gold supply of the world. I would like to go a little further than my right hon. Friend the Member for Central Edinburgh who has asked them to set up a Committee to consider the management of the gold of this country. I want them, in addition, either to call this year, or to get the Bank of England to call, a world conference to consider steps to rationalise the gold supply of the world. Secondly, I want them to take steps to alter the accounting so that the Sinking Fund shall be brought more nearly into accord with the idea of a Sinking Fund in the minds of the business men of this country.


Before I say a very few words in regard to the question which has been raised by my right hon. Friend the Member for Central Edinburgh (Mr. W. Graham) I would like to say, in a single word in passing, that I am very cordially in agreement with the views just expressed by my hon. Friend the Member for West Leicester (Mr. Pethick-Lawrence) in regard to the accounting of Savings Certificates. I do not want to make more than a passing reference to that question, but, if I may be respectfully allowed to say so, I think he has raised a point of very considerable accounting importance, and I would like to associate myself with what he has just said. In regard to the questions raised by my right hon. Friend who opened this Debate, I would say, on behalf of myself and, I think, of other Members on this side of the Committee, that we are exceedingly grateful to him, not for the first time by any means, for raising a question of great public importance on a financial Debate. The questions which he raised, as I understand them, were mainly two. He raised certain very important questions in regard to the personnel, management, and internal administration of the Civil Service. He raised another very important question in regard to our whole currency position, and more particularly in regard to the gold position in relation to the credit of the country. I desire to say a very few words on those two topics, and to ask one or two questions on another topic in which I, myself, am interested in relation to Treasury administration.

First of all, in regard to the Civil Service, I wish to associate myself to the full with the very cordial tribute which my right hon. Friend paid to the higher officials of the Civil Service. I suppose there is no other present Member of the House who as a Member of the House has had a wider or a more continuous experience than I myself have had of contact with the heads of the permanent Civil Service. As Chairman for some years of the Estimates Committee, as a member of that Committee for more years than I like to remember, and as a member of the Public Accounts Committee, I have a very grateful sense of the way in which the higher officials of the Civil Service carry out their duties. I join with my right hon. Friend in paying a very great cordial tribute of admiration for the very high qualities which those public servants possess. But, apart from this tribute of admiration, my right hon. Friend raised a question with which I do not know that I am in quite such cordial agreement. He raised the whole question, incidentally, it may be, of the leakage of the Civil Service, that is to say, of a tendency which he thought he discerned for some of the more prominent members of that great Service to find occupation outside the Service, and he, very naturally, inquired what the reason for that might be. As far as my own experience is concerned, I should be inclined to say that the danger of that leakage is not very great. I know that from time to time, as, of course, has recently been the case, resignations take place which are of palpable disadvantage to the public service. We do, from time to time, lose from the public service servants whom we can ill afford to lose, for reasons which are very intelligible, because they are naturally tempted away by great positions offered to them outside.

I do not, however, feel with my right hon. Friend the Member for Central Edinburgh that that is really a very general or a very serious danger, and for this good reason, that, as I understand the matter, the qualities which are demanded of the first-rate civil servant are qualities wholly unlike those which, as a rule, are required in business houses. The man who makes a good civil servant has not, speaking generally, the same calibre of mind as the man who is successful in commerce or in business. I quite admit that there are exceptions to that rule, exceptions of which we have had several recent and notorious illustrations; but I do not share the apprehension, if it be an apprehension, on the part of my right hon. Friend the Member for Central Edinburgh, that that is likely to be a danger which we need very seriously contemplate in the future. I should like to add this word, that I most sincerely desire that the qualities which are demanded of our civil servants should be different in kind from those which are demanded in our business houses, for, if there is one thing on which I am more keen than on almost anything else, it is that the Civil Service should not be involved in business undertakings, and that, therefore, those upon whom the Government rely as principal servants should not be people of the qualities which are required in business houses. My right hon. Friend went on to develop a question which is, if possible, of even greater importance. I refer to the currency position—this question of the gold standard. I am not going to involve myself so deeply as any of my hon. Friends who have spoken this afternoon in that most difficult of all questions—


Do not be afraid!


I am afraid. I remember the warning that, apart from love, there is nothing which has driven so many people into lunatic asylums as currency problems, and I have no desire to go into one of those asylums before my time. Therefore, I am not going as deeply as my hon. Friends have gone into that very controversial question, but I should like to say just one or two words, particularly on the point raised by my hon. Friend the Member for Ilford (Sir F. Wise). He referred to the problem of the currency mainly in its relation to the credit of the country. I want to associate myself to the fullest possible extent with what he said on that point primarily, because everybody knows that there is no problem which must be engaging every day the attention of the Treasury so seriously as the problem of credit and of the maturities which are immediately ahead of us.

Only a month or two hence, in October next, we shall be involved in maturities of £112,000,000 for 4 per cent. and 5 per cent. War Bonds. Then, six months later, in March, 1928, the Treasury will have to face £66,000,000 of repayments of 3½ per cent. War Loan and 4½ per cent. Treasury Bonds. In the course of the summer of next year, 1928, no less a sum than £443,000,000 will come up for repayment for 4 per cent. and 5 per cent. National War Bonds. In the course of the following year, 1929, the Treasury will have to face repayments amounting to £46,000,000; and so on. That is a very short statement of the facts in regard to the immediate maturities ahead of us, and, in the face of these imminent maturities, I regard this problem of currency as of super-eminent importance. Therefore, I am exceedingly grateful, and I think the whole House and the whole country should be grateful, to the right hon. Gentleman who acts as Chairman of the Public Accounts Committee, for bringing the matter to the attention of the House of Commons this afternoon, and I desire, with him and with my hon. Friend the Member for Ilford, to press for the appointment of the Committee to which he refers.

In saying that, I want to guard my-self against expressing perfect agreement with my hon. Friend the Member for Ilford on the question which is at issue between two such eminent bankers as Mr. Goodenough and Mr. McKenna. Far be it from me to decide between two prophets of such eminence, but I will frankly confess that my own Conservative disposition is rather on the side of Mr. Goodenough than on the side of Mr. McKenna. I am sorry to disagree even to that extent—I very rarely do disagree—with my hon. Friend the Member for Ilford; but he must be satisfied, and I hope he will be satisfied, if I associate myself with him in pressing for the appointment of this Committee, because, after all, we want to ascertain, and we want the public to be informed of, the opinion of an expert committee on a question of this first-rate importance. I am, myself, a little apprehensive of getting on to the slippery slope of inflation. I know that the word "inflation" is one which is capable of many interpretations. On none of those interpretations am I going to venture this afternoon, but I am a little apprehensive of anything in the nature of artificial credit. Still, I do not want to press that view too strongly this afternoon. My hon. Friend and I have been going into the matter together recently in some detail, and, although we do not see entirely eye to eye on the question which is at issue between these two eminent bankers, we are completely in accord in pressing upon the Government the importance of the appointment of the Committee to which the Chairman of the Public Accounts Committee referred earlier this afternoon.

There is only one other point on which I should like to hear a word from my right hon. Friend the Financial Secretary to the Treasury. I do not make it by way of criticism, but I would like a word of information in regard to the expenditure for which the Treasury is responsible under Sub-head G.1 of Vote 4. I refer to the expenditure of £15,250 a year on the War Histories. I make no criticism of that, but I should like to ask the Financial Secretary whether some reduction of that staff is not possible, and whether some amalgamation or distribution of the work performed by it would not be possible. We have, as probably the Committee are aware, an exceedingly competent librarian at the Foreign Office—himself an historian of no mean distinction—who, I should have thought, might have been able to add to his duties, though these are not light at present, some of those which are performed by members of the staff in question. I do not know—my right hon. Friend will be able to tell me—whether that staff does draw upon the assistance of any of the other permanent civil servants, such as the librarians of the great offices, and particularly the librarian of the Foreign Office, but I want to put my question in a rather more general form. I want to ask my right hon. Friend whether there is any possibility of redistributing this work, possibly among other Government offices, or, possibly, among members of the Universities. There will be many research students at the Universities who. I think would probably be more than disposed to perform a good many of these services without any gratuity from the State at all, but simply in return for the facilities which they would obtain from the State for research into matters in which they are themselves historically interested. I throw that out as a suggestion. The sum involved is not a very large one, but I should like to have some information from my right hon. Friend on that point.


I should like, in the first place, to support the remarks of my hon. Friend the Member for West Leicester (Mr. Pethick-Lawrence) on the question of the Sinking Fund. When the matter came before the Public Accounts Committee recently, I asked Sir Otto Niemeyer a few questions on the principle underlying the system that is now followed, and I confess that the answers I received only showed how much more complicated the question is than I thought. For one thing, Sir Otto Niemeyer informed me that, in the came of War Savings Certificates, the increase to which my hon. Friend referred, and which, it seems to me, might very well have been looked upon as capital expenditure, is looked upon as interest. On the other hand, I take it that, if stock is issued at 80 and is repayable at 100, that appears in the books of the Exchequer at par, and the difference between the 80 and the 100 is looked upon as capital expenditure. When we compare these two cases, there does not really seem to be any reason why the Treasury should deal with War Savings Certificates in a different way from stock isued at under par. On the other hand, I understand that there were certain cases during the War in which stocks were issued repayable at 105, and, speaking from memory—I did not know that my hon. Friend was going to raise this point—I think that those stocks are also treated as if they were repayable at 100. Here, therefore, we have a case in which we talk about the debt as being only 100, when some day the nation will have to repay it at 105. I think it is obvious that this is a question which might very well be looked into, and in regard to which we might urge upon the Treasury the desirability of seeing whether it is not possible to get figures more closely approximating to the exact amount of the liability that the nation has at present to meet.

I want also to support the appeal of my right hon. Friend the Member for Central Edinburgh (Mr. W. Graham) for the appointment of a committee to consider the question brought forward by Mr. McKenna, and I should like to express the hope that, as suggested by my hon. Friend the Member for West Leicester, if a committee is appointed the scope of it will be enlarged to include the world's supply of gold. I venture to speak on this subject in spite of the warning issued to us by the hon. Member for York (Sir J. Marriott) that there is danger of lunacy in considering these questions. The fewness of the number of Members present induces me to go forward, as the danger incurred will be so limited, even if we do consider the subject for a short time. The proposal made by my right hon. Friend to-day is much more important, and might have more far-reaching effects upon the wellbeing of the country than many of the points over which we are going shortly to spend a good deal of time in considering the Finance Bill. For instance, the point Mr. McKenna has raised is infinitely more important than whether we are going to impose a small duty on lace, or many other questions which excite interest and enthusiasm in the House. I suppose no man in the country has had such a unique experience as Mr. McKenna. It is true we have other chairmen of big banks, but none of them has had the experience of national finance that Mr. McKenna has had, and the danger of the City outlook is that your City financier looks on this matter purely from what might be termed the financial standpoint, whilst really there are always other interests that have to be considered. Anyone who has occupied the position of Chancellor of the Exchequer can never go back to quite the same outlook on finance as the man who has spent the whole of his life in the City looking at his problems only from the financial standpoint. Therefore, it seems to me this House is fully justified in considering very carefully the proposal made by my right hon. Friend.

The hon. Member for York said he had a great fear of inflation, and we are justified in having that fear, but I think we ought also to bear in mind the other side of the question. I take it that while Mr. McKenna suggested that there might be a danger of inflation, what he is afraid of is, whether at the present time we are not actually doing the reverse process, and that when industry shows a little progress the financial system that is in force to-day keeps constantly putting the brake upon an expansion which might otherwise take place. Mr. McKenna bases his argument on the experience of the United States, where the deposits in the banks from 1922 to 1926 have increased by something like £800,000,000, while in this country there was actually a decrease of over £100,000,000. Mr. McKenna asks whether there is anything in our banking system that is having a deleterious effect upon our industry today. He also suggests that the federal reserve system of America lends itself more easily to providing the necessary credit than does the system in vogue in this country. The American system does not require such a large amount of gold backing for their notes. Any extension of the note issue of the Bank of England is followed up by providing the same amount of gold, but in the United States all that is required is 40 per cent. of gold behind the federal note issue, and there is even a margin allowed so that if at any time a bank has not placed the requisite amount of gold behind the issue of notes, instead of the increase being prevented, the bank is allowed to pay a certain percentage of interest upon the amount of notes that have been issued beyond the 40 per cent., and in that way there is an expansion of notes upon a scale easier aid simpler than we have at present in connection with our own banking system.

The other point on which, I think, the American system differs from ours is that the facilities the banks have of discounting their bills make it easier for them to obtain money for trade. Mr. McKenna's plea for the revision of air system has been opposed by Mr. Goodenough, who holds an equally important position. I should not wish to say which I think is right of these two distinguished bankers, but I think the Chancellor would be doing a great disservice to the City if he decides that the investigation should not take place. Having some connection with the City, I would much sooner have the whole matter investigated than simply say it is not desirable to look into a matter which is arousing a good deal of public interest. People naturally say bankers do not desire to have the system looked into because they are doing very well out of it themselves and do not wish to see it altered. It seems to me the banking position is much stronger if you say you are quite prepared to have the whole matter investigated. In the religious world we have great churches which have propounded religious beliefs, and when some heretic has come forward and urged that a principle of their religion was false, the churches in the past have taken refuge in saying it is not desirable to consider it, but all the same the heretics have gone forward and in time it has been per. haps discovered that these principles were false. Therefore, I hope the Chancellor will not think the banking world is anxious to hide itself behind the formula "As it was in the beginning, is now, and ever shall be," but will be willing to test these principles, because nothing is going to suffer in the religious or the financial world if the principles on which we are working are at times tested. I fully agree that when we look at the American position there are one or two extraordinary things connected with it. Of course they have received a large amount of gold which, if it had come into this country, would probably have had the same effect in expanding the deposits in banks as it seems to have had in the United States. If gold came into this country we could have gold inflation. We had it before the War for many years to a small extent, and even the hon. Member for York would probably have no fear about it. Inflation is not always necessarily an evil.


I should not have any fears about it because it was based on gold.


And yet the effect upon our industrial system might be just as prejudicial as the creation of a large number of notes. The second reason I think we might have this investigation is that towards the end of this year the position in regard to currency notes will probably be reviewed, and that would seem a suitable time to have the whole question of the banking system reviewed. The "Times," in an article in January, supported the plea, and in February, 1925: Mr. BOOTHBY asked the Chancellor of the Exchequer whether His Majesty's Government will take steps to secure the early assembly of an international financial conference to consider the question of putting into operation the Genoa Resolutions on currency and with a view to the establishment, by agreement, of the currency systems of the world upon a sound, economic and stable basis? Mr. CHURCHILL: The Genoa Resolutions contemplated a meeting of the central banks as a necessary preliminary to any monetary convention. I hope that the occasion for such a meeting will arise before long; but I do not think the moment is yet opportune."—[OFFCIAL, REPORT, 24th February, 1925; col. 1735, Vol. 180.] It is only 2½ years since the right hon. Gentleman gave that answer, and I would suggest to him that possibly the moment has now arrived. One thing in connection with the American position which has not been referred to is the instalment buying that is going on in that country—what we, should call, I suppose, the hire-purchase system. I understand nothing like it has been seen in this country, or I suppose in any country in the world. It seems to me it must have some effect upon the financial position, but whether it means any kind of inflation of credit, I do not know.

There is another point on which I want to lay stress. I desire to appeal to the Government for some statement in regard to the gold position. We have had the recent French withdrawal of gold from London. The policy of the French Government is one of the most amazing things we have seen. Many nations are thinking what a great thing it would be if only they could get back their currency to the old standard, but the French Government are deliberately preventing speculators, whose policy would be to force back the value of the franc nearer and nearer to the old pre-War standard. I understand the £100,000,000 that the French Government are holding in this country, and in New York, is the result of their determination not to allow the franc to alter its position.

We have returned to the gold standard on the supposition that other nations, if I may so put it, were going to play the game. The success of the gold standard depends on certain well-known and well-laid-down principles. You do not expect that a country is going to take gold from the bank in this country unless the exchange is in their favour. Then you come face to face with this emergency. The Bank of France suddenly buys gold from the Bank of England and the whole of the money market in this country is altered prejudicially as far as we are concerned. We find, that instead of the Bank of England rate going down, as was hoped, the rate for discount goes up. It has already, I suppose, cost the Chancellor of the Exchequer between £200,000 and £300,000 more in regard to the increase in the price of Treasury bills, and, at the same time, the public have been deprived of what would have been the advantage of cheaper money if the bank rate had actually gone down. That is all due to the decision of the French people.

What the City would like to know is, whether this withdrawal of gold was carried out with the knowledge of the English Government, and, if not, whether the Chancellor of the Exchequer has made any representations to the French Government, pointing out how very detrimental this action has been to the money market on this side and the effect it is having upon us. The serious point, it seems to me, in connection with this matter is this. Supposing the French Government had said, "Our needs are so great that we must have the gold. I must buy your gold. I am going to buy it, cost what it may," the whole of the gold standard in this country might be endangered. This case is largely governed by very special needs quite outside the ordinary rules governing the position of the money market. I shall be glad if the Chancellor of the Exchequer can say whether anything has been done by the Government or whether any negotiations have taken place between the English and the French Governments.

I think there is every justification for the plea made by my hon. Friend the Member for West Leicester that the whole of the gold position should be very carefully considered. It may be that the central banks are considering the question to-day, but, as is said in the City of London, all these questions are wrapped in such a veil of mystery that we are never allowed to know anything. The only thing we know is, that all of a sudden something has taken place, and we go on wondering what the great gods of finance are doing, and why Mr. So-and-So has gone to New York, and why Mr. So-and-So has gone to Paris. That is all the information the money market is allowed. Professor Cassel has drawn attention to this question and quoted figures, which appeared in the "Times" recently, in which it was estimated that the gold supplies of the world after 1929 would be about £5,000,000 less per annum than they have been previously. It is needless to point out to the Committee what effect that would have upon this country. We talk about all these very strange, complicated questions, as has been indicated by the hon. Gentleman the Member for York, as being exceedingly difficult, and yet, at the same time, they have a profound effect upon the well-being of our people.

I am not discussing at this moment whether the policy of deflation was bad or good, but there is no doubt whatever that it led to a large increase of unemployment in this country. There is no doubt that that is the reason which is inducing the French Government to take the line they are taking. They are not prepared to face the amount of unemployment and the effect upon their trade that such a policy would have. It seems to me that this is a matter on which we might be entitled to have a statement from the Government, telling us exactly what their policy is, first as regards the points raised by Mr. McKenna regarding the banking system of this country and, in the second place, as regards the whole question of gold and the relations of this country to the great central banks. You may say that the Bank of England is a private institution. We know perfectly well that the connection between the Bank of England and the Treasury is so close that we cannot imagine that any great policy dealing with the gold question would really be carried out by the Bank of England without consultation taking place between the Chancellor of the Exchequer and the officials of the Treasury. Therefore, I think, the Committee is justified in asking for a statement from the Government. The question of how far we are going to get a really satisfactory banking system is more important than almost any other financial question, and we must be assured that, having now returned to the gold standard, the system of working it, which is necessary to secure success, is going to be followed out as in the days before the War.


I must apologise to the Committee for not having been able to be present during the whole of this Debate—I was compelled to absent myself on public business—and ask the indulgence, of the Committee. I will endeavour to answer, as briefly as possible, some, at any rate, of the numerous, interesting, and speculative questions, some of a very large and general character, which have been raised in different parts of the Committee. I will deal, first of all, with the specific question raised by the late Financial Secretary to the Treasury. He commented upon a series of appointments of high officials in the various Departments of State, particularly in the Treasury, which were announced a few weeks ago. The right hon. Gentleman seemed to me—although, I admit, he did not state his case with any extreme rigidity—to be arguing in favour of a departmental system of promotion as against the system of selection which is the one which, for some time past, has been adopted. One must ask oneself two questions. First of all, "Do you challenge the principle of selection?'' Secondly, "If you do not challenge the principle of selection, has it been applied wisely and fairly in recent instances?"

I cannot conceive how any effective challenge can be made to the principle of selection. I remember the late Lord Fisher used to deride the system of promotion by departmental seniority, and described it as the doctrine of "Buggins's turn." Ever since 1855, when the Civil Service was unified, the principle of selection for the higher appointments has been in creasingly applied, and there are at the present, moment, I think, only five Departments which are actually headed by civil servants who have risen from that particular Department. Long before the last batch of appointments was made, this principle of choosing at any given moment the best men for these very responsible posts had been extensively applied. Really, I think, it is no use arguing that this course acts harshly. After all, even in the case of the humble battalion, where the importance of the functions, in time of peace at any rate, cannot be compared with those of these Departments, there has not, certainly during the present century, been a commander of a battalion or second in command appointed except by selection, and by selection not confined necessarily to that battalion. If in a small organism like that, discharging functions which, however honourable, are so moderate in their status, you are going to enforce the system of selection in the interests of efficiency, then I say a fortiori in the case of these great departmental organisations of the State it must be applied in all its force.

Let us see whether the selection has been fair and wise. No one has greater interest than the Government of the day in making a wise choice, because it directly affects the success of the various Ministers at the heads of Departments. The right hon. Gentleman, who has been in office himself, knows the valuable character of the services Which are rendered to the political heads of Departments by the highly trained and able permanent officials. Criticism has been made that the Secretary to the Treasury, with some small group of civil servants, has some dominating power in the matter. That is a delusion. The duty of the Secretary to the Treasury, among other duties, is to advise the Prime Minister upon the high appointments and the headships of the Departments. For that purpose he takes a general view of the service as a whole, and it is obvious that some mechanism for taking such a general view of the service as a whole and of the competing claims of different men in different Departments is an essential part of the functions of government. But the Secretary to the Treasury makes representations to the Prime Minister in many cases. The Prime Minister, as the First Lord of the Treasury, naturally consults with the Second Lord of the Treasury, who is the Chancellor of the Exchequer; and ministerial opinion is what rules in these matters.

The Prime Minister has been in office for the greater part of the last eight years with a very brief exception, and I have been in office for a long time, and we are perfectly capable of forming our opinion on the honest and faithful advice we receive from the Secretary to the Treasury on the matter. We desire to give the greatest possible assistance to the Ministers concerned. Of course, it is quite true the departure of distinguished civil servants to outside employment weakens us for the time being, and I shall certainly not say anything to diminish the seriousness of the loss which we have for the time being sustained by the departure of a man of such altogether outstanding abilities as Sir Otto Niemeyer, but, nevertheless, experience shows that the ability of the British Civil Service refills the gaps which are made from time to time. Although we have had of recent years a stream of very able men passing from the Civil Service, I think, nevertheless, the quality of the Service has been maintained.

6.0 p.m.

The right hon. Gentleman also criticised the departmental arrangements at the Treasury, which have been made incidentally to the present changes, and, in particular, the uniting under one head of the Controllerships of Finance and Supply; and he explained, quite correctly, the enormous importance of the duties of both these great departments. He asked how it would be possible for any one man, however able—and certainly it is a matter of common agreement that the officer appointed is one of the ablest servants under the Crown—could discharge all the admittedly difficult and technical duties of these two Departments. I should like to point out that when an officer is placed at the head of two Departments, and they both report through him to the Minister, the position of the heads of each of those Departments under that joint supervisor is by that very fact, in practice, considerably enhanced. Highly trained and experienced officers are at the heads of both these branches, neither of whom would at this moment have been a competitor for the undivided control of either of these Departments, and these officers will have a wider sphere and more direct action open to them than would be the case had one head been provided for each of the Departments. We have taken advantage of these changes to reduce by one the number of higher posts at the Treasury. One of the £3,000 a year posts has been obliterated by the changes which we have made. Naturally, that causes heartburnings, and is not the most agreeable course which could be taken, but we at the Treasury are sometimes criticised for the number of high posts which exist there. We are continually engaged in urging economy upon all the other Departments, and, seeing the possibility of making this curtailment or abridgement, I felt it my duty to recommend that the Treasury should set an example in this respect. As usual, the moment any step, small or large, is taken for economy, it finds most able objectors in every quarter of the House of Commons.

I do not say that this union of the Finance and Supply Branches will necessarily be the final form of reorganisation. It might well be that a better grouping would be achieved if Supply and Establishments were joined together, and if Finance remained an entirely separate Department. That is a matter which we can examine later on, and the opportunity for making a change of that character was not open at the time. I think I have answered, or at any rate replied to, the different points which were raised on this subject by the right hon. Gentleman, and I hope to convince him, not by argument alone, but by proof which will emerge from Session to Session, that the administration will have suffered no undue disadvantage from the changes which circumstances have enforced.

I now turn to what was described as the more important part of this discussion, namely, that relating to the general currency policy of Great Britain. Certainly, no topic can claim to be more important than that. I agree with all that was said on this point by the hon. Member for Finsbury (Mr. Gillett). The currency policy of tins country, or of any country, lies among the roots of its commercial and industrial prosperity, and of its social and economic well-being. I agree with him that it is very right and proper that the House of Commons should from time to time turn its attention to these matters. I agree with him also that it might well turn its attention to this question in preference to many of the quite minor issues which occupy so much of our Parliamentary time. The House of Commons is the master of its own fortunes in these matters and the number of days given to the discussion of finance in the course of the year is very large. I certainly do not complain that on one of those days, extremely complicated matters of such deep and pregnant importance should have been touched upon. Nevertheless, I am sure that the subject cannot be adequately dealt with in the course of a single speech or a single afternoon's Debate, and I shall not attempt to deal with these matters, except incidentally as suggested by some of the points which have been raised.

I must point out at the very outset of any reference to this subject, that you must pursue a clear, plain, unswerving policy in your finance; you must know what that policy is and stand by it. A great many people try to get all the advantages of orthodoxy, and at the same tame to take all the small points which would occur to those who indulge in the luxury of heterodox opinions. Of course they are in favour of the gold standard. They say, "We are opposed to anything in the nature of inflation, but at the same time, something might be done to free us from the tyrannical domination of gold, and to make just a little upward movement of prices, or to advance credit a little more than the economic realities warrant." Then they proceed, in illustration, to point to all kinds of admitted hardships and disadvantages which we encounter in our journey through this wicked world. The policy of the Government is perfectly plain and simple. Our policy, like that of every other Government, or every other set of Ministers who have been responsible, has been the re-establishment of the gold standard, and the maintenance, as far as we can, of the stability of the currency and the stability of our international exchange. That policy has carried with it a steady correction to the dispersion of prices of various commodities.

I was going to quote figures to the Committee, but I will not do so this afternoon. I do not wish to enter into detailed argument here, but I would point out that nothing is more important to the well-being of the country than a correct valuation, in terms of money, of different forms of effort—the correct valuation for instance, to be put upon the effort which is required to make a loaf of bread, or a pair of silk stockings, or an ingot of steel, and so on. The spread of prices had been quite wide in the years immediately after the War, and gradually, as we have come into more harmonious and settled conditions of finance, dispersion has diminished.


The home market has remained restricted.


That has nothing whatever to do with the point which I was making. The point I was making was, that whether the home market is restricted or not, the commodities in that market are coming to a truer relation one with the other, and we believe they have been brought into that truer relation as the foreseen and declared result of our adoption of the gold standard with its consequent stabilising effect both upon our money markets and on our exchange. In addition, as part of the policy which we have submitted, there is, of course, the great feature of the diminution in the cost of living, which, expressed in other terms, is an increase in real wages. There has been a substantial diminution in the cost of living, and it is going on at the present time, increasing the purchasing power of every household in the country. Such is the main effect on wages of the policy which we have pursued, and which at any rate tends to secure to the wage-earning masses a suitable means by which their wages are related to commodities. I believe if you adhere to that policy you will be acting in accordance with the most skilled advice. I do not believe for one moment that if my hon. Friend were at the head of a committee of advisers to the Government upon this policy, which he does not in principle dispute, he with all his undoubted authority on these questions, could outweigh the mass of very high and weighty financial expert authority which we have at our disposal and by which we have profited, and in following which we have advanced from one point to another.

The reasons for our policy have not been concealed. They have not been imparted to the House of Commons merely in speeches either by the Chancellor of the Exchequer or by other representatives of the Treasury. When the gold standard was re-established, I issued the Report of the Committee on the Currency and Rank of England Note Issues, which deals with the financial position and which sets forth in authoritative form the main outlines of the policy which we have pursued. That Report was signed by Lord Bradbury, Mr. Gaspard Farrer, Sir Otto Niemeyer, and Mr. Pigou. There it stands as a perfectly clear explanation of the general position which we adopted. It is quite true that our policy is not the only policy. It is true that there is an alter-native policy. There is the orthodox policy and the heterodox policy, and the heterodox policy claims another set of advantages some of which you may readily admit. That is the view put forward by Mr. McKenna, and also put forward to some extent, but in a different form, by Mr. Maynard Keynes. I think those are the only two names of eminence in the financial world which can be quoted against the orthodox policy which His Majesty's Government are pursuing. They claim that a managed currency should be established in place of the orthodox gold standard. In one form or another, and in the most seductive terms, they suggest that just a spice of inflation would be advantageous—so long as it is called by some other name. They look forward with favour, as I detected the late Financial Secretary to the Treasury doing this afternoon, to a period of rising prices, artificially produced at the cost of the consumer. I have here written down what the right hon. Gentleman said. I think he said that he would not mind, or he would like to see an increase of prices.


indicated dissent


I should be glad to have a confession of faith from the right hon. Gentleman. Is he, or is he not, a supporter of the gold standard policy? Is he, or is he not, an opponent of the policy of inflation?


There need not be the slightest doubt at all on the matter. I am a most enthusiastic supporter of the return to the gold standard, but there is nothing inconsistent with that attitude in supporting the plea made by Mr. McKenna for an inquiry into a comparison between the basis of the banking system in this country and the federal reserve system in the United States.


Let me proceed step by step. I am glad to obtain from the right hon. Gentleman—


There was never any doubt about it.


I am entitled to make it quite clear where the right hon. Gentleman stands, and I am glad to hear that, on behalf of the Labour party, he stands definitely for the gold standard, because we have had some lamentable wobbling on the part of the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George) and also very different opinions expressed by the hon. Member for Leicester West (Mr. Pethick-Lawrence) on that point. As far as the right hon. Gentleman is concerned, he makes no objection to being, as the phrase is, crucified on a cross of gold. He is now definitely nailed in that position.

If you are going to abandon the orthodox policy of the Government and adopt the policy which is advocated by Mr. McKenna, and in a much cruder ray by other people, I agree that other advisers ought to be chosen for the Government. It would be ridiculous to attempt to carry out a policy wholly different in principle from what we are pursuing—with the assent of the right hon. Gentleman opposite—unless it was in the hands of those who thoroughly believed in it. The right hon. Gentleman turned from the general to the particular aspect of the question connected with the difference between the system of the Federal Reserve Board of the United States and the credit system of this country. This was also in the speech of the hon. Member for Finsbury. It is true that Mr. McKenna made a very interesting speech advocating our adoption of the American system. That system involves the adoption of the percentage basis of gold reserve in relation to the note issue. The percentage prescribed after the War in America was 40 per cent., but, of course, it has not been adhered to in practice because the great influx of gold into the United States has carried the gold percentage far above the 40 per cent. level, and it is now in the neighbourhood of 80 per cent.




I cannot possibly conduct this argument if I have to reply to every technical and highly skilful interruption from every hon. Member. I am talking about the United States of America. We have been told that Mr. McKenna advocated that the Federal Reserve system should be adopted here. The Federal Reserve Bank is an American not a German institution, as the hon. Member for Ilford (Sir F. Wise) knows. The American percentage is laid down at 40 per cent., but the actual relation now is probably in the neighbourhood of 80 per cent. Neither Mr. McKenna, nor the hon. Gentleman who has just spoken has ventured to say what would be the result if we should apply a 40 per cent. ratio in this country. The first result would not be an expansion of credit but a sharp contraction of credit, because at the present time the proportion of our gold reserve to our Note issue, including both currency Notes and the Bank of England Note issue, is actually less than the 40 per cent. laid down in the United States, and far less than the figure of 80 per cent. under which they are working at the present time. Consequently, the adoption of Mr. McKenna's proposals, if we adopted the 40 per cent. ratio, would involve an immediate appreciable contraction in the supply of credit.

But there are other reasons which may be urged against our departure from our present system in favour of the American percentage system. If the 40 per cent. ratio of gold to Notes were in working order and actually adopted, the effect of any inflow or outflow of gold would produce an exaggerated result upon the supply of credit. You would have oscillations of a more violent character than you have under the somewhat more practical system which we have adopted. So far from having that beneficent expansion of credit, which is to help industry and trade, you would begin with a positive contraction. In the face of these arguments, which can be extended to far greater length and expressed far more forcibly than I could attempt this afternoon, I do not think the speech of a single banker is a sufficient reason for an inquiry into the whole of our banking arrangements. I am quite sure that the balance of authority is overwhelmingly against Mr. McKenna. We have had two bankers mentioned this afternoon, Mr. McKenna and Mr. Good-enough. Mr. McKenna is almost isolated in the very able and very interesting case he puts forward. I cannot see that any case has been established for an inquiry on the arguments he has used or on the fact that an authority so high has put forward the demand. After all, we have had the Cunliffe Committee and the Bradbury Committee, which inquired into the whole of this subject and produced unanimous reports. The advice of these able and scientific authorities is the basis of the financial policy of the Government. I should regret very much to take any step at this time which would indicate that changes in our policy were in contemplation or that we considered the matter an open question. We do not. For good or ill we have taken our course, right or wrong, and in these currency matters it is essential to pursue a course with some consistency and per-sistency for a certain number of years. It may be that under another dispensation you will review these problems, but as far as this Parliament is concerned, I certainly cannot hold out any expectation that the policy we have declared and followed consistently will be modified in any essential particular.


The Chancellor of the Exchequer is labouring under the misfortune of not having heard the whole of the Debate. The point I suggested was not what he would call an heterodox point. It was not an attempt to go back upon the decision of the gold standard, which I recognise is irrevocable. The point I suggested was orthodox, and in accordance with the policy of the country declared at Genoa. I ask is that policy going to be carried out?


I regret that I did not hear the hon. Member's speech for I know he is a very deep, though not always sound, thinker, on these matters, and his speeches are always full of interest and suggestion. I was just coming—and it is my last point—to the question of the Genoa Resolutions and to the gold movements which have recently taken place on the initiative of the Bank of France. The hon. Member who has just sat down asked me particularly about this. It is perfectly true that considerable withdrawals of gold, apart altogether from the gold which was deposited here in connection with the French Debt to the Bank of England, have taken place during the last month, and that these withdrawals of gold have prejudicially affected the money market and the rates at which the Treasury could borrow. It may even be held that they have exercised a deterrent effect upon the reduction of the bank rate and, consequently, on the improvement of trade. In the ordinary course, under the gold standard, the gold which moves is no more than the tip of the index which registers transactions which have taken place in the great economic sphere of the world; but in these particular gold movements we have had withdrawals which have no relation to the balance of trade, but which arose out of a particular monetary policy pursued for the time being by one of our nearest neighbours, and that has produced some embarrassment and inconvenience in our affairs.

The hon. Member asks whether any representations were made by His Majesty's Government to the French Government. This is not a matter in which the Government acts as principal. It is a matter in which the Banks of France and England were principally concerned. Very long, and I am glad to say, very friendly discussions took place between the heads of these two great institutions and, for the present, at any rate, the movements by which we were affected un-favourably have ceased. But these movements most clearly show how important were the Genoa Resolutions which deal with the co-operation between the central banks of the different countries in respect of the use of gold reserves. It is essential to the working of the gold standard system that gold should be used to adjust trade balances and should not be allowed to be dissipated or employed for extraneous purposes unrelated altogether to the economic movements of the day. I regret very much that it has not yet been possible to hold a further conference to carry forward the policy which was indicated as being so necessary at Genoa, but we agree with every word that has been said in favour of developing that policy.

A conference has not yet come within the region of practical politics. The question asked by my hon. Friend two rears ago is just as pertinent now as it was then, and the answer which I shall give will be given with even greater sincerity. The urgency has become greater, but at any rate co-operation between the heads of the great banks has increased. At the present time the Governor of the Bank of England and the Governor or Deputy-Governor of the Bank of France are travelling to the United States to see Mr. Strong, of the Federal Reserve Bank, and at the same time the head of the Reichsbank, Dr. Schacht, is also travelling, I think in the same ship. So you will have, for the first time in this intimate manner, the highest financial authority in Germany, in France, in Great Britain and in the United States, in amicable consultation and co-operation. I cannot doubt that the difficult topics we have touched upon this afternoon will be among those which will be illuminated by the discussions which will take place, but it would be altogether premature for us to enter upon, and I have no warrant for laying down, what results we may expect from those consultations.


I rise for the purpose of supporting the idea of a Committee of Inquiry. The Chancellor of the Exchequer has given us his particular point of view. He rests himself upon the fact that in the past there have been various Committees of Inquiry set up, and upon the findings of those Committees he now bases the Government's policy. It is fair to assume, from the reports of the various Committees, that rather different results were anticipated from the. policy then put forward. I cannot believe that the various Committees, in putting forward their reports, visualised the deplorable condition of our trade and industry as we now find it, or imagined for a moment that conditions of so difficult a character, which began in 1920, could have persisted up to now. We have tried all the recommendations that have been made. The Cunliffe Committee reported in favour of the policy of deflation which has been followed up to now. That policy of deflation immediately led to widespread unemployment and to that reduction of prices which the Chancellor of the Exchequer has commented upon rather with pleasure. When it was said that it had restricted the home markets, the right hon. Gentleman's reply was that that had nothing to do with the question. It seems to me that the policy of deflation had led to the widespread reduction of wages, aggregating something like £600,000,000 per annum. That £600,000,000 per annum wage reduction has certainly restricted the home market, and, as far as I can see, in spite of any lowering of prices, there has been no marked increase of production so far as the volume of men in employment is concerned.

The policy of deflation that was begun here on the recommendation of the Cunliffe Committee was carried out simultaneously with a policy of de United flation in the States I believe it is a fast that in the United States, as a result of deflation, the unemployed problem in about six months ran to about 6,000.000 men. It is said that. President Harding demanded the dropping of the policy. From that time unemployment has been practically non-existent in the United States. Almost every nation in the world has had a better time than we have had here. There has been less unemployment even in Germany, in France and in Italy than we have had to face. It is an undoubted fact that our people have suffered in a terrible way. I cannot say whose policy it is that has resulted so, but certainly the fact remains that we have widespread poverty and that unemployment is a continuing factor, and as far as one can see the Government do not help to bring about any real change so far as the great mass of the unemployed are concerned.

It has been stated more than once that the immediate effect of the policy of the Cunliffe Committee was to increase the National Debt and to increase the value of the interest paid on the National Debt I want to refer to the effect of that upon the condition of the great mass of the people. I will illustrate my point in this way: The interest taken must come out of the general mass of annual production, for it cannot come from anywhere else. The takers of interest, who take from £310,000,000 to £320,000,000 a year, do not take it in actual money, and it must come out of the annual production. If, as we have been told, the effect of deflation was to increase the actual value of the National Debt and to increase the value of the interest from about 5 per cent. to the neighbourhood of 8½ per cent., then those who have taken interest on the National Debt have in later years taken an undue proportion of the annual production. I have tried to work it out in this way. Suppose that a man invested £1,000 in 1919, the interest being 5 per cent. On 1919 prices, for the £50 return which he gets for his investment he can obtain, say, 10 pairs of boots and 20 yards of cloth. Deflation takes place and prices fall, but the rate of interest remains stationary. The 5 per cent. is still 5 per cent., and his income from the £1,000 still remains £50. But in 1927, because of the fall in prices, instead of his being able to get only 10 pairs of boots he takes 20 pairs of boots, and instead of 20 yards of cloth he is taking much more. Where does it come from? If it comes out of the products—

The DEPUTY-CHAIRMAN (Captain FitzRoy)

I am trying to find how the hon. Member's speech has any reference to the particular Vote we are discussing The hon. Member's speech appears to me to be more suitable for a Debate upon the Finance Bill.


I was seeking to show why we should have a Committee of Inquiry into the financial methods of the Government. I was trying to show that there was a very close connection between the financial policy of the Government and the condition of the great mass of the people at the present time.


If the hon. Member looks at the Vote, he will see that it relates to the salaries and expenses of the Department and has nothing to do with financial policy.


I would draw your attention to the fact that the Chancellor of the Exchequer referred to all the points which my hon. Friend has raised, and my hon. Friend is only putting counter arguments against those of the Chancellor of the Exchequer. The Chancellor of the Exchequer dealt with unemployment and all the other questions.


The whole of the arguments of the Chancellor of the Exchequer were in reply to arguments put from this side of the Committee, and the subject was opened by the right hon. Member for Central Edinburgh (Mr. W. Graham), the late Financial Secretary to the Treasury. I was trying to point out that the fall of wages has been brought about simply because the commodities are not there, and that the fall of wages has been directly due to the policy pursued on the Cunliffe Committee's recommendation.


But surely it would need legislation to alter the policy?


I was arguing in favour of setting up a Committee of Inquiry. That has been pressed this afternoon by practically every Member who has spoken.


The whole Debate has been based on the suggestion made by my right hon. Friend that there should be a Committee of Inquiry appointed to go into the various matters. On that the Chancellor of the Exchequer and others have spoken, and it has been a very wide Debate.


We cannot have a Debate on the whole financial policy of the Government as an excuse for setting up a Committee of Inquiry.


May I try to clear up the matter? The Debate turns upon an administrative act of the Treasury, in refusing to entertain the idea of an inquiry into this matter, as suggested by Mr. McKenna. Therefore, I submit that on the Vote before us we are in every way entitled to review that administrative action. Prior to your taking the Chair the Debate dealt with many of the subjects with which my hon. Friend is dealing from another point of view. I respectfully suggest that in these circumcumstances my hon. Friend is quite in order.


My recollection is that the greater part of my right hon. Friend's speech, as far as it dealt with the topics mentioned, was in answer to a question of the hon. Member for Finsbury (Mr. Gillett) as to whether a representative of the Treasury here met any representative of the French Government, in consequence of the inconvenience caused.


On the point of Order raised by the Financial Secretary to the Treasury. That was only one element in the Debate. The main points of the Debate are the effects, as we see them, of an unduly restrictive policy, an argument to which the Chancellor of the Exchequer devoted a good deal of attention. Accordingly, with respect, I think my hon. Friend is in Order.


Reference has been made to what took place before I occupied the Chair. It seemed to me that the hon. Member for Merthyr (Mr. Wallhead) was taking a very wide view of what was in order in a Debate on Supply, by reviewing the whole financial policy of the country.


I was adducing an argument why there should be a further Committee appointed for the purpose of continuing the inquiry, and I am basing that argument upon the position of our trade and industry. The question of purchasing power and prices has been raised, and I am arguing that it is all very well for the Chancellor of the Exchequer to say that the policy of the Government has reduced prices. They may have reduced prices, but their policy has also reduced wages, and reduced wages to such an extent that, although the prices may be down, the people have not the wages with which to purchase commodities, even at the lower prices. That is the point I am making.

One main reason why the great mass of the people have less purchasing power is because the rentier class have increased their taking power more and more, because of the rise in the value of the rate of interest due to the lowering of prices, following a policy of deflation. In this country we have a most unfortunate state of affairs. It has been said from our own Front Bench that any policy of inflation would be wrong. A policy of inflation would leave me very cold. I am not a banker and I do not understand the abstract, question as an expert; but I look at it from the commonsense point of view. I read the reports of the great Chamber of Commerce of Manchester, and I find that they are proposing still further to curtail production, in spite of the fact that we have destitution, want and misery among millions of our people. There is a want of cotton goods. Nevertheless, Lancashire is proposing to curtail production. The mills are already on short time; the weavers are becoming poorer, the looms are standing idle, and the finest skill of the finest mechanics in the world is standing idle, while their productions are wanted. In the United States there is a proposal to cut down the production of cotton. There is a proposal actually to burn 4,000,000 bales of cotton, because there is no demand for cotton goods. We have passed subsidies in this House for the maintenance of irrigation works in Egypt, and yet we are told to-day that Egyptian cotton must be cut down in production.

What is the fatality that dogs the footsteps of the people of this country? What is the thing that spreads itself like a dread miasma throughout the lives of our people—want, poverty, unemployment, machinery standing idle, commodities being destroyed? It seems to me that if the wit of man can find means whereby this dreadful thing can be obviated, even at the risk of snapping our fingers in the face of orthodox economists, and if we can pursue a policy which will give our people purchasing power, start the wheels of industry and provide us with an interregnum during which we can endeavour to discover the root cause of the evil from which we are suffering, it will be well worth the doing. The Government are faced with the problem of unemployment, and they make no move to solve it. They have no means of solving it. They put forward no proposals for the solution of the problem. When the Labour party were in office we were taunted regularly with the fact that we had not solved the problem of unemployment. We were told that what was wanted was peace in industry.

Peace in industry has not came, because of the constant reduction of wages and the growing impoverishment of our people, which can be traced back to the policy, pursued since 1920, of deliberate deflation. That policy has brought a lowering of the standard of life all round.

Could we not inquire whether the Cunliffe Committee did report the best and the wisest thing, or whether there might not have been some other recommendation that might have been carried out, or some other experiment that might have been tried, which would have dealt more effectively with the evil thing that curses the lives of so many of our people?

Question put, "That a sum, not exceeding £198,058, be granted for the said Service."

The Committee divided: Ayes, 83; Noes, 252.

DivisionNo. 212.] AYES. 6.53 p. m.
Adamson, W. M. (Staff., Cannock) Groves, T. Ponsonby, Arthur
Alexander, A. V. (Sheffield, Hillsbro') Hall, G. H. (Merthyr Tydvil) Potts, John S.
Ammon, Charles George Hardie, George D. Roberts, Rt. Hon. F. O. (W. Bromwich)
Baker, Walter Harney, E. A. Salter, Dr. Alfred
Barker, G. (Monmouth, Abertillery) Hartshorn, Rt. Hon. Vernon Scrymgeour, E.
Bowerman, Rt. Hon. Charles W. Hayday, Arthur Scurr, John
Broad, F. A. Hayes, John Henry Shiels, Dr. Drummond
Bromley, J. Henderson, Right Hon. A. (Burnley) Short, Alfred (Wednesbury)
Brown, Ernest (Leith) Henderson, T. (Glasgow) Sinclair, Major Sir A. (Caithness)
Cape, Thomas Hutchison, Sir Robert (Montrose) Smith, H. B. Lees- (Keighley)
Charleton, H. C. Jenkins, W. (Glamorgan, Neath) Snell, Harry
Cluse, W. S. John, William (Rhondda, West) Spoor, Rt. Hon. Benjamin Charles
Clynes, Right Hon. John R. Johnston, Thomas (Dundee) Stewart, J. (St. Rollox)
Connolly, M. Jones, Henry Haydn (Merioneth) Thorne, W. (West Ham, Plaistow)
Cowan, D. M. (Scottish Universities) Jones, J. J. (West Ham, Silvertown) Thurtle, Ernest
Crawfurd, H. E. Jones, Morgan (Caerphilly) Viant, S. P.
Dalton, Hugh Kelly, W. T. Wallhead, Richard C.
Davies, Rhys John (Westhoughton) Kennedy, T. Watts-Morgan, Lt. -Col. D. (Rhondda)
Day, Colonel Harry Lawrence, Susan Wellock, Wilfred
Dennison, R. Lee, F. Whiteley, W.
Dunnico, H. Lowth, T. Williams, C. P. (Denbigh, Wrexham)
Evans, Capt. Ernest (Welsh Univer.) Lunn, William Williams, Dr. J. H. (Llanelly)
Gardner, J. P. Macdonald, Sir Murdoch (Inverness) Wilson, R. J. (Jarrow)
Garro-Jones, Captain G. M. Mackinder, W. Windsor, Walter
Gillett, George M. March, S. Young, Robert (Lancaster, Newton)
Gosling, Harry Morris, R. H.
Graham, Rt. Hon. Wm. (Edin., Cent.) Morrison, R. C. (Tottenham, N.) TELLERS FOR THE AYES.—
Greenwood, A. (Nelson and Colne) Oliver, George Harold Mr. A. Barnes and Mr. B. Smith.
Grenfell, D. R. (Glamorgan) Pethick-Lawrence, F. W.
Acland-Troyte, Lieut. -Colonel Benn, Sir A. S. (Plymouth, Drake) Brown, Brig. -Gen. H. C. (Berks, Newb'y)
Agg-Gardner, Rt. Hon. Sir James T. Bennett, A. J. Buckingham, Sir H.
Albery, Irving James Berry, Sir George Bull, Rt. Hon. Sir William James
Alexander, Sir Wm. (Glasgow, Cent'l) Betterton, Henry B. Burman, J. B.
Amery, Rt. Hon. Leopold C. M. S. Bird, E. R. (Yorks, W. R., Skipton) Burney, Lieut.-Com. Charles D.
Applin, Colonel R. V. K. Bird, Sir R. B. (Wolverhampton, W.) Butler, Sir Geoffrey
Ashley, Lt.-Col. Rt. Hon. Wilfrid W. Blundell, F. N. Butt, Sir Alfred
Astor, Maj. Hn. John J. (Kent, Dover) Boothby, R. J. G. Cadogan, Major Hon. Edward
Atkinson, C. Bourne, Captain Robert Croft Caine, Gordon Hall
Balfour, George (Hampstead) Brass, Captain W. Campbell, E. T.
Balniel, Lord Brassey, Sir Leonard Cayzer, Maj. Sir Herbt.R. (Prtsmth.S.)
Barclay-Harvey, C. M. Brittain, Sir Harry Cecil, Rt. Hon. Sir Evelyn (Aston)
Barnett, Major Sir Richard Brocklebank, C. E. R. Chamberlain, Rt. Hon. N. (Ladywood)
Barnston, Major Sir Harry Brooke, Brigadier-General C. R. I. Christie, J. A.
Beamish, Rear-Admiral T. P. H. Broun-Lindsay, Major H. Churchill, Rt. Hon. Winston Spencer
Churchman, Sir Arthur C. Hills, Major John Waller Price, Major C. W. M.
Clarry, Reginald George Hilton, Cecil Raine, Sir Walter
Cobb, Sir Cyril Hoare, Lt.-Col Rt. Hon. Sir S J. G. Ramsden, E.
Cochrane, Commander Hon. A. D. Hogg, Rt. Hon. Sir D. (St. Marylebone) Rawson, Sir Cooper
Colfox, Major Wm. Phillips Hohler, Sir Gerald Fitzroy Reid, D. D. (County Down)
Conway, Sir W. Martin Holbrook, Sir Arthur Richard Remer, J. R.
Cooper, A. Duff Holt, Capt. H. P. Rentoul, G. S.
Cope, Major William Hope, Capt. A. O. J. (Warw'k, Nun.) Richardson, Sir P. W. (Sur'y, Ch'ts'y)
Couper, J. B. Hopkins, J. W. W. Ropner, Major L.
Cowan, Sir Wm. Henry (Islington, N., Hopkinson, Sir A. (Eng. Universities) Russell, Alexander West (Tynemouth)
Craig, Sir Ernest (Chester, Crewe) Hopkinson, A. (Lancaster, Mossley) Rye, F. G.
Croft, Brigadier-General Sir H. Howard-Bury, Lieut.-Colonel C. K. Salmon, Major I.
Crookshank, Col.H.(Lindsey, Gainsbro) Hudson, R. S. (Cumberland, Whiteh'n) Samuel, Samuel (W'dsworth, Putney)
Cunliffe, Sir Herbert Hume, Sir G. H. Sandeman, N. Stewart
Curzon, Captain Viscount Huntingfield, Lord Sandon, Lord
Dalkeith, Earl of Hurd, Percy A. Savery, S. S.
Davidson, Major-General Sir John H. Hurst, Gerald B. Scott, Rt. Hon. Sir Leslie
Davies, Maj. Geo. F.(Somerset,Yeovil) Iliffe, Sir Edward M. Shaw, Lt.-Col. A. D. Mcl. (Renfrew,W.)
Davies, Dr. Vernon Inskip, Sir Thomas Walker H. Sheffield, Sir Berkeley
Davison, Sir W. H. (Kensington, S.) Jacob, A. E. Simms, Dr. John M. (Co. Down)
Dean, Arthur Wellesley James, Lieut.-Colonel Hon. Cuthbert Sinclair, Col. T. (Queen's Univ., Belfst)
Drewe, C. Jephcott, A. R. Skelton, A. N.
Eden, Captain Anthony Jones, G. W. H. (Stoke Newington) Smith, R. W. (Aberd'n & Kinc'dine, C.)
Edmondson, Major A. J. Joynson-Hicks, Rt. Hon. Sir William Smith-Carington, Neville W.
Elliot, Major Walter E. Kidd, J. (Linislthgow) Smithers, Waldron
Ellis, R. G. Kingersley, Major Guy M Somerville, A. A. (Windsor)
Elveden, Viscount. King, Commodore Henry Douglas Spender-Clay, Colonel H.
Erskine, Lord (Somerset, Weston-s-M.) Kinloch-Cooke, Sir Clement Stanley, Lieut,-Colonel Rt. Hon. G. F.
Evans, Captain A. (Cardiff, South) Knox, Sir Alfred Stanley, Lord (Fylde)
Everard, W. Lindsay Lamb, J. Q. Steel, Major Samuel Strang
Fairfax, Captain J. G. Lane Fox, Col. Rt. Hon. George R. Storry-Deans, R.
Falle, Sir Bertram G Lister, Cunliffe-, Rt. Hon. Sir Philip Stuart, Crichton-, Lord C.
Fermoy, Lord Loder, J. de V. Styles, Captain H. W.
Fielden, E. B. Long, Major Eric Sueter, Rear-Admiral Murray Fraser
Ford, Sir P. J. Looker, Herbert William Sugden, Sir Wilfrid
Forestier-Walker, Sir L. Lougher, Lewis Sykes, Major-Gen. Sir Frederick H.
Foster, Sir Harry S. Lucas-Tooth, Sir Hugh Vere Tasker, R Inigo.
Foxcroft, Captain C. T. Luce, Maj.-Gen. Sir Richard Harman Templeton, W. P.
Fraser, Captain Ian Lumley, L. R. Thom, Lt.-Col. J. G. (Dumbarton)
Fremantle, Lieut. -Colonel Francis E. Macdonald, R. (Glasgow, Cathcart) Thomson, F. C. (Aberdeen, South)
Galbraith, J. F. W. McLean, Major A. Thomson, Rt. Hon. Sir W. Mitchell-
Ganzoni, Sir John Macmillan, Captain H. Tinne, J. A.
Gates, Percy. McNeill, Rt. Hon. Ronald John Titchfield, Major the Marquess of
Gault, Lieut.-Col. Andrew Hamilton Macquisten, F. A. Tryon, Rt. Hon. George Clement
Gibbs, Col. Rt. Hon. George Abraham Maitland, Sir Arthur D. Steel- Vaughan-Morgan, Col. K. P.
Gilmour, Lt.-Col. Rt. Hon. Sir John Makins, Brigadier-General E. Wallace, Captain D. E.
Glyn, Major R. G. C. Malone, Major P. B. Ward,Lt.-Col. A. L.(Kingston-on-Hull)
Grant, Sir J. A. Marriott, Sir J. A. R. Warner, Brigadier-General W. W.
Greene, W. P. Crawford Merriman, F. B. Waterhouse, Captain Charles
Grenfell, Edward C. (City of London) Meyer, Sir Frank Wheler, Major Sir Granville C. H.
Gretton, Colonel Rt. Hon. John Mitchell, S. (Lanark, Lanark) White, Lieut.-Col. Sir G. Dalrymple
Grotrian, H. Brent Monsell, Eyres, Com. Rt. Hon. B. M. Williams, A. M. (Cornwall, Northern)
Guinness, Rt. Hon. Walter E. Moore, Lieut.-Colonel T. C. R. (Ayr) Williams, Com. C. (Devon, Torquay)
Gunston, Captain D. W. Morrison, H. (Wilts, Salisbury) Williams, Herbert G. (Reading)
Hacking, Captain Douglas H. Nall, Colonel Sir Joseph Windsor-Clive, Lieut.-Colonel George
Hammersley, S. S. Nelson, Sir Frank Winterton, Rt. Hon. Earl
Hannon, Patrick Joseph Henry Newman, Sir R. H. S. D. L. (Exeter) Wise, Sir Fredric
Harrison, G. J. C. Oakley, T. Withers, John James
Hartington, Marquess of O'Connor, T. J. (Bedford, Luton) Womersley, W. J.
Harvey, G. (Lambeth, Kennington) O'Neill, Major Rt. Hon. Hugh Wood, B C. (Somerset, Bridgwater)
Harvey, Major S. E. (Devon, Totnes) Ormsby-Gore, Rt. Hon. William Wood, E. (Chest'r, Stalyb'dge & Hyde)
Haslam, Henry C. Penny, Frederick George Wood, Sir Kingsley (Woolwich, W.)
Hawke, John Anthony Perkins, Colonel E. K. Wood, Sir S. Hill- (High Peak)
Headlam, Lieut.-Colonel C. M. Perring, Sir William George Woodcock, Colonel H. C.
Henderson, Capt. R. R. (Oxf'd, Henley) Peto, Sir Basil E. (Devon, Barnstaple) Worthington-Evans, Rt. Hon. Sir L.
Henderson, Lt.-Col. Sir V. L. (Bootle) Peto, G. (Somerset, Frome) Yerburgh, Major Robert D. T.
Heneage, Lieut.-Col. Arthur P. Pilcher, G. Young, Rt Hon. Sir Hilton (Norwich)
Henn, Sir Sydney H. Power, Sir John Cecil
Hennessy, Major J. R. G. Pownall, Sir Assheton TELLERS FOR THE NOES.—
Herbert, Dennis (Hertford, Watford, Preston, William Captain Margesson and Captain Bowyer.

Original Question put, and agreed to.

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