CLAUSE 11.—(Right of stockholders to continue holdings in five per cent. War Loan; requirement of application for cash repayments; &c.)

HC Deb 01 October 1931 vol 257 cc551-95

Question again proposed, "That the Clause stand part of the Bill."

Mr. PETHICK-LAWRENCE

I do not think that we ought to pass this Clause without having an explanation from the Government of what is intended, and perhaps with your permission, Captain Bourne, it might save the time of the Committee if we had from the Chancellor of the Exchequer some description not merely of that Clause, but of the whole proceedings envisaged in Clauses 11 to 19, in order that we may understand exactly what we are being invited to pass, and what are the advantages, if there be any, which the passage of these Clauses will give to the Inland Revenue for the reduction of the burden of the debt. I therefore content myself with asking the Chancellor of the Exchequer if he will Ire good enough to give us an explanation of Clause 11, and, with your agreement, to extend his explanation to cover the whole procedure which the Government are envisaging here.

The DEPUTY-CHAIRMAN

I realise that this part of the Finance Bill hangs very closely together, and if it be the wish of the Committee, I will be prepared to allow a wide discussion of the conversion scheme on the Question that Clause 11 stand part, but it must be on the strict understanding that when the remaining Clauses are put, any debate must he confined to the details of those Clauses.

Mr. SMITHERS

I would like to make one or two remarks on this Clause before it is passed, and would direct attention to the first words of it, which are of the utmost importance. They read: If notice is given in accordance with the prospectus. I would point out that the Chancellor of the Exchequer has here maintained the tradition of British finance, and has in no way gone back on the prospectus of the 5 per cent. War Loan, 1929–47. The prospectus of that loan laid it down that three months' notice must be given before any change could take place in the terms of it, or it was redeemed. Some of the facts which I propose to mention may be well known to those of us whose business it is to follow these things, but they are so important that I want to draw attention to them. It should be noted, in the first place, that the 5 per cent. War Loan, 1929–47, is by far the biggest loan in the list of Government securities. It is a loan of £2,000,000,000, and it bears 5 per cent. interest. We all know that as the price of stocks goes up and approaches par, or goes above par, the actual yield on such stocks becomes less, but there is a great psychological effect on investors at home and abroad when the biggest loan in the list of Government securities bears at least a nominal rate of interest of 5 per cent. [HON. MEMBERS: "Nominal?"] It is of the utmost importance to try to get that loan out of the way, to get it on a lower interest basis as soon as possible.

The Clause shows that existing holders of the loan will be given the choice of two things. After three months' notice has been given of the intention of the Government to take powers under this Bill holders can make either a continuance application or make a repayment application. Here I would like to ask the Financial Secretary, or whoever is to reply, one minor question about line 25 on page 7 where it says: but subject to such immediate or gradual reduction in the rate of interest, and such modifications. I do not know whether the Government will be able to do it in future, hut I hope the phrase, "such modifications" will include a provision that no more loans shall be issued with the interest free of tax to the foreigner or to people at home. It gives rise to an enormous amount of difficulty, and, although I do rot know to what extent it has happened, it is a means by which the payment of Income Tax may be evaded.

I presume that the method set forth in the Clause has been adopted because of the enormous size of the loan. Obviously it is quite impossible, especially in these difficult times, to provide an enormous amount of cash at three months' notice in order to pay off the loan, or that part of it for which cash is demanded. Therefore, I presume this arrangement has been made to enable the Government to know how much cash will be required, that is to say, how many repayment applications will be made. If the Financial Secretary cannot give an answer on tins point just now I hope he will bear it in mind. After the three months are up, is it proposed then to go on with the conversion of the loan under the two headings—continuous applications and repayment applications—and how long will it be, after knowledge has been gained of the amount of cash required, before that portion of the loan for which application for cash has been made will be met?

The proposals in Clause 11 are really a great part of the Budget scheme to help to maintain and to enhance the credit of this country. Really, this is one of the provisions of the Chancellor to balance the Budget and to economise in other ways. A few days ago a comparison was made in this House between the credit of this country and the credit of France and Germany, but I would emphasise most strongly, because the point cannot be too often made, that one cannot compare the credit of this country with the credit of self-supporting countries such as France and Germany. France and Germany can devaluate their currency, can let their currency go down to nothing, and it may hurt their credit and hurt their foreign trade, but, speaking in general terms, those countries will still have sufficient to eat and to drink. Seeing, however, that we have to import some two-thirds of our foodstuffs it is of vital importance that the pound sterling should be kept as high as possible, because otherwise our means of buying the food necessary-for our people disappear.

4.0 p.m.

May I put it this way: If to-morrow a wall were put round France, and nothing went in and nothing came out, the French people would still be able to live, and to live fairly well. They would have plenty of beef, mutton, bread and butter, and a good glass of wine with which to wash it down. If, however, we do anything to hurt the credit of this country or to devaluate the pound, and so to diminish our purchasing power, and, further, if we do anything—[HON. MEMBERS: "By way of tariffs!"]—if we take any means whatever to destroy the confidence of the foreigner in this country he will cease to trade with us, except on a cash basis, just as when a private trader is known to be in difficulties no one will do business with him unless they can be paid cash on the nail. Exactly the same principle applies to the affairs of this country, and if there is a continuance of Socialist propaganda; if there is a continuance of the strong opposition—I believe it exists only in this House—to the proposals of the Chancellor; if this country does not present a more united front to the whole world, then we shall be doing more than anything else to hurt the credit of the country, to tend to devaluate the pound and to make our difficulties worse. [HON. MEMBERS: "Why not go and live in France?"] I do not want to go to France. I want to stay here, and do my bit by fighting Socialism in this country. We have only two anchors, as my right hon. and learned Friend the Member for Spen Valley (Sir J. Simon) said a few days ago when speaking in this House, to which our credit is attached. The first is the Gold Standard and that has gone; the second alone remains—

The DEPUTY-CHAIRMAN

I think the hon. Member is now wing rather wide of the mark.

Mr. SMITHERS

I will bow to your Ruling at once. I was only trying to point out that the offer of the conversion of the 5 per cent. War Loan was part of an attempt being made by the Chancellor of the Exchequer to maintain the credit of this country, and to explain how important the credit of this country is to every one of our people. I am glad to see the hon. Member for East Leicester (Mr. Wise) in his place. Great harm is done to the efforts of the Chancellor to maintain and strengthen the credit of this country by the attitude that the hon. Member is continually taking up and by the kind of questions he asked on the Motion for the Adjournment last night. [Interruption.] I am not going to give way. The kind of matter he raises, as if it were possible or thinkable that the Treasury or the Bank of England would do anything dishonourable, is doing enormous harm to our credit. I have no doubt that those questions are prompted by his Russian friends who are—[Interruption.]

Lieut.-Commander KENWORTHY

On a point of Order. May I ask whether the hon. Member, after sleeping over it, is entitled, the next afternoon, on a Clause of the Finance Bill, to rehash the discussions that we had last night on the Motion for the Adjournment? It is an entirely different matter.

The DEPUTY-CHAIRMAN

I read the speech of the hon. Member for East Leicester (Mr. Wise). I am bound to say it seems to be very remote from the Clause now under discussion.

Mr. SMITHERS

I was simply talking of the attempts that are being made to undo the good work that the Chancellor is doing, and to try further to damage our credit. To turn more nearly to the Clause: In Sub-section (1, c) there is something to which I would like to direct attention. I would like the whole world to know that in this Bill which will soon become an Act of Parliament three months' notice is given. May I ask the Minister who is to reply one or two more technical questions? Suppose that the proposals in Subsection (1, a) are put into operation, will the stock of which notice has been given, either for the purposes of continuance application or repayment application, be negotiable? Can arrangements be made whereby, if the stock is bought or sold, the buyer accepts the liability which is put upon it in this Clause? It is important that that point should be taken into consideration. If the Financial Secretary to the Treasury is not able to give an answer, I hope he will think the matter over, because negotiations of this sort must take some time, and it would be detrimental to have any large amount of stock tied up, even for a few weeks, while no one can negotiate or buy and sell.

On Sub-section (1, b), I presume that, in the case of a cash application being made, it will be possible for the stockholder making the application to transfer it into a continuance application should he so desire.

The CHANCELLOR of the EXCHEQUER (Mr. Philip Snowden)

The hon. Member for West Leicester (Mr. Pethick-Lawrence) asked that some explanation should be given of this Clause. I spoke at considerable length at an earlier stage and tried to explain these particular Clauses, and the general idea that is embodied in them. I do not know that I am able to add very much, but for the sake of those who are anxious for a further explanation I will paraphrase what I said on the previous occasion. The Clauses are designed to give to the Treasury powers which can be used to convert this huge block of 5 per cent. War Loan stock, amounting to over £2,000,000,000. To a very great extent the terms of the conversion offer will probably follow the conditions which were attached to the original prospectus. If I might, I will summarise the proposal as follows: The proposal is unlike an ordinary conversion operation, because the huge size of this loan makes it necessary that conditions should be attached such as are not necessary in those of smaller amounts. It is proposed to give three months' notice to the holders of the stock, and that during that three months, they shall have the option of continuance on the new terms, or of asking at the end of three months to be repaid in cash. The condition or power which is now being asked for is not new in the history of conversion operations. Mr. Goschen took such a power in his very large conversion operation; it is that unless the owner of the existing stock expressly accepts the offer, or if he does nothing, then he is taken as accepting the offer. If he accepts the offer, then he retains the old stock, but the rights attached to the stock will be different.

The substantial difference between this "continuance operation" as it was called by the hon. Member for Chislehurst (Mr. Smithers) and the ordinary operation is twofold. In an ordinary conversion operation, the owner surrenders his old stock and receives new stock. Under this continuance scheme, the owner retains his old security with changed conditions. Because of the huge size of the loan, it must he obvious that, if there be a large number of holders of present stock who ask to be repaid in cash, the Government could not raise that huge amount of cash in the course of a few days. Therefore, time is taken in order to see what the result of the conversion operation will be and then to make provision to provide cash for those who want to be paid out in cash. The hon. Member for Chislehurst put one or two questions to me as to what is to happen at the end of the period of three months. I cannot give an answer to that question, because it can only be decided when we see what the result of the offer of conversion has been.

There are one or two other matters on the Sub-section to which I have to make reference. There is the right of incorporating in the terms the non-deduction of Income Tax at the source. Some criticism has been brought against that point. I frankly confess to the Committee that in budgeting there are advantages to be found in deducting tax at the source, but in this case I cannot balance the advantages and disadvantages, and so I propose to continue the present practice. As the Committee is aware, a very considerable amount of this stock is held abroad, and there are obvious advantages to the foreign investor to invest his spare money in this stock. That is the reason why it may be desirable to continue that practice, because, obviously, British stock upon which tax had been deducted at the source would have very little attraction to the foreign investor. These are the main points that were raised by the hon. Member for Chislehurst. He also put a question to me on Sub-sections (2) and (3). It is a matter of machinery which is necessary to provide for the desirable finality in making applications in order that the transfer shall practically result in conversion. There is one very small point. In Sub-section (4) powers are given to the Treasury, if necessary, as I was explaining just now, to offer a very small bonus for early application, a little more than a nominal sum, which will be added to the cost which has to be borne by the Treasury.

Lieut. - Commander KENWORTHY

Does that concession apply to individual stockholders or only to the big companies?

Mr. SNOWDEN

It applies to everybody.

Mr. PETHICK-LAWRENCE

I wish to thank the Chancellor of the Exchequer for his explanation of this Clause. and I will take this opportunity of saying a few words upon one or two points. As I understand this question, special legislation of this sort is due to the carelessness of those in charge of our finances at the time of the War. The Chancellor of the Exchequer has stated that the main reason for the difficulty involved in the conversion of the War Loan is the gigantic sum. If instead of being £2,000,000,000 the amount had been £200,000,000 no difficulty would have been found in converting it long ago to the great advantage of the taxpayers of this country, because during the last two years they could have converted to a 4½ per cent., or possibly to a 4 per cent. basis. He also told us on a former occasion that the plan for conversion in the month of June last was frustrated by the difficulties in Germany which sent down the price of stocks.

It is not merely the great size of the War Loan that has made our difficulties so acute; it is more the lack of foresight on the part of those who arranged the loan. Had they taken the precautions which are frequently adopted when large loans are floated, little or no difficulty would have been experienced. The actual difficulty arises from the fact that it has to be a case of "all or nothing." It is not possible by ballot or otherwise to take a certain part and subject it to isolated treatment; we have to make an offer to the holders of the whole £2,000,000,000 at once. Had it been possible to arrange that a certain section should be paid out or offered at a certain time the difficulties which we are now in would not have occurred. We ought to have been able to convert the loan piece by piece and bit by bit, and then we might have floated another loan at a much lower rate.

Now that these proposals are before the Committee, I think we should register our protest at the long delay which has taken place in converting this loan, and we should register our conviction that if ever a large loan of this nature has to be floated again, whether it is due to a war or to some other reason, different provisions must be inserted from those that form the basis of the enormous loan which was floated during the War. It does seem to me that we are paying very dearly for the slipshod methods which were adopted at that time. On more than one occasion a large part of the War Loan could have been converted at a great saving to the country in the rate of interest. There is no doubt, moreover, that the 5 per cent. War Loan was a very considerable hindrance to the trade of the country, because it made it appear that we were on a 5 per cent. basis when in fact we were on a 4½ per cent basis, and sometimes even as low as a 4 per cent. basis. That is all I propose to say in regard to this particular issue.

The Chancellor of the Exchequer referred to the provision in the Bill in regard to issuing loans tax free. In some cases the tax is not to he deducted at the source in the same way as in the case of the present loan. I note that question is raised on Clauses 22 and 23, which are outside the particular question that I put relating to the block of Clauses now under discussion. Consequently, I do not propose to deal with that question in detail, and I think it will be better if we defer discussion on those matters until an opportunity occurs when we reach Clauses 22 and 23.

The DEPUTY-CHAIRMAN

I quite agree with what the hon. Member has just said because there is an Amendment on the Paper dealing with those two Clauses. Consequently, any reference to them must be very brief because a further opportunity will occur later when those Clauses come up for discussion.

Mr. PETHICK-LAWRENCE

I do not propose to deal with that particular point any further, and I will reserve my remarks until those two Clauses come directly under review. I must, however, make a reference to the speech of the hon. Member for Chislehurst (Mr. Smithers) who, in dealing with this question of conversion, made an attack upon Socialism which was quite irrelevant to the Debate. He said other things upon which we feel very keenly and which we resent still more. I resent the hon. Member taking advantage of this opportunity to disparage the condition of this country and to condemn the actions of the late Government. In taking that course, the hon. Member not only attacked the Chancellor of the Exchequer in the Government which he is now supporting, but he attacked the credit of the country. In my opinion, the attack which has been made on the policy of this country during the last two years has done, and will continue to do, serious damage to the credit of the country in the eyes of the world.

Lieut. - Colonel Sir FREDERICK HALL

I am surprised at the attitude taken up by the hon. Member for West Leicester (Mr. Pethick-Lawrence) in regard to the remark which was made by my hon. Friend the Member for Chislehurst (Mr. Smithers) about Socialism. I was one of those who served in the War, although I occasionally came back to this country because I was a member of the House of Commons. I was in this country during the flotation of this loan, and it was made perfectly plain by all sections of the House that the loan was more likely to be a success if the condition was made that it should not be taxed at the source. I have always been under the impression that the stability of this country was such that except in times like the present it was always possible to convert a loan from a 5 per cent. to a 4½ per cent. basis. In this case, £2,000,000,000 has been invested in the finest security in the world, which is the security of this great country. There is no suggestion that the conditions laid down in the prospectus are to be interfered with in the slightest way, and there is in the prospectus an opportunity provided of converting the loan by giving three months' notice.

All those who are engaged in finance know full well that there is a considerable amount of this loan in the hands of people who are not resident in this country, but who are British nationals. Therefore, notification should be given to them that they have to convert if and when we find it right to do so. The size of the loan is £2,000,000,000, and I have always been of the opinion that if the Treasury had put their hands on 5 per cent. or 10 per cent. of that huge sum and had been in the position to pay it off, we might have issued another loan bearing a lower rate of interest and then it would not have been necessary for the Chancellor of the Exchequer to make arrangements for the conversion of £2,000,000,000. The money in gilt-edged securities which cannot be utilised cannot be better invested than in British loans, and therefore, if we gave notice to convert, an enormous amount of that money would be bound to come back to this country. If it did not come back, what could they do with it? You do not in such a case keep the money at the bank, because you do not go in for a conversion scheme when the Bank rate is 5½ or 6 per cent., but only when money is easy, at, say, 2½ or 3 per cent. You do not go in for conversion in such critical times as those through which, unfortunately, we are now passing. Whatever hon. Gentlemen opposite may think, they are among the most difficult times in regard to finance that we have ever experienced.

We know that the Chancellor of the Exchequer is not wanting at all in courage, and I suggest that he might, as soon as the conditions of the money market become easier, after the necessary consultation with financiers in the City of London, the great banks, the insurance companies and the finance houses, issue a statement that he is going to give three months' notice of his intention to convert this loan. I can see certain difficulties with regard to that, but I cannot see any difficulty in making it plain that, at the expiry of the three months, every cent piece of interest would cease to operate. Of course, a very large amount of this loan is held abroad, in all parts of the world, and it might be possible that some holders of the stock would not receive the notice, or it might be overlooked, but, if it were made plain that no interest would accrue after the expiry of the three months, I do not think there would be any difficulty.

The Chancellor of the Exchequer referred to the conditions which attach to the present stock. Those conditions, I understand, are to be continued, and I can quite see that that is necessary, although some people may say that they are very advantageous. It is not, however, so very many years since this stock was issued. At that time we were all looking around, and Members of the House were doing their part in endeavouring to get as many people as they could to subscribe to the stock; and Members who carry their minds back will recollect that there were very often difficulties in getting the necessary applications. We were all out for one thing, namely, that we should not lose the War in consequence of want of finance, and everyone, irrespective of party, did everything that they possibly could. When a huge amount like this is needed, as was pointed out by the hon. Gentleman opposite, it was not a, question of £20,000,000, or even £200,000,000—you often have to grant conditions that you cannot possibly help in the circumstances, and I am sure the hon. Gentleman will excuse my saying that I do not think it is particularly generous in these days to come back and criticise those who did their level best at that time.

As I have said, all parties in the House had one common object, and that was to get the money necessary to bring the War to a successful conclusion. It is very easy now, after 14 years, for the hon. Gentleman to criticise what was done, but in those days we were up against the question of the life or death of the men of this country who were fighting, and in such circumstances one would not hesitate to give this or that away in the contract, but, using common sense and common discretion, would realise that the conditions must be made as palatable as possible, not only to people in this country, but to people in other countries, when we were endeavouring to get this money together. When the hon. Gentleman reads to-morrow his references to the "slap-dash methods" which were adopted, I cannot help thinking that he will take his mind back and say to "Well, perhaps it would have been advisable if I had not used phraseology of that nature, when I remember the difficulties in which the country was at that time."

I venture to express the hope that the Chancellor of the Exchequer, at the first opportunity when we get easier money conditions, will take the necessary steps, and will make it perfectly plain in the notice he gives that not a penny piece of interest will accrue after the date on which the notice expires. I cannot help thinking that in any steps he may take in that direction he will have the support of all parties in the House, because I think we all feel how heavily this matter presses upon us, and what an advantage a reduction of ½ per cent., or even per cent. in interest would be. We want to do all that we can in these times to reduce expenses, and, with that end in view, we should give all the assistance and support that we can to those who are endeavouring to achieve it.

Mr. WISE

I cannot help feeling that the remarks in the latter part of the speech of the hon. and gallant Member for Dulwich (Sir F. Hall) would have produced more effect if they had been made before certain very expensive credits and contracts were entered into in Paris and New York, to which I referred last night. I want to deal with the more general question of conversion which is raised by this series of Clauses. No one on this side of the House objects to conversion as such, but we do feel that the whole policy and attitude of the Government, as represented in these Clauses, with their tenderness to the holders of War Loan, contrasts in the most extraordinary fashion with the Government's attitude towards those who hold other contractual obligations from His Majesty's Government. It is an extraordinary thing, which we shall not fail to press home on the understanding of the country, that, when it is a question of dealing with the poorest people in the community, the Government takes power under an Act of Parliament to vary contractual and statutory obligations at will, but when it is a question of dealing with the—

Sir F. HALL

Is the hon. Member aware that a large amount of this loan is held by people who have subscribed through savings banks?

Mr. WISE

I am perfectly well aware of that; the widows and orphans are always trotted out on these occasions; but, when it is a question of dealing with obligations of this kind, the Government does nothing of that sort, but sticks to the letter of the prospectus and gets the applause of hon. Members opposite; and, far from exercising any kind of pressure, despite the circumstances of the country, it gives them three months' option in which they can make up their minds what they shall do.

Mr. SMITHERS

Would the hon. Member specify what contracts have been broken?

Mr. WISE

The hon. Member has been attending the Debates on the National Economy Bill, and he will find in the Schedule to that Bill specific power to break contractual and statutory obligations on the part of His Majesty's Government to persons in their employ and to persons entitled to benefit under existing legislation. There is no question about what is being done.

Mr. SAMUEL SAMUEL

Was there any contract?

Mr. WISE

Yes. I advise the hon. Member to refer to the Bill itself. Obviously he has not been studying it with the same zeal with which he has been studying these conversion terms, but he will have to do so, no doubt, within a few weeks.

Mr. S. SAMUEL

A contract has to be signed by two parties.

Mr. WISE

The purpose of this conversion operation is twofold—to take off the country the immense burden which these debts impose upon it, and also to take the opportunity, if it occurs or if it can be made, to reduce the excessive amount that goes to the holders of fixed interest-bearing securities on account of the fall in prices. A few days ago I asked the Chancellor of the Exchequer whether he would indicate what had been the effect of this change in prices on the purchasing power of incomes as between 1920 and 1928. The Chancellor of the Exchequer, for reasons which I need not investigate, refused to give that information, but, happily, since that date I have come across an authoritative statement of the effect. It is an illustration worked out in the case of a man with an income of £10,000 a year derived from War Loan. The figures are worked out as between 1920 and 1928, and the final summation of the result is this—

Mr. ARTHUR MICHAEL SAMUEL

What is the reason for taking the years 1920 to 1928?

Mr. WISE

I am giving the case as it is stated; the hon. Member can challenge it in a moment. The result of the calculation is to show that in this typical case—the case of a man with £10,000 a year derived from War Loan—the reduction of taxation and the increase in the purchasing power of money have practically doubled the real income in eight years. That is an authoritative statement of the facts.—[HON. MEMBERS: "By whom?"]—"by the right hon. Philip Snowden," in a pamphlet written and issued by him in 1929. I am sure that no one on the opposite side of the House will now challenge that authority.

The truth of the matter is that, in the present circumstances of the money market, at any rate in the immediate future, within the next year or two, the whole of this Clause is likely to be entirely inoperative. No one on the other side of the House has any real confidence that a favourable occasion for conversion is likely to come within the present Budget year, or probably the next Budget year. The advantage that is likely to accrue to the Budget this year, even if the three months' notice could be given now—and there is not the slightest, possibility of that, as everyone on the opposite benches knows—the advantage to the Budget this year would be nothing at all; and there is very little expectation now that within the next 6 or 12 months any opportunity of conversion on satisfactory terms will come.

This is a pure bluff, an attempt to delude the people of the country that something equal is being done as regards the wage earner and the man who gets his income from investments in War Loan and similar securities. If the emergency is such as it is reported to be, clearly the right way of dealing with a charge which represents more than a third of our total national Budget is to deal with it not in this half-hearted manner designed, as they say, to preserve the confidence of the City of London, using the same arguments and forecasting the same kind of disaster as they said would occur three weeks ago if we went off the Gold Standard. The proper way to tackle the problem is not to wangle the money market but directly to tax the holder of fixed interest bearing securities, whether War Loan or debentures or bonds of South American or any other railways, and to take from him by direct taxation some portion of that unearned increment which has come to him from the inflation policy of the banks which has increased, as the Chancellor of the Exchequer says, twofold in eight years the real yield of the interest and dividends paid to them.

In Australia they adopted what was in effect a scheme of compulsory conversion, accompanying that with special taxation so as to get things equal as between the man who lent his money at fixed interest rates to his Government and the man who lent his money to a brewery or a railway or other corporation, who had also the special increment that came from a reduction in prices. In France the methods were even more drastic. The French method of conversion was to repudiate about four-fifths of the debt and interest. Despite that blow to confidence we are constantly told, indeed we have hard and bitter reason to know, that French financial prestige is now supreme in Europe. If French prestige could stand that sort of blow, surely British prestige would have stood a definite tax designed to return to the community the increment, the yield of these War Loans, floated in the difficult and transient circumstances of the War as a matter of justice and as a proper method of dealing with the financial position of the country. If that course had been followed, it would have been not only more just but, instead of saving at most, if this conversion operation is carried through at a maximum reduction of I per cent., which no one has any expectation of making for a long time, possibly £15,000,000 to the Exchequer, we should have secured for the Exchequer the £90,000,000 or £100,000,000 which the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George) thought to be the unearned increment of such securities. In doing that, we should, at any rate, have done something to put right that unfair burden which falls on the poor and the reserve and care which the Government have exercised in dealing with the rich. May I make another quotation, which may or may not commend itself to hon. Members opposite: Through all the centuries the rich have managed to evade their just share of taxation. They have enjoyed the protection of the Government and have put the cost upon the poor. Although things in this respect are better to-day, the rich still pay far less than their fair share of national taxation and the poor pay far more than they ought justly to contribute. I am only sorry that the Chancellor of the Exchequer is not here so that he might have confirmed what he wrote less than two years ago.

Sir WILLIAM MITCHELL-THOMSON

I had not intended to intervene in the Debate, but there are moments when silence becomes impossible. As I listened to the hon. Member, I could not help thinking that this must be a preliminary canter to a street corner campaign in a general election. At all events, let him reflect that there is another side to the case, and it is possible that there are a considerable number of facts in support of it. He spoke of this question of War Loan in general and the conversion Clause in particular as if it were a matter that solely concerned the capitalist class. He sneered at the fact that we should be arguing that there were small holders of War Loan and alluded to the widow and the orphan. In the Post Office alone there are a million separate holdings of War Loan, and in the figures that were supplied the other day to the right hon. Gentleman the Member for St. Ives (Mr. Runciman) we find that the same is true of a large number of classes of Government loans and securities. It is as well that we should take the opportunity, while we have it, of tackling this matter.

Will the hon. Member answer me three questions? When you make suggestions of this character as regards either special taxation or a reduction of the rate of interest on War Loan, what are you going to do about foreign holders? It is difficult to say how much but certainly a large proportion of 5 per cent. War Loan, and a larger proportion of 4 per cent. Funding Loan, is held by foreign holders to whom you gave a special pledge in the prospectus that it would be free of British taxation and would bear a certain rate of interest. Are you going to exempt foreign holders? [HON. MEMBERS: "No!"] Let hon. Members think for a moment where we are. We are discussing a Finance Bill at a time when the only thing that stands between the pound and a catastrophic drop in its value is the confidence of foreign holders in the integrity of the British Government, and that of all moments is the moment that he and the hon. Member for East Leicester (Mr. Wise) choose to threaten the holders with action that conflicts with the terms of the prospectus on which they subscribed their money.

Secondly, the hon. Member, and everyone who argues this question, seems to start by assuming that the people who hold War Loan are the same set of people who originally subscribed to it. That is far from being the case. In fact, the very reverse is the case. I make bold to say that, except in the case of a few big holders, such as banks and large companies, it is probably true that only a fractional percentage of the holders of War Loan are the original subscribers. What you have now are bona fide holders for value, people who bought it at the market price of the day believing it would be subject only to ordinary taxation. Why single them out for special taxation, remembering that a large number of them are trustees who were almost forced to buy War Loan? You made it difficult or impossible for them subscribe to anything else. It was regarded as being the duty of trustees to put a certain portion of the estates they were administering into War Loan. Why single these people out for special taxation?

Thirdly, the whole of this argument proceeds upon the premise that you are dealing with a comparison with 1920, as the hon. Member suggested when he quoted from the Chancellor of the Exchequer. But you must not think of this question in terms of 1919–20. You have to think of it in terms of 1914–17, because it was not in 1919–20 that the bulk of the War Loan was subscribed but in 1914–17. I have not the exact figures, but I should not be surprised to find that over 80 per cent. of the total amount of the loans was subscribed before 1919. It is not the case that the pound was worth much less then and is worth more now in terms of commodities. You are dealing with money now which is substantially on the same level as the pound when the War Loans were subscribed. In fact, as regards about a sixth of the Debt, you are dealing with a state of things now when the pound is worth very much less than it was then, because certainly £680,000,000 of Loans was subscribed in terms of pre-War money in 1914. I plead with the Committee. Do not let us have quite so much discussion of this matter without taking relevant notice of the facts and, above all, let us choose a moment to discuss it when we shall not jeopardise that confidence of foreign nations in the integrity of the British Government which is the sole support of the pound at present.

Lieut.-Commander KENWORTHY

It is very delightful to hear the right hon. Baronet as a free lance debater, with rather more liberty and less responsibility than that which used rather to cramp his style when he was Postmaster-General. I so enjoyed it that I cannot refrain from making one or two comments on his speech, though I will not attempt to make the speech that my hon. Friend the Member for East Leicester (Mr. Wise) will make in answer to his invitation. Surely what is overlooked by the hon. Member for Farnham (Mr. A. M. Samuel) and the right hon. Baronet and other apologists of the present Government and its actions is that in this matter during the last 10 years the whole class which draws interest on bonds, rent, dividends or debentures and fixed interest bearing securities has gained an advantage because of the increased value of gold and the decrease in the value of goods, and that has been a result of deliberate policy of the great central banks of the world and of the Bank of England in particular. It has been the international banking policy, in which we have taken a leading part, and the result has been, with the restriction of credit and the fall in wholesale prices to inflict great suffering on the mass of the wage earners, farmers, manufacturers and other producers. The producers have suffered in order that the drones should get more honey. I do not say they are all dishonest. I am not criticising the man who puts his money into War Loan or mortgages or anything of that sort. [An HON. MEMBER: "You only want to rob him!"] We have to make the best of our present social system until we can alter it, but in the meantime all that class has gained enormously, and our complaint is that, when this policy has brought you to your present troubles, it is not that class you make pay for it, but the producing class, including the working and the business men as well—the people who manage factories and mines and produce that wealth. You make that class pay and, above all, you make the unfortunate workmen pay who are thrown out of employment because of this same policy which has so helped the great rentier class. That is our case. It is not made any less hard by the right hon. Baronet and others pleading about those who either exchanged or purchased or inherited War Loan.

5.0 p.m.

Sir BASIL PETO

The hon. and gallant Member has expressed a great deal of interest in the manufacturing and merchant classes of this country, and I should like to ask him if he is aware that in times of depressed trade the whole of the capital of the companies or firms cannot be used in the business, and that the usual practice is to put the surplus into the very security of which we are talking, namely, War Loan. Therefore, his policy, and that of the hon. Gentleman the Member for East Leicester (Mr. Wise), is to help industries in this country by robbing them of half the capital they have put aside into War Loan so that it will make it easier, I suppose, to re-start their industries under more favourable conditions.

Lieut.-Commander KENWORTHY

I would far rather encourage people to put their money into improvements and renovations and the modernisation of their plant.

Sir B. PETO

How can you do that when there is no occasion to do such a thing?

Lieut. - Commander KENWORTHY

Why are the companies unable to employ capital at the present time? It is because of the policy of central banks, in the interest of the rentier class, having so depressed prices and brought about a world slump and caused unemployment. In this matter you have threatened a cleavage between the producers in this country, including the employers—the people who produce the wealth, the farmers and the workers on one side, and those who want to live by drawing fixed interest on the nation's Debt and on other interest-bearing securities. We have not made a cleavage at all. It has been the policy supported by hon. and right hon. Gentlemen opposite which has brought it about. It is no use the hon. Gentleman the Member for Farnham (Mr. A. M. Samuel) or the right hon. Gentleman the Member for South Croydon (Sir W. Mitchell-Thomson) telling us how the poor holders of Consols before the War have been robbed, and that sort of thing. The whole policy has benefited the rentier class at the expense of the producers of wealth.

Mr. REID

Can the hon. and gallant Members tell us the relative position of a holder of £100 worth of Consols on the let January, 1914, and now?

Lieut.-Commander KENWORTHY

I am not much concerned about the holder of Consols. I think there are £600,000,000 worth of Consols and other pre-War National Bonds, or something like that. I have no doubt that the hon. Member for Farnham (Mr. A. M. Samuel) will he able to give the figures out of his head. How do we know that many of these holders of Consols are not the very people whom the right hon. Gentleman the Member for South Croydon (Sir W. Mitchell-Thomson) talks of, who bought them at round about £40?

Mr. REID

Many people have held Consols during the whole period, and does the hon. and gallant Gentleman suggest that this taxation should apply to them?

Lieut.-Commander KENWORTHY

The hon. Member has brought up particularly the case of the holders of Consols, and I say that the holders of Consols, owing to redistribution of wealth, and that sort of thing, have very largely changed. We are not dealing with pre-War loans now, but with the great investments of the War profiteers and people who were enriched in the few years after the War and during the War days; those who invested while other people were giving their lives, in fixed interest-bearing securities, who have been enormously benefited in recent years by a deliberate policy of deflation which has almost starved about 2,500,000 workers in this country. I was only led into this reply to the right hon. Member for South Croydon because he always stimulates me when he lets himself go in this House. I really rose to refer to a remark of the Chancellor of the Exchequer, and in his absence perhaps I may address my remarks to the hon. and gallant Gentleman the Financial Secretary. I have great sympathy with the Chancellor of the Exchequer, but if he wants to bring about a voluntary conversion loan he really must stop some of the speeches we hear in this House and in the country from hon. Gentlemen sitting on the benches opposite. When the hon. Member for Chislehurst (Mr. Smithers) gets up in this House, I only hope that he is not seen and heard by visiting foreign investors who, perhaps, do not quite appreciate the niceties of our domestic political warfare and may take something which he says at face value.

Why are we faced with the present trouble? There are one or two reasons. I want to deal only with points bearing on the question of conversion. The right hon. Gentleman the Member for South Croydon (Sir W. Mitchell-Thomson) says that the only thing between us and ruin is the integrity of the British Government. If he means this Government, I should think that ruin has already arrived. Why is it that there has been this temporary lack of faith, which I think is altogether unjustified? It has been because of the deliberate policy of decrying this country and making it appear that it was bankrupt, finished, and no use at all, and that our credit was bad. There has been far too much of this sort of thing. I prefer that we should show some of the robust patriotism of the hon. and gallant Gentleman the Member for Dulwich (Sir F. Hall). Part of his speech was admirable. That is the sort of spirit we ought to have if we hope to make any voluntary conversions. The sort of speeches made on the wireless by certain economists of the Bank of England, giving a most extravagant account of what is going to happen to this country, and what will happen to this country, is not the sort of thing to attract foreign investors to this country in respect of a conversion scheme. You are not going to attract them to a country described as brought to ruin by the financial policy of the present Chancellor of the Exchequer. I am very sorry for the Chancellor of the Exchequer in this case. All his policy is now being attacked and criticised and ridiculed by those who are to-day his nominal supporters, and in addition they are trying to force upon the country the very policy which the Chancellor of the Exchequer believes will really ruin it—a ridiculous Protectionist policy.

I hope that the Financial Secretary to the Treasury will bear in mind what I am now going to say. I believe that immense damage is being done to our credit by the panic measures which have been taken in various Government Departments since the present Government came into office. Take the similar case of a very rich man, by far the richest man in his neighbourhood, Mr. John Bull, who one day thinks, as rich men sometimes do, that he is going to end his days in the workhouse. Some rich men sud- denly think that all is lost when they are perfectly safe and solvent. Such a man begins to cut down his staff of servants and gardeners and cuts down his trees and stops his children's milk and food, and proceeds to go about in very old clothes. His neighbours think that there must be something very wrong and that he really is ruined, whereas in point of fact he is immensely wealthy and has immense assets. Rumours reach the City and his creditors and they get nervous. We have an example of this sort of thing today in the statement that children are to be charged a penny in order to go into Kew Gardens, and this is being done to save some £3,000. That sort of thing really gives the same kind of impression as would be given by the man whom I am describing. Stories are put about that poor old John Bull really is financially ruined, and his credit goes.

If you continue this kind of policy under the present Government you cannot hope for your conversion loan on any reasonable terms or to attract foreign investors at all. If they are told in wealthy cities where the investors are to be found —in Amsterdam and Paris and so on—that the English cannot afford to keep the un- employed ex-Service men alive in physical efficiency, or to continue the normal improvement of education, and all that kind of thing, ridiculous panic, extremist measures of miserable miserliness are adopted, and it not only makes ridiculous any pleadings for national unity, but gives an extremely bad impression abroad. Unless we once more look facts in the face and recognise that we are in a far better position in this country than any other manufacturing and exporting country in the world, as the actual figures show, and certainly better than most of our neighbours and the United States, we cannot hope to restore general confidence at home and abroad. I suggest that it is time to put a stop to panic measures and panic speeches, and the sooner the right hon. Gentleman muzzles people like the hon. Member for Chislehurst and others, and those professional pessimists for party political reasons, the better for the credit of this country and its reputation in the markets and nations of the world.

Mr. A. M. SAMUEL

When the hon. and gallant Gentleman the Member for Central Hull (Lieut.-Commander Ken- worthy) puckers his brow and looks fiercely at us as he addresses the Committee, he entertains us very much. But we do not regard him seriously. He is the Will Somers of the House and we like him; but I think that he would be the last man in this assembly to take himself seriously. He wanders over the field of debt and finance and talks about France and the United States rather than about the National Debt. He made one or two statements to which I will confine myself. He talked about the rentier class bearing heavily upon the shoulders of the producers. The hon. and gallant Member wandered into discussing securities other than those with which we are now dealing, National Loans. Does he realise the relatively low rate of interest which the rentier debt holder receives from the Exchequer? I did not believe that it was so low until I heard the speech of the Chancellor of the Exchequer. I made a mental note of it. It appeared in column 925 of the OFFICIAL REPORT on 16th September last. The Chancellor said that, speaking from memory, the last time he looked at the average rate at which the Exchequer was paying interest to debt holders it was about 3½ per cent. When you take 5s. in the £ off 3½ per cent., £2 12s. 6d. per cent, is the amount a man is getting for lending £100. If he pays Surtax on top of that, and it goes up to 8s. in the £, heaven help the man who has invested his money and thinks he is going to live on capital which brings him in something in the neighbourhood of 1¼ per cent.

If the hon. and gallant Member agrees that a man has a right to lend money which he has inherited, saved, or earned, to the country in return for interest, he cannot for a moment justify the attack he has made upon those debt-holders who, if they do not pay Surtax, are getting £2 12s. 6d. per cent. according to the Chancellor of the Exchequer, or who, if they are called upon to pay 8s. in the pound Super-tax, will really get only 1¼ per cent. If so low an interest as that was considered to be an unreasonable burden and attacked, no one would ever save and no one would ever again lend money either to the State, in order to allow the State to fight for its life and honour, or to the factory to enable it to put down plant and machinery. [An HON.MEMBER: "What would you do?"] An hon. Gentleman asks what shall we do with it? It can be spent. Capital is the pool from which industry is nourished and from which labour is paid. I cannot go into the theory of the matter further than that, but if a man does not lend his capital or savings to the State or to industry or to other enterprises but squanders it on himself and family merely in food and dress or pleasure, and it goes out of the country to pay for such purchases, who will be the loser? Industry itself, and those engaged in industry.

The State pays interest to the holders of its stock, but the stockholder or the bondholder has nobody to thank.

I have here a financial statement (No. 90) issued by the late Financial Secretary to the Treasury, signed by him and dated April, 1931. From that document I find that the Inland Revenue collect from the direct taxpayer, from Income Tax, Surtax, Estate Duty, stamps, Excess Profits Duty, Corporation Profits Tax, Property Tax, Land Tax, etc., £447,000,000. Since then, £51,000,000 more direct taxation has been added, making, roughly, £500,000,000. The interest on the debt is £302,000,000, so that it can be said, although it seems a paradox, that the bondholder actually pays to the State far more than he receives in the form of interest paid to him by the State. He not only provides considerably more than the interest on the Debt but he pays a good deal further for the upkeep of the social services. The nation's bondholder or the stockholder has nothing to thank the State for. Whatever interest he gets, he has contributed nearly twice that amount in the direct taxes that he pays —taxes that are not contributed by other sections of taxpayers.

Take the whole of the taxation that is raised. I suppose that when the new Budget is in operation the taxation will be in the neighbourhood of £750,000,000. Of that, £500,000,000 will he raised entirely from the direct taxpayer, who also pays a good deal in addition to Customs and Excise, in the form of indirect taxation. Therefore hon. Members opposite have no right to cast gibes at the direct taxpayers. He pays his whack in full measure and running over. He has nothing to be ashamed of. He is carrying his share of the burden to the uttermost, and millions of the National Debt holders are relatively poor people. At this point as regards the debtholders, I should like to rebut a statement made by the hon. Member for East Leicester (Mr. Wise). I hope he will not take offence or think that I am discourteous if I say that part of his argument was suppressio veri and suggestio falsi.

Mr. WISE

Will the hon. Member say which applies to the quotation from the Chancellor of the Exchequer?

Mr. SAMUEL

I am not responsible for the Chancellor of the Exchequer although I am supporting him now. Hon. Members must remember that up to September we were fighting him tooth and nail. He has, however, come to redeem his character. For what he said prior to September I am not responsible. The hon. Member for East Leicester made a statement about the alleged increased value which the national bondholder is getting as compared with the value of the pound which he lent to the nation. The Chancellor of the Exchequer is now present and I think he will bear me out in what I say. It is quite wrong for the hon. Member opposite to say that the national bondholder who is receiving interest now, or in 1928, is receiving double the interest upon the debt compared with 1920. Of the £7,500,000,000 which represent the total of the National Debt, £650,000,000 was borrowed before 1914 and some now appears in the form of Consols or converted debt and other forms. It was originally lent prior to 1914, when the cost of living was equal to 100. The next portion of the debt was borrowed in 1914–15 when there was a plus of 23 on the cost of living. That is to say the cost of living was 123 as compared with 100 in 1913. In 1916 the cost of living was plus 46. In 1917 it was plus 76. The average for those years, including 1913–14, worked out at about 45 or 50 plus on the 100 index figure in 1913. The hon. Member talked about 1920. Little fresh money was borrowed by the State after 1918. The only large loans that were floated thereafter were the Funding Loan and Victory Bonds and those loans were not all new money. They included conversion money. It is wicked to say that those who lent pounds in those earlier years, when nearly all the National Debt was borrowed, are to-day getting a better pound than the average they lent. It is not true. The year 1920 is irrelevant, as nearly all the National Debt was raised before 1920.

Mr. WISE

Will the hon. Member say how much money was borrowed in the second part of 1917 and onwards? I have quoted from the Chancellor of the Exchequer.

Mr. SAMUEL

The hon. Member is shielding himself behind the Chancellor of the Exchequer. I will make my own case myself against the hon. Member. If he is trying to make the point that the average pounds which were lent to the State and now form part of the debt were of much less value then than the bondholders are now receiving, it is not true. That part of the money which was borrowed in 1914–15–16–17, and including the pre-War debt, was subjected to a very high punishment during those years from 1920 up to 1922–23 by the fact that the pounds that the debtholders got back in interest was received by them in times when the cost of living stood as high as at plus 172 on 1913 = 100. He was getting back pounds during many years which were of much less value than the average pounds he lent the State. The hon. Member asked me how much money was lent in 1917 and onwards. I have already said that after 1918 the only important loans which were issued were Victory Bonds and Funding Loan, a good portion of which was old money for conversion. The hon. Member thinks that there were other loans issued in 1920. They were mainly conversion loans and not new money. Nine-tenths of the National Debt was borrowed before 1920. And that is the whole point.

The statement shall not go out from this Committee uncontradicted that the bondholder is getting back a better pound than the average pound he lent the State. It is not true. On the average the bondholder lent pounds for the whole National Debt at plus 45 to 50 over the cost-of-living figure of 1913, and he has been getting back for some months till to-day a pound with a purchasing power at plus 45 or 50. There is very little difference in the purchasing value or the power that he is now getting back, and the pound that he lent, but it must be remembered that in the meantime he has been severely punished by the fact that the cost of living has been up to plus 172 on 1913 and he got back for some years pounds of much less value than he lent. I protest against the hon. Member making a statement which misleads the Committee. The Chancellor of the Exchequer has beard what I have said and can corroborate it, so that the country may not be deceived by such a statement as has been made by the hon. Member for East Leicester to-day, and will no doubt be repeated, as it has been repeated previously.

Mr. J. JONES

It has been said that fools step in where angels fear to tread. The more one listens to experts on this question of finance, the more one becomes bewildered by the language used by the people who pretend to know all about it. We have been told that the rich are worse off now, in spite of all that has happened since 1914, and that the pound is worth less to-day than it was in 1917–18 and the years following. What a wonderful story! When I read reports and Blue Books and White Papers, which I often describe on public platforms as political seidlitz powders, I find that the people who up to now have been paying Income Tax have become progressively richer. Although the numbers who pay Income Tax have been decreasing, the amounts that they have received in the form of rent, interest and profits have been increasing, until within recent years the average increase has been at the rate of £200,000,000 a year.

I do not pretend to be an expert in the face of the mighty people who have spoken in this Debate since the Bill was introduced, and I suppose I ought to put myself in sackcloth and ashes, but I can see a hole in a ladder as quickly as anyone, and I know that so far as the working classes are concerned they are immeasurably worse off than they were before. The hon. Member who has just spoken says: "What are we going to do with our money? We will not lend it to the State. We will not put it into industry." I would say to hon. Members opposite: "Are you going to take it with you? If you do, it will melt." For what purpose do people use their money? The ordinary workman draws his wages on a Friday or a Saturday, and by the following Friday the money is finished and he has to borrow a shilling to keep him going until the Saturday, when he draws the next lot. I ask hon. Members opposite: "What do you do with your lot? You live very well on what you have, and then you have a surplus to invest. How do you invest it? In the exploitation of your fellow men."

This talk about investment by hon. Members opposite makes me tired. If they could find an opportunity of making bigger profits out of the Chinaman instead of the Englishman, they would go for the Chinaman every time. This talk about the foreign investor makes me tired. The foreigner is to be protected. What has the foreigner done for us? The Chancellor of the Exchequer went to The Hague and took up a definite stand in favour of British financial interests. He was applauded in the newspapers and by many people for the splendid stand he made for British finance. I do not pretend to know as much about it as he does, but I applauded among the rest—God forgive me—and now we are told by these skilled economists that we must not touch the foreigner with a 40-feet pole. We are going to pay him 19s. 11¾, and a penny over. It does not matter how the pound depreciates or what happens to us so long as the foreigner gets his pound of flesh. Some of them do not pay the debts they owe to us. If they are going to demand their pound of flesh when we owe them money, why cannot we demand our pound of flesh when they owe us money.

Mr. SMITHERS

Ask the Russians about that.

Mr. JONES

Some of the hon. Members opposite have an obsession about Russia. They have never heard me defending Bolshevism, and they never will. If you let France off there is no crime in letting Russia off. You are cuddling the French and spitting on the Russians. If you were strong enough to force Russia to pay her debts you would compel her by force of arms, but you cannot; and you bow the knee to France. People who come here and talk about what they lost in the War never think of the million of men who lost their lives. A land fit for heroes has become a mere miasma; and the two millions who are disabled are forgotten.

We are told that sacrifices are necessary and that this is one of the means of restoring the situation. We are going to gain £100,000,000 by converting the loan. I congratulate the Tory party on one thing, and that is on having converted some of our old colleagues to follow the policy of the most reactionary crowd which ever dominated the affairs of any country. You may convert your loan, but is there any hope that you will not place a greater burden on the necks of the people? You are playing a kind of confidence trick on the people of this country. Who will have to foot the bill? Is it the rentier class, who live without working? No. When the bill has to be paid it will be paid by those who have to work for all they get. In the last resort Phil Garlic pays the lot. I do not know much about the Stock Exchange and shares and banking, but you are not gambling in stocks and shares, in railways or mines and factories, but in human lives, and every penny you get is stained with the blood of the class to which I belong. We do not care for your conversions—or perversions. We understand that Shylock must get his money back, that we are to bow the knee to Mammon, and that this country is to be placed in pawn. It is not inappropriate that an hon. Member in that particular profession should have made the attack he has upon the hon. Member for Leicester, East (Mr. Wise).

Sir GERALD HURST

The hon. and gallant Member for Central Hull (Lieut.-Commander Kenworthy) lectured hon. Members on this side for what he called the sort of spirit in which they approached the question of conversion, and in order to show the right spirit he proceeded to make an attack upon what he called the rentier class in a spirit which has been emulated by the hon. Member for Silvertown (Mr. J. Jones) in his attack upon what he chooses to call the rentier class. It is quite obvious that if hon. Members opposite will only address their minds to the question as to who are the men and women who invested their money in War Loan they will see how ridiculous it is to suggest that to invest in War Loan is "an exploitation of their fellow men" or that War Loan is "stained with the blood of the working classes." That is absolute nonsense. Who are the rentier class, who are the people who invested their money during the War in War Stock? It certainly was not the War profiteers. They were far more concerned with putting their money into businesses which grew rich out of the needs of the War; they never dreamt of putting their money into War Loan. They found far more profitable fields of investment.

The truth is that a great mass of the savings of this country were put into War Loan by millions of patriotic citizens in response to a patriotic call. Had they been simply concerned with getting the biggest possible return for their money they would have put it into armaments and materials of war, which were in great demand, not into War Loan. At the present time there are millions and millions of people in this country relatively poorly off whose sole savings are in War Stock and to regard the War Loan as the exclusive property of people who exploited their fellow men, and as "stained with the blood of the working class," is an illusion which no reasonable man can share. In what securities are the investments of the great provident societies, the friendly societies, and trade unions? To a large extent, and for security, they put their money into War Loan. All this attack upon the so-called rentier class shows an entire misunderstanding of what rentier means, and of the type of man who has put his money into national securities, and also an entire misunderstanding of the enormous part which capital plays in providing the life blood of industry. If hon. Members opposite would apply their minds to the real issue, as to how holders of War Stock should be treated, they would realise that the spirit invoked by the hon. and gallant Member for Central Hull is the last sort of spirit one would wish to see in this country.

Hon. Members opposite object to Clause 11 because it is based upon the desirability of converting 5 per cent. War Loan into a security bearing a lower rate of interest. What is their alternative proposal? It is vital that they should meet that challenge, if they oppose the proposal of the Government. If they do not honour their obligations the only alternative is repudiation, either complete or partial repudiation. That is the only alternative before the country. The hon. and gallant Member for Central Hull says that measures of this sort are a source of trouble and inflict damage on the credit of this country; that when other countries see that we are making a small economy at Kew, of £3,000, they will be horrified at our action and regard this country as very much less worthy. That is the point in his observations. What is his alternative? If he does not approve the idea of conversion into a lower interest bearing War Loan then his only alternative is complete or partial repudiation. Does the hon. and gallant Member advocate that?

Lieut.-Commander KENWORTHY

It is not only measures like the penny on the children at Kew, but you must take that in combination with the ridiculously pessimistic utterances of the Chancellor of the Exchequer and the neurotic and panic-striken utterances of the Prime Minister, which are taken at their face value abroad.

Sir G. HURST

What makes the world so pessimistic and nervous is the extraordinary rubbish spoken by hon. Members opposite.

Lieut.-Commander KENWORTHY

At any rate we do believe in our country.

Sir G. HURST

We all believe in our country. Do the hon. and gallant Member for Central Hull and the hon. Member for Silvertown really believe that the expressions they have used to-day, in which they have described investors as exploiting their fellow men, are likely to instil optimism in foreign investors Their speeches, implying the advocacy of repudiation, are the very things which have brought about a loss of confidence in the minds of foreign investors; it is one of the underlying causes of the trouble from which we are now suffering. The best cure for pessimism, the best preventive for those nervous and neurotic feelings abroad, would be a complete abstinence on the part of the hon. and gallant Member from making any further speeches in this House.

Mr. PRICE

We on this side do not say that holders of War Loan are not entitled to the advantages which have accrued to them so long as the State continues its present policy, but we do say that the State has a right, in view of existing conditions, to claim a greater portion of the advantages which have accrued to them in recent years than is actually the case at the moment. The hon. Member for Farnham (Mr. A. M. Samuel) in his reply to the hon. Member for East Leicester (Mr. Wise) argued that in the earlier periods of the War inflationary tendencies existed and that therefore it was unfair to say there was any real accumulation or addition to the gold value of the interest which they receive. I do not consider that that is any argument at all. What we have to consider is not when this War Loan was subscribed —no one can tell that now. If we searched the records at Somerset House we might get some idea as to when it took place, but the plain fact is this—it is shown in the Statistical Abstract—that in 1920 the average retail price level in the country was about 200, in 1925 when we returned to the Gold Standard it was 170, and it is now 145. On the basis of those figures it is clear that £100 worth of 5 per cent. War Loan which in 1920 would buy £5 worth of commodities will now, owing to the fall in retail prices, buy from £6 to £7 worth of commodities.

No one can deny that there has been an accretion of gold value to the holders of War Debt in consequence of the deflationary policy which has been carried on, consciously or unconsciously I do not know, by Central Banks all over the world. On the other hand, if one looks at industrial securities you will see exactly the reverse, profits have fallen and dividends have come down, until last year, 1930, according to the figures quoted in the "Economist," the profits in iron and steel, coal and rubber, textiles and tea, went down by £8,000,000 in that one year. True, in others they went up in the consumable goods in the home markets, in such as breweries and so forth, but the great staple industries have been slowly going down, while the holders of bonds and gilt-edged securities have had the windfall on their holdings increased. It is time that the Treasury examined whether it is possible to make those who have gained by the fall in the retail price contribute something to the national need at this time. The most obvious means by which this can be done is by a conversion scheme.

The reason why we take up this attitude to the Chancellor's conversion scheme is that we do not consider that it goes far enough. It lets the holders off too lightly. We would call attention to the fact that in one of the Dominions, the Commonwealth of Australia, a similar transaction has been carried through, but in a very much more drastic way. Mr. Scullin has converted a large portion of the Australian internal debt to a lower level of interest, but he has not done so by the methods of the Chancellor of the Exchequer, which are purely voluntary. His methods were an appeal to patriotism, it is true, but there was a hidden threat of compulsion. An hon. Member has referred to the holdings of the foreigner and said, "What can we do? We cannot frighten them. The pound sterling is being held up largely by the foreigner who holds a certain portion of our bonds." I do not believe that if the foreigner were appealed to he would altogether refuse to convert to a lower percentage. My reason for saying that is, that it is not only this country that has suffered.

Everyone knows from the most recent reports that the United States is suffering a very serious depression that is becoming deeper and deeper, and that, even in the last few days, trouble seems to be brewing in Paris. There is nowhere, either in New York or in Paris, for investors with surplus money. Sterling bonds have hitherto been regarded as the high-water mark and the best gilt-edged bonds in the world. Owing to our going off the Gold Standard, that position has been affected. But where else in the world, having regard to the present position in France and America, sitting as they are on their hoarded gold, can they safely invest it? I think that with a little bit of courage and British grit we could deal with this question of the holdings of the foreign debt in a way that would assist the reconstruction of the world. For this reason I offer my protest at the way in which this conversion scheme is proposed. I do not believe it is showing anything like the necessary grit and punch behind a policy which alone can help us out of oar difficulties.

Sir JOHN POWER

I have listened very carefully to the whole of this Debate, but I have absolutely failed to discover what the Opposition is trying to advocate. Not a single constructive idea has come from them. The hon. Member for East Leicester (Mr. Wise) made some hints at repudiation. I do not know whether he wishes to adopt the method of Russia—[Interruption]—I have been rather puzzled as to what the suffering poor have got to do with the National Debt. It has been pointed out that the service of the National Debt comes to some £300,000,000. Who pays the interest on the National Debt? The holders themselves. They pay among themselves in Income Tax, Surtax and Death Duties, and not £300,000,000 a. year, but £400,000,000 a year. There is the very simple proposition, that the very class who receive the benefit upon the holding of War Loan are the class that pays the interest on it. They pay 25 per cent. more. I cannot understand how hon. Gentlemen opposite believe that, they are going to get away with it when they talk about the suffering that is inflicted on the poor by this loan.

Another thing is quite obvious. It has been complained that the workers are worse off than they were some years ago. One might reasonably ask what else do they expect after two and a-half years of Socialist government? It was impossible to meet, the charges they incurred and expect to prosper. Then again, we have been told that this Government is proposing panic legislation, and we have all sorts of talk about "panic speeches." The hon. and gallant Member for Central Hull (Lieut.-Commander Kenworthy) has advocated washing out all talk about the present crisis. He denies that there is a crisis. He says that it is better to do nothing. "Let us die quickly," I suppose is his motto. Let him realise that we cannot go on doing that. We have had to face the greatest crisis in our history, one that has been all the more serious because it has not been so obvious as some that we have had to face. Hon. Members opposite describe speeches made in the present crisis as "panic speeches," at a time when we have had to find by drastic means £244,000,000 to balance our Budget for the next 18 months. If that is not a crisis, I do not know what it is. It is no good for hon. Members opposite to talk about panic speeches. Their own Cabinet proposed to impose £56,000,000 of fresh taxation, economies and cuts. They ought not to forget, when they are talking about panic speeches, that their own Cabinet was in a panic when it proposed those necessary measures. I see that the hon. Member for East Leicester repudiates the Cabinet—

Mr. WISE

I said, "Put an inquiry on."

Sir J. POWER

You ask me to inquire. I am inquiring. I would like to know whether the speeches on the gravity of the crisis in which the country finds itself have been justified or not. If the late Cabinet were not justified, why did they propose cuts which we have put into operation of £56,000,000? It is perfectly true that their hand faltered and that they ran away. I hope that the country will soon have an opportunity of expressing its opinion—[Interruption.] The Chancellor of the Exchequer told us the other day, in regard to hon. Members opposite, that their place would know them no more. I think that prophecy will be found correct.

Mr. ERNEST WINTERTON

I do not propose to follow the rather attractive line of entering into the realms of prophecy as to what will happen at the next General Election. I wish to deal with one point made by the hon. Member for Wimbledon (Sir J. Power). He has answered a question which has very often puzzled some of us on these benches, and he has answered it in a way in which we have sometimes answered it ourselves. He indicated that the interest on War Loan is found by the people who are taxpayers. Some of us have long suspected that the people who are receiving War Loan interest receive as much in that way as they pay in taxes and that it would be an advantage to the community if these two items were cancelled out altogether. If the hon. Member desires to use this argument again, I would take the liberty of warning him that it is of a two-edged character.

We have been told again and again that the burden of taxation is always found by the Super-tax and Income Tax payers and by the wealthy members of the community. We now find, on the confession which has just been made, that those people get back again all that they have paid by way of interest. [Interruption.] Some hon. Members on the opposite side are coming at last to a conclusion at which we arrived, that the taxes are not really found by the rich or by the leisured classes, but that the bulk of the burden falls upon the workers who are not able to draw part of their taxation back again in War Loan interest.

I did not rise to enter into close discussion of the subjects raised by the hon. Member for Wimbledon, but I notice that he complained that nothing in the way of constructive suggestion had come from this side of the Committee. Since the value of War Loan has increased some 40 per cent., in future efforts to make conversions of this character, exactly the same principle should be applied to the War Loan interest as has been applied in the past to wages. Why should those who have received advantage by their investment, an advantage created by national conditions such as a fall of prices, be in the fortunate position of not being subject to automatic falls in revenue such as affect the wage earner? I should like to see a conversion loan where it is not left to chance as to what the actual diminution in interest will be, according to the terms which are regarded as favourable at the moment, but where steps are taken towards a method of gradual repudiation of the inflated interest by a scheme which would provide that for a period of years there should be diminutions of one-eighth per cent. or one-quarter per cent., down to a really proper rate of interest, in line with the sacrifices which have been made by other members of the community.

6.0 p.m.

We have suffered since the War period a great diminution in the returns of the wage earner, but the advantage to the rentier and the investor has remained all that time. It has been suggested, in an argument which was put forward by the hon. Member for Farnham (Mr. A. M. Samuel) that because certain portions of the War Loan were subscribed in the early years of the War, that it will be unjust to make a sweeping decrease in the interest payable to-day. Some figures have been taken out of the official returns which show that in the year 1918 the actual value of every pound raised in the country represented in gold not more than 9s. 8d. Commodities carried an abnormal profit at that time, so that translated into terms of goods every pound was down to about 7s. 8d. As a result of measures taken by the then Chancellor of the Exchequer in 1921 and again in 1925 by the return to the Gold Standard, a considerable alteration was made in the value of these investments, so that if the bulk of the War Loan was borrowed when the pound was about. 9s. or 10s., we are paying back to the bondholder 19s. 8d. for every 9s. or 10s. lent by him. If we are to accept the economies which have been made and the reductions in the pay of teachers and police and others, I suggest that the same principle might well apply to War Debt interest and that bondholders should not be the only people immune from that equality of sacrifice of which we have heard so much.

It was remarkable that the Chancellor of the Exchequer in opening this Debate said that there was to be no violation of the terms on which War Loan was issued. There is to be sanctity of contract with regard to finance and investment. It is interesting to compare that sentiment with the steps which have been taken with regard to the sanctity of the contracts between the Government and its own employés, such as the teachers, the police, the soldiers, the sailors and the airmen. I hope that when the terms of this Bill are put into operation, through the powers which we are now being asked to give, those responsible for the Conversion Loan will apply to this inflated interest the scaling-down principle which has been applied to people who are dependent for their livelihood on the wages which they earn. We are not complaining about this Clause but we hope that when conversion is carried out, the principle of equality of sacrifice will be imposed and that the rentier and the bondholder will be called upon to bear the same sacrifice as that which has been imposed on large numbers of the general community.

Mr. SMITHERS

I wish to make some remarks in reply to the speech of the hon. Member for West Leicester (Mr. Pethick-Lawrence). I suppose that when he rose to make that speech the hon. Gentleman was carrying out the orders of his new leader who has said that "it is the duty of an Opposition to oppose." But the only argument which the hon. Gentleman could think of, for opposing or criticising the present proposal, was to cite something that was done 12 years go during War time. The hon. Gentleman complained, as I think also did the hon. Member for East Leicester (Mr. Wise) that in using arguments against Socialism I had made certain disparaging remarks. I never heard, in open and fair Debate a more gross tu quoque. I was supporting the Chancellor of the Exchequer in his efforts to maintain the credit of the country and I was deprecating the attitude of the hon. Member for East Leicester and I think I may say also that of the late Financial Secretary, because they were not supporting the right hon. Gentleman in that object and I argued that they were bringing discredit to this country while I was trying to support its credit. I was stopped by the Chairman from proceeding on those lines and I do not propose to pursue that point further except to say that this morning a well known economist, Sir William Beveridge, writing in "The Times" refers to both policies now before the country and says that: During the election, expectation of success for Labour would cause a flight from the pound by every possible device.

Mr. MacLAREN

I do not think it fair to misrepresent Sir William Beveridge in that way.

Mr. G. HARDIE

That is not the full quotation.

Mr. SMITHERS

I have already said that he refers to the policies of both parties and to the harm which he thinks would result. He says: Either way headlong depreciation might result. But he also used the other words which I have read. I do not want to misquote or misrepresent him in any way. I wish to answer another point raised by the hon. Member for East Leicester and I think by other speakers, who suggested repudiation or partial repudiation of debt. [HON. MEMBERS: "Of taxation."] Or, of taxation. Some hon. Members have suggested a possible diminution of interest but I suggest these are merely other terms for repudiation. The point is this. Hon. Members opposite have cited the cases of France and Australia where the rates were lowered. Hon. Members when they bring forward that argument forget that we are dependent on other countries for our food supply. Australia has enough food to feed her people and so has France. I ask the Committee to bring this discussion back to the present situation and to ask what would be the price of the pound sterling if effect were given to the suggestions of hon. Members opposite?

Mr. G. HARDIE

Twenty shillings.

Mr. SMITHERS

That is not my opinion and it is not the opinion of those who know something about the question. We support the Chancellor of the Exchequer in these proposals in order to try, as the hon. Member for Silvertown (Mr. Jones) has said to save the weekly wages of the people. If repudiation or diminution of interest or any such games as that were played then the pound sterling would depreciate very much and we should reduce purchasing power and wages in this country.

Mr. MAITLAND

I wonder if it is possible for us in this discussion to find some common ground and to approach this subject from a point of view other than the merely partisan point of view. May I venture to try to find some points upon which hon. Gentlemen opposite will agree with me. We on this side along with hon. Members opposite appreciate that in connection with the taxation of the people of the country one must necessarily be influenced and guided first by the ability of the individual taxpayer to pay. Then, having decided on a sound general view of taxation with regard to various classes of society, I think it will be agreed that it would be a wise thing, especially when we are imposing taxation on a scale such as has never been known in this or in any other country, to ask ourselves "Are we taxing the people in such a way that, taking the long view, we are helping to serve the best interests of the country as a whole?" I think hon. Members opposite will agree that that is not an unreasonable or unfair basis upon which to proceed in dealing with this subject.

I asked the Chancellor of the Exchequer some time ago what amount had actually been received in Death Duties over the past 10 years and the corresponding amount which had actually been applied to debt redemption over the same period. This is a very important matter and is germane to this discussion because we are now discussing, perhaps inferentially rather than directly, the National Debt. I was surprised and I am sure the House was surprised to find that the total amount received in Death Duties over the last 10 years was £675,000,000 and the actual cash applied in the manner I have indicated during the same period was £467,000,000. That means a deficit of £208,000,000 or an average of £20,000,000 per year. Whatever may be our views as to the rate at which Death Duties are levied, we must all appreciate that they apply to the capital of the individual and that, having once collected that tax, you cannot impose it a second time. It is only available once, and if it is absorbed into the general finances of the State and spent as income of the particular year in which it is received a very serious question arises. We ought to ask ourselves whether, in fact, that way of raising taxation is in the best interests of the country as a whole.

With regard to the question of War Loan which is dealt with in Part III of the Bill, hon. Members are aware that of the total of £2,200,000,000 a very large part is held abroad. I may also remind hon. Members, however, that a large amount of that War Loan is held by trade unions, co-operative societies, friendly societies, savings banks, and other institutions which directly represent the wage earners or the smallest investors in our country and that they will be affected by whatever is done in this respect. Let us consider the various methods suggested. It seems to me that broadly speaking there are three ways in which we may approach this question and I suggest that, in the way in which some hon. Members opposite have dealt with it, they are doing a disservice to the country. They approach it by suggesting that there should be repudiation. [HON. MEMBERS: "Nobody said that!"] It was suggested by inference. I submit that sterling today is dependent, not upon the Gold Standard but upon the traditions of this country, and if any suggestion of a serious character were made that the indebted, ness of this country should be repudiated, we should be going a long way to destroy confidence.

The second method of approaching the question is by conversion and I think all hon. Members ought to agree upon this Clause because its object is to place the Chancellor in a better position than he is in to-day to deal with the conversion of this stock. It would enable him to deal with it in such a way as to put it on more favourable terms, so far as the State is concerned. The third point of view is to deal with it by way of taxation, and I have already suggested that it is a wise thing to ask whether or not we are imposing taxation in a way that is in the best interests of the people as a whole. It is no use hon. Members suggesting that we can make the poor richer by attempting to make the rich poorer. It does not work out that way in practice. It may be an attractive theory, and a good platform theory, but it does not work out that way in practice. It works out in practice that the taxation to-day is of so heavy a character that people who are accustomed to employ labour have to cease to do so, and sooner or later it has quite an adverse effect from that which is advocated by hon. Members opposite.

With regard to the general rate of interest paid upon the securities of this country, the Chancellor of the Exchequer on the 16th of this month said: The average interest upon the total of our National Debt was only about 3½ per cent."—[OFFICIAL REPORT, 16th September; col. 925, Vol. 256.] Let us assume, in order to meet the arguments of hon. Members opposite, that the whole of the National Debt is represented by the wealthy classes, and let us assume that the rate is 3½ per cent. Then let us deduct Income Tax and Surtax, and we get down to a rate of interest on the whole of our National Debt, on those assumptions, which is equal, not to 3½ per cent., but to something like per cent. or 1½ per cent.

Some hon. Members have referred to proposals of the character that we should attempt to deal with our present indebtedness on the price of money as it was in 1920. Why 1920? The bulk of this money was not borrowed then. The Chancellor of the Exchequer said, in answer to the hon. Member for East Leicester (Mr. Wise), that 90 per cent. of the whole of the National Debt was borrowed before 1920, and much of the money lent had a much greater purchasing power then than it has to-day. If you want to take a case of people who have lost and not made money in connection with national investments, take the holders of Consols, of which there is £700,000,000 outstanding, bearing interest at 2½ per cent. They have suffered a loss of something like 10s. in the pound. I think the real way to approach this question, in view of the very great crisis through which we are passing, is to ask what contributions we, as individuals, can best make in attempting to maintain the credit of our country. We should none of us, on any side of the House, do anything to depreciate any of the investments represented by securities issued by His Majesty's Government.

Lieut.-Colonel Sir WILLIAM ALLEN

I should like to congratulate the hon. Member for Faversham (Mr. Maitland) on the very well-reasoned speech that he has delivered. If we had more of such speeches in this House, it would be of great assistance. I want to deal with a question suggested by the phraseology of this Clause. In the first Sub-section there is a reference made to the notice that is to be given, and further on there is a reference to the expiration of the period of three months next following the day on which the notice was published. How is that notice to be given, or to be received by the various holders of War Stock? May I point out the difficulty which another Department got into by simply publishing the terms on which ex-Service men might apply, and by placing a limit to the date of those applications and appeals? Many are the piteous letters that I and other hon. Members have received from these men, because they never saw the notice which was published in the Press, as many of them lived in districts and places where they never saw the papers. I want to point that out, as analogous to the position in which we find ourselves in regard to the publication of the notice referred to in this Clause. Thousands, if not hundreds of thousands, of the people who hold this War Loan are scattered over the British Isles and elsewhere, some of them in villages where they would never see the publication of the notice in the Press.

Is it possible that the Treasury should adopt a very different means, and try to communicate direct with each individual holder? Otherwise, after the three months have elapsed, and when the Treasury have decided that because they have not applied they are therefore consenting to the conversion of their loan, I can imagine what might happen. These people are mostly the people who can ill afford to convert, and if they do not receive notice, the Treasury will get into very serious difficulty, I am certain, when these people appeal months afterwards and say "I never saw the notice." Perhaps the Financial Secretary to the Treasury will give us some information on that point, and if he cannot promise it now, say that the Treasury will take it into their very serious consideration, so as to prevent all possible difficulty of that nature arising.

The FINANCIAL SECRETARY to the TREASURY (Major Elliot)

I can certainly assure the hon. and gallant Member for Armagh (Sir W. Allen) that every possible step will be taken to bring this matter to the notice of every individual, as well as the general steps which will be taken. It will obviously be most necessary to avoid any semblance of bad faith, especially to the small and scattered holders to whom he referred, and consequently the fullest possible publicity will be given to the proposals, and steps taken, not merely by putting out a few notices in official newspapers and so on, but steps of an order of publicity comparable with that which was originally embarked upon to bring in the loans. In addition, we shall certainly get into touch with anybody individually with whom it is possible to do so.

Mr. MACPHERSON

Could not each individual stockholder be informed?

Major ELLIOT

Certainly, every individual, but, of course, there may be holders of bearer bonds and there may be corporations and so on which we do not know, but every individual whose address we have will certainly be communicated with. We have had a long discussion on the general terms of this question. There may be points which hon. Members may desire to raise on the particular Clauses in this group which we are taking now, and I suggest that we should now go through the particular Clauses, and any points which hon. Members might desire to raise on them I should be very glad to answer so far as lies in my power.

Question, "That the Clause stand part of the Bill," put, and agreed to.

Clauses 12 (Power to make regulations), 13 (Indemnity to trustees and others and to the Bank, etc.), 14 (Provisions as to instruments with respect to War Loan) and 15 (Provision as to cash bonus), ordered to stand part of the Bill.