§ 4.0 p.m
§ I must refer in rather more detail to the position of the National Debt. The total Deadweight Debt on 31st March a year ago was £7,500,000,000. A year later, at the end of last month, it was £7,469,000,000, a reduction in the nominal Debt of £31,000,000. The transactions during the year were very large, over £437,000,000 of Debt being converted or redeemed against £406,000,000 of new created. In July last certain holders of 4½ per cent. Treasury Bonds 1932–34 exercised their right of conversion to 4 per cent. Consols but by far the most important operations of the year were the issue of the 5 per cent. Conversion Loan in November and the 4½ per cent. Conversion Loan in February to meet various maturities of Treasury Bonds, and to effect a reduction in the Floating Debt. The 4½ per cent. Conversion Loan operation falls only in part within the year I am now reviewing, as we had received by 31st March only the first instalment of 10 per cent. on the cash applications. As a result of these 2662 operations, the Floating Debt has been reduced by £100,000,000, from £737,000,000 at the beginning of the year to £637,000,000 at the end of the year, and the latter figure is easily the lowest recorded since the War. As I have indicated, the full effect of the 4½ per cent. Conversion Loan in February has not yet shown itself in these figures.
For the rest, under this head, I propose to deal as simply and as clearly as I can with the question of the Sinking Fund. It will be remembered that by the Finance Act, 1923, provision was made for a Sinking Fund rising by short stages to a total of £50,000,000 a year. By the Finance Act, 1928, that system was superseded, and provision was made instead for a fixed permanent Debt charge of £355,000,000 to cover interest and redemption of Debt. If the annual provision were maintained steadily at that level, the whole Debt, it was calculated, would be redeemed within 50 years. Various other changes were made at the same time. Whereas previously certain fairly substantial annual receipts, such as the repayment by the Dominions of their War Debt to this country, had been used to reduce Debt outside the Budget, these receipts were, under the Act of two years ago, in future directed to be treated as revenue. Power was also given to the Treasury to borrow to meet the interest on the Savings Certificates, assuming that the Fixed Debt charge proved insufficient for that purpose in any year after meeting the other claims upon it.
I was of the opinion at the time that the arrangements actually made in 1928 represented, during the initial stage of the new system, a distinct slackening in the efforts which up till then had been made to redeem the debt. The experience of the last two years has confirmed this opinion. In its first year the Fixed Debt Charge, after meeting its specific obligations, provided a free balance for further debt redemption of £7,407,000, but that result was reached after including, as a revenue receipt, capital assets taken from the Currency Note Account of £13,423,000. The difference between the capital sum put in at one end and the free sinking fund taken out at the other was just over £6,000,000, and that sum of £6,000,000 odd is the real deficiency on the working of the Fixed Debt Charge in the first 2663 year of its operation. In its second year, that is the year just closed, the result was much the same. In the Budget statement the £355,000,000 was divided into these items—£304,600,000 available for interest and £50,400,000 for Sinking Fund. The specific Sinking Funds did not, in fact, require so much. Owing to some falling off in the amount of Victory Bonds presented in payment of Death Duties, the specific Sinking Funds required only £47,748,000, but the interest charged which had been estimated as I said just now, at £304,600,000, was £312,071,000—an excess of nearly £7,500,000—and the total expense of the debt was thus £359,819,000. The actual Debt charge exceeded the provision by £4,819,000, and, in accordance with the law, Savings Certificate interest to that amount has been borrowed.
The Committee will therefore see that a Budget deficit of £14,523,000 is not quite the full story of last year. £14,500,000 was the sum by which the Budget failed to provide a total of £355,000,000 for Debt services free of fresh borrowing. Even if the Budget had provided that sum, it would have been insufficient to meet the actual Debt charge by nearly £5,000,000. In these circumstances, I have had to consider two questions, first, whether I should make any permanent change in the Fixed Debt provision; and, second, how the Budget deficit of 1929 is to be dealt with. I could not avoid speaking somewhat critically of the Fixed Debt charge's infant years, although I readily recognise that my predecessor's expectations were a good deal stultified by the high cost of Treasury bills, and I could not persuade myself to leave the provision at £355,000,000 if I thought there was a serious risk that it would, for the third time, fail to cover our debt obligations; but in that connection we have seen a remarkable change of conditions in recent months which has been encouraged by our policy of reducing the Floating Debt, and, consequently, the number of Treasury bills in the market. The cost of the Floating Debt was estimated in last year's Budget at £26,000,000, and it actually reached £28,750,000, after threatening at one time to go very much higher. It may be rash to assume confidently that we 2664 have entered upon a period of cheap money, but the present position and tendencies encourage that hope and it is a hope which is very widely held. We are at present selling Treasury bills at 2½ per cent., but I am not estimating such a low average during the whole year. I estimate the cost of the Floating Debt at £17,250,000—a reduction of £11,500,000 on last year. I can therefore allocate a provision of the Fixed Debt charge of £355,000,000 as follows:
| £ | |
| Interest and management | 264,350,000 |
| Floating Debt | 17,250,000 |
| Specific Sinking Funds | 50,440,000 |
| Savings Certificate Interest | 23,000,000 |
§ The sum I have named as available for Savings Certificate interest should, I am advised, meet the actual charge. If it does not, it is, at any rate, rather in excess of the provision that actuarial science would require us to make for that liability. In these circumstances, I feel justified in leaving the Fixed Debt charge where it stands.
§ I come now to the second point—the Budget deficit of £14,500,000. Up to this moment that sum has, of course, been covered by fresh borrowing. Whether we rely on a fixed Sinking Fund or a Fixed Debt Charge, there is one certain method by which all efforts to reduce Debt can be rendered futile, and that is by leaving Budget deficits uncovered. I will not labour this truth, which is appreciated widely and has been recognised ever since the days of William Pitt. There were, it is true, Budget surpluses in 1927 and 1928, but those were diverted from Debt redemption to another purpose. There is still this deficit of £14,500,000, which I have to meet somehow. I cannot disregard it, and I have measures in mind for dealing with it, but I can more conveniently explain them later. I may, however, say at once that it is my intention to propose to Parliament an alteration in the law bearing on Budget deficits in general. As things stand, the Chancellor of the Exchequer of the day is under no legal obligation to propose to Parliament that a realised deficit shall be made good. I propose to 2665 alter that. I propose to include in the Finance Bill a Clause providing that when a Budget deficit is realised a corresponding addition shall be made in the succeeding year to the provision for debt redemption, unless Parliament otherwise decides. Thus a Chancellor of the Exchequer, instead of being left to please himself in the matter, will need to lay his proposals before Parliament if he does not propose to cover a deficit in the ensuing year. I must apologise for the time I have devoted to this matter, and I now turn to the more exciting topic of the accounts of the current year.