CONVERSION LOAN. (Hansard, 12 November 1929)

§ 55. Mr. JOWETT
To ask the Chancellor of the Exchequer whether, in offering five per cent. for 14 years to investors in the new conversion loan, he has done so in the expectation that the rate of interest will rise and not fall in future years; and, if not, on what other grounds he has engaged to pay the high rate of five per cent. for the new loan?

§ 57 Sir HUGH O'NEILL
To ask the Chancellor of the Exchequer (1) the amount by which British Government securities listed on the Stock Exchange have depreciated since the first public announcement of the issue of the Five per cent. Conversion Loan;
(2) what was the nature of the under writing contracts entered into by the Government in connection with the Five per cent. Conversion Loan; what was the rate of commission granted; what sum of money has been, or will be, paid on commission; and was there any stipulation restricting the sale of the stock underwritten;
(3) what is the maximum amount of cash subscriptions to the Five per cent. Conversion Loan which would lead to the closing of the lists before the extinction of the time for their remaining open?

§ 60 and 61. Sir ASSHETON POWNALL
To ask the Chancellor of the Exchequer (1) what is the total amount of com- 1720 mission paid or rebate given in connection with the placing firm of the new Conversion Loan; and to whom the opportunity was given;
(2) whether he will give instructions that in future, in the event of Government loans being in any way under written, that fact will be stated on the original prospectus?

§ 62 Captain EDEN
To ask the Chancellor of the Exchequer (1) what principle was adopted in selecting those persons to whom an offer of stock was made at 99½ in the Five per cent. Con version Loan issue;
(2) on how many occasions since 1900 a Government loan has been under written; what was the reason that actuated the Government to underwrite the Five per cent. Conversion Loan, 1944–64; and why the fact that £30,000,000 of the loan had been placed firm was not mentioned in the prospectus;
(3) whether, in placing £30,000,000 of the Five per cent. Conversion stock firm at 99½, he took steps to find out whether those persons who took it were in fact permanent investors?

§ 66 and 72. Mr. RAMSBOTHAM
To ask the Chancellor of the Exchequer (1) for what reason it was decided to issue a prospectus of Conversion Five per cent. 1944–64, dated 2nd November, and subsequently, on 6th November, to make an official announcement with regard to Five and a half per cent. Treasury Bonds to bearer which alters the terms and conditions affecting the original prospectus;
(2) whether any guarantee was demanded or given that those persons who took firm stock of Conversion 1944–64 5 per cent. at 99½ would not sell it for a given period and, if so, what was the extent of that period, and that they would not sell it under the price of 100, the issue price to the public?

67. Mr. TINNE
To ask the Chancellor of the Exchequer whether, with regard to the recent issue of the Five per cent. Conversion Stock, he will state in what respect the methods of issuing this stock differed from methods previously employed; and why such change, if any, was made?

§ 69 and 70. Sir LAMING WORTHINGTON-EVANS
To ask the Chancellor of the Exchequer (1) what are the precedents 1721 for payment of a commission by the Government for firm subscriptions to a Government loan in advance of the public issue; and whether in every such case a disclosure of such payment was made in the prospectus;
(2) whether the subscribers to the Five per cent. Conversion Loan to whom 10s. per cent. is to be paid for firm subscriptions will also be entitled to the 2s. 6d. per cent. commission referred to in the prospectus?

71. Mr. STUART
To ask the Chancellor of the Exchequer why no mention was made in the prospectus for 5 per cent. Conversion Loan, 1944 to 1964, of the conversion rights from 5½ per cent. Treasury Bonds to bearer due 15th May, 1930?

§ Mr. JOWETT
I beg to ask question No. 55.

§ Mr. PETHICK-LAWRENCE
rose—

§ Mr. CHURCHILL
Are we not to have an answer from the Chancellor of the Exchequer, now that he is here?

§ The CHANCELLOR of the EXCHEQUER (Mr. Philip Snowden)
I understand that the right hon. Gentleman has been inquiring why I was not in my place. I have been attending the ceremony of the appointment of Sheriffs, and it was not possible for me to be here earlier. I can assure the right hon. Gentleman that my absence was not due to the fear of facing him.

§ Mr. CHURCHILL
Perhaps I may be allowed to say that I accept the statement of the right hon. Gentleman, and the only question I have to ask is why did not the Financial Secretary state the reason before?

§ Mr. PETHICK-LAWRENCE
If the right hon. Gentleman had not interrupted me when I rose to answer question 55, he would have heard the answer. The answer is as follows: The Chancellor of the Exchequer has had to attend the pricking of Sheriffs at the Law Courts, but he will be in his place shortly. In any case, it will perhaps be for the convenience of the House, if, with your permission, Mr. Speaker, all the questions dealing with the Conversion Loan were answered in a statement by my right hon. Friend at the end of Questions.

§ Mr. SPEAKER
Perhaps the Chancellor of the Exchequer will make his statement now.

§ Mr. CHURCHILL
In answer to what question?

§ Mr. SPEAKER
In answer to question 55.

§ Mr. SNOWDEN
With your permission, Mr. Speaker, I should like to make a statement incorporating the replies to all the questions which appear on the Order Paper in regard to the Conversion Loan. As I have previously stated, in order to ensure the subscription of a sum sufficient to meet the maturities of £30 millions in January and February next I obtained guaranteed subscriptions to the new loan for the required amount.
The placing of contracts in the present case which were not an ordinary under writing transaction, guarantees the subscription in cash of applications amounting to £30 million in terms of the prospectus in consideration of the receipt by the applicant of a commission of ½ per cent. upon the amount of stock applied for, and the subscribers were not required to submit to any such condition as a restriction on sale. The regular City practice is to entrust to a broker the task of securing guaranteed applications and he is given full discretion as to the per sons, firms and companies with whom contracts are made, subject only to his being satisfied that they are of such financial standing as is necessary to en sure the due fulfilment of the contracts. This practice was followed on the present occasion and the broker was, of course, the Government broker, the only variation in the practice being that in respect of these guaranteed subscriptions the customary brokerage payable on allotments made through a stockbroker was reduced from 1/8th to 1/16th per cent. The total amount of commission to be paid in respect of the guaranteed applications for £30 million is £150,000, and the brokerage £18,750; the normal broker age charge of 1/8th per cent. on the remainder of the loan in respect of applications bearing the stamp of banks or stockbrokers cannot of course be determined beforehand.
These arrangements for placing part of the issue firm could not be made until the day following the publication of the prospectus, lest there might be premature leakage of information; they there fore could not be mentioned in it.
1723 Various issues abroad were under written during the War, notably issues in the United States in 1916, totalling 550 million dollars at commissions of 1 per cent. and 1½ per cent.; and in 1920, 1921 and 1922, four issues of Local Loans stock for the nominal value of £80 millions, were underwritten at a commission equivalent to nearly 1 per cent. on the issue price.
Loans guaranteed by the British Government, including Trade Facilities Issues and certain Colonial Loans are always underwritten; the commission being usually not less than 17s. 6d. per cent.
Except in the case of guaranteed loans raised by companies incorporated under the Companies Acts, the underwriting arrangements have not been mentioned in the prospectus.
These precedents are precedents for underwriting proper, and are in that sense more far-reaching than my arrangement for placing a portion of the new loan firm. There are also some precedents dating back to 1901 and 1902 for placing part of a new issue firm. But in reaching my decision on the present occasion I was not influenced by precedents, for, as I have already stated, it is the exception rather than the rule to make arrangements of this character in the case of a Government issued loan. I was influenced by the difficulties of the period through which we have been passing; the imminence of the date of the maturity which I covered, and in an especial degree by the results of the Government issue of a year ago, when the subscriptions and conversions obtained fell short of the maturities which were then in prospect, with the result that the floating debt was increased by a figure exceeding £50 millions. Having regard to the figure at which the floating debt now stands, I could not risk any mishap upon the present occasion.
The offer to receive 5½ per cent. Treasury Bonds in lieu of cash was in tended to secure a reduction in the amount of the Bonds without necessarily committing the Government to the con version on these terms of the whole of the Bonds outstanding. As this was subsidiary to and not a primary object of the issue it was thought better to make the offer separately. I cannot accept the implication contained in one of the ques- 1724 tions addressed to me that this subsequent offer altered the terms of the prospectus.
Apart from these matters, the reasons for which I have explained, there were no changes of method adopted in connection with the present issue.
I have I think embraced in this review all the questions addressed to me except three which I will now deal with.
I have been asked the amount of cash subscriptions which would lead to closing of the lists. I hall be pleased to answer any questions when the operations are terminated, but I do not think that a request for advance information of this character has ever been pressed in this House.
I would ask also to be excused from attempting to calculate the variation in the quoted value of Government securities since the issue of the prospectus for I do not think that any serious value attaches to such a calculation.
I have also been asked my reason for offering 5 per cent. for the new loan. I cannot prophesy the course of future interest rates, though naturally I hope that it will be downwards. The necessity for borrowing now is that we must prevent our swollen floating debt from being further increased by maturities which are close at hand. The terms of borrowing are necessarily governed by conditions at the moment.

§ Mr. BRACKEN
Will the Chancellor of the Exchequer give us a list of the recipients of the large sum of money paid out in underwriting?

§ Mr. SNOWDEN
No large sum of money has been paid, because the loan has not been underwritten; the operation has been carried out by the Government broker.

§ Sir H. O'NEILL
Is it not the case that there has been a very heavy depreciation in the case of Government securities since the loan was issued and does not that show that the right hon. Gentleman has offered an extraordinarily fine investment to the investing public but at an unnecessary cost to the State?

§ Mr. SNOWDEN
There is no doubt that it is a very favourable opportunity for investors, but I have explained the special circumstances of the time and the reasons 1725 for it. The right hon. Member surely knows that no importance can be attached to the fall of some of the Government stock during the last three or four days, and, if he will put that question to me in three weeks' time, I may be able to give him a very different answer.

§ Captain EDEN
May I ask the right hon. Gentleman whether it is not a fact that as a result of these curious arrangements this stock was actually being offered below par before the public had a chance to subscribe for it?

§ Mr. SNOWDEN
I understand that a rumour to that effect has been floating about the City, but the Bank of England have made inquiries on this matter and cannot trace a single case of that sort.

§ Captain EDEN
May I ask whether it is, and will in the future be the policy of the Socialist Government to offer loans to rich banking corporations at a lower rate than to ordinary small investors?

§ Mr. SNOWDEN
I can give no pledge as to what the policy will be, but as long as I have any responsibility in the matter my purpose and object will always be to place Government loans on the most favourable terms.

§ Mr. MACPHERSON
On Tuesday of last week, Mr. Speaker, I asked for your guidance on the subject of Scottish questions which appear on the Order Paper. To-day, I find the difficulty almost as bad as it was when I raised this question—

§ Mr. W. J. BROWN
On a point of Order—

§ Mr. ERNEST BROWN
On another point of Order.

§ Mr. SPEAKER
Does the hon. Member for West Wolverhampton (Mr. W. J. Brown) wish to raise a point of Order?

§ Mr. W. J. BROWN
Yes. During the questions which were addressed to the Chancellor of the Exchequer on the Treasury issue I rose in my place five times to put a question on that matter to the right hon. Gentleman. I do not know whether the light is dim in this quarter of the Chamber, but I should greatly appreciate the privilege of being allowed to put a question from this side of the House to the right hon. Gentle man.

§ Mr. SPEAKER
I was coming to the hon. Member all in due course, but the right hon. Member for Ross and Cromarty (Mr. Macpherson) started a fresh hare.

§ Mr. W. J. BROWN
The question I desire to put is this: First, why was it that the Post Office prospectus in connection with this new issue was not allowed to be issued publicly until 6th November while the Bank of England issue was advertised in the Press on 4th November; secondly, why has there been imposed in connection with Post Office transactions in this issue the over-riding maximum amount of £1,000; and, thirdly, why has it been provided that if holders of 5 per cent. War Stock and 5½ per cent. Treasury Bonds, 1930, desire to convert their Post Office registered holdings of more than £1,000 they must first purchase an equivalent amount of new issue, thereby being driven to transfer their holdings from the State-owned Savings Bank to the privately-owned Bank of England?

§ Mr. SNOWDEN
Not one of these questions arises out of the question on the Paper. If the hon. Member is anxious for information on these matters, the importance of which in the public interest I recognise, will he be good enough to put down a question on the Paper.