§ We have done very well this year in repayment of Debt. The New Sinking Fund was raised above the statutory level of £50,000,000 to the unprecedented figure of £65,000,000. This exceptional provision has been funk realised. In addition, the Budget has borne a payment of more than £15,000,000 for the accrued interest upon Savings Certificates. Taking the New Sinking Fund and the provision for Savings Certificates together, we have actually paid, apart from the realised surplus of 1927, 825 £80,000,000 this last year, and this figure is strictly comparable to £52,000,000 provided under both heads by my predecessor in office in the Budget of 1924—£80,000,000 compared with £52,000,000. Therefore, I have found in this year, in spite of the difficulties which beset our finance when it began, £28,000,000 more for these two purposes than he in his day was called upon to do. Twenty-eight million pounds is an immense sum, and very hard to come by in these times. When I am scolded, as I usually am, for my many shortcomings, I hope this extra £28,000,000, half the cost of the Royal Navy, devoted to the reduction or prevention of debt may be allowed to plead on my behalf.
§ The results of these exertions appear somewhat disappointing. Omitting in each case the Death Duty Bonds held by the National Debt Commissioners, the nominal Dead-weight Debt was on the 1st April, 1928, £7,527,000,000, compared with £7,504,000,000 12 months before. That is an apparent diminution of only. £27,000,000, in spite of the operation of the £65,000,000 Sinking Fund. I have before explained that these nominal dead-weight figures are, to a large extent, illusory and that they are no true measure of our actual burden. That burden is more accurately represented by the interest charge upon the Funded Debt, but even this charge has not been reduced in 1927 by the full equivalent of our Sinking Fund repayments. One reason for this is that we have been compelled in the regular course of events to convert a quantity of the 3½ per cent. War Loan raised at the beginning of the War to the higher interest rates which are now ruling, and this alone has involved an adverse effect upon our interest charge of the best part of a million sterling. There are some minor causes with which I will not trouble the House.
§ The External Debt has been reduced by £6,250,000, and stands now at £1,095,000,000. The Floating Debt has been reduced by nearly £27,000,000 to £088,750,000, which is the lowest figure since the War. 1927 has perhaps been our most difficult year in the sphere of the National Debt. At this time last year, on the bleak morrow of the great coal stoppage, we were faced with over 826 £555,000,000 worth of National War Bonds all maturing before the 31st March, 1929, and included in this great volume of maturities were very large sums repayable at a substantial premium. This great amount of £555,000,000 has now been reduced to £193,000,000, and towards meeting this largely reduced liability I have £60,000,000 in hand from the issue of 5 per cent. Treasury Bonds last December. So that more than three-quarters of that liability has been disposed of.
§ These successive maturities, sweeping upon us one after another like ocean waves at a time when the ship was not in a particularly seaworthy condition owing to the quarrelsome behaviour of those on board, have been a serious cause of preoccupation to my expert financial advisers. However, I am glad to say that they report that the worst is now over and that our position for dealing with future conversions has been greatly improved by what has been accomplished in the past year. The recent listing of our 4 per cent. Funding Loan upon the New York Stock Exchange, which arose entirely upon American initiative without the slightest efforts being made by any official authority on this side, and the reception of that stock upon that market, are perhaps not without significance as a measure of the position of British credit.
§ This is the year and this is the moment when I propose to deal with the whole-question of the Savings Certificates. This admirable form of popular thrift has been wisely encouraged by every Government and by the Leaders of every party. I am glad to say that the tireless activities of the national thrift organisations have prevented, even in the aftermath of the coal stoppage, any serious falling off in new purchases, or any important decline in the vast holdings of the public. Before the general strike the total principal of the holdings of the people in Savings Certificates amounted to £376,000,000. It is £362,000,000 to-day. Why then, it may be asked, have we had to pay on account of interest on certificates encashed £15,000,000 this year instead of £7,000,000 which was sufficient in the days of my predecessor or in the first year of the present Government? The chief reason is, that we are not only entering the period 10 years from the date when the 827 largest sales of these Certificates took place, that is to say, the last year of the War and the period of inflation which immediately followed it, but still more that the Certificates which are now presented for encashment carry with them in an increasing proportion accrued interest for 10 years or more instead of for the shorter periods which previously were common. The system by which every Government has sold Savings Certificates to the utmost of its power in every year during the past 10 years has really been a system of new borrowing upon short-term securities payable with accrued interest at five or 10 years' date. The whole of this story was fully explained to the Colwyn Committee, who recommended no change in the practice which all Governments until then had followed. Their carefully phrased, judicially conceived remarks upon the subject, which are, no doubt, familiar to every Member, will be found in paragraphs 70 and 998 of their Report.
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§ Nevertheless, the time has come when the problem of the Savings Certificates must, receive new and radical treatment. It has been calculated that the new interest liabilities incurred by the annual sale of Savings Certificates would have been fairly equated by a provision beginning in the early years of a cumulative interest payment of £20,000,000 a year. If £20,000,000 a year should have been provided on account of the Savings Certificates, new indebtedness has in effect been incurred by the State to the extent in any year of the difference between the sum actually provided and that figure of £20,000,000. This difference has, as the Colwyn Committee pointed out, always constituted a direct diminution of the Sinking Fund. The time has come, however, when we must put this whole business upon a sound foundation. It is remarkable that the Government of Northern Ireland provided from the very outset an annual Sinking Fund towards the new interest liability incurred by their scheme of Savings Certificates, and we must as speedily as possible follow their excellent example. I cannot pretend that this episode, this story, constitutes the strongest feature of our post-War finance. I took the system as I found it and the extraordinary 828 difficulties of the last two years have hitherto made it impossible for me to change it, but if I am reproached I shall exclaim with Burke: "If I have erred, I have erred with the Snowdens and the Homes, and with the hereditary virtue of the whole House of Chamberlain."
§ But I have another disclosure to make which is of a more cheering nature. At the same time that we have been incurring indebtedness through the sale of Savings Certificates, in derogation of our new Sinking Fund, we have also been making a larger contribution to the repayment of Debt than has generally been realised. There has been an extra and hitherto invisible Sinking Fund arising from the annual repayment by the Dominions of loans made to them in the War. The principal part of those payments is paid direct to the National Debt Commissioners and is used to cancel Debt outside the Budget. The second of these Sinking Funds is the interest on Victory Bonds held by the National Debt Commissioners used directly to cancel Debt. The explanation of this process is technical, and for the moment I will say no more than that these extra and hitherto invisible Sinking Funds together amount in the current year to £6,400,000, and that they strengthen our main Sinking Fund, just as unpaid interest on Savings Certificates weakens it.
§ I propose to comprise both our unproclaimed shortcomings and our equally veiled virtue in a general treatment of the problem of the National Debt. I have noticed a good deal of anxiety and loose-thinking in recent public discussions of this subject. Even quite high authorities tell us that we are making no headway in paying off our gigantic Debt, and they preach the need of some drastic taxation like a surtax or a capital levy, or the so-called Rignano system which they declare will be urgently required if we are not to be oppressed for an indefinite number of generations by this crushing burden. Of course, these fears and their supposed remedies are both equally futile. We have only to go on paying the same sum as we are paying now steadily and punctually, and the Debt will be extinguished within the lifetime of some of those who are now listening to me.
§ I propose to recur to the policy instituted in Mr. Disraeli's Government by 829 Sir Stafford Northcote, in 1875, with the full support of Mr. Gladstone, whose private secretary in early days Sir Stafford Northcote had been, and to establish a fixed Debt charge for all the services of the Debt including the Sinking Fund, so that as the interest charge falls through the working of the Sinking Fund, the process of amortising the Debt will grow ever more rapid. The fixed Debt charge set up in 1875 endured for 39 years. It endured in fact, until it was engulfed in the Great War. It was advocated as a policy, and accepted by both parties, although I regret to say that both parties in that long period from time to time—in all, or five distinct occasions—were guilty of making inroads upon the fixed Debt charge, which, in the parlance of those primitive times were coarsely described as "raids."
§ I propose to establish a fixed Debt charge, and I propose to put the figure at £355,000,000 a year which compares with Sir Stafford Northcote's Debt charge of, I think, £28,000,000 a year. This sum will comprise all our assets and will cover all our liabilities. It will provide the amount of £51,000,000 required to meet the specific Sinking Funds on certain Government stocks, and, taking into account a reinforcement which I will mention later, it will also provide the average £20,000,000 a year required for the interest on Savings Certificates. The interest saved by the annual repayments of Debt and any economies which may be effected in the administration of the Debt will each year be automatically added to the Sinking Fund. I propose, as far as I have anything to say to it, that the Income Tax payer shall look forward to any relief which may be yielded by the conversion of the Debt or any large portion of the Debt to a lower rate of interest. He has that hope for the future. That is not included in the calculations of the fixed Debt charge. All the rest of the annual sum will continue to roll up until, or unless, the day dawns when some unholy hand is laid upon it. The payment of £355,000,000 a year, if steadily maintained, even if the rate of interest falls no lower than 41 per cent., will extinguish our entire Debt, internal and external, including our Debt to the United States, without any addition to 830 present taxation in a period of exactly 50 years.