§ Considered in Committee under Standing Order No. 71A.
§ [Sir DENNIS HERBERT in the Chair.]
§
Motion made, and Question proposed,
That it is expedient to make provision by Act of Parliament with respect to the following matters: —
§ The FINANCIAL SECRETARY to the TREASURY (Major Elliot)I am sure that the Committee desire, in the first place, to express their sympathy with the Chancellor of the Exchequer. Fortunately he is not suffering from anything less classic than the classic ailment of Lords of the Treasury, a gouty toe. The amount of extra testiness which it may possibly put into his temper may be no bad acquisition for a Chancellor of the Exchequer faced with the extremely difficult situation with which all Chancellors of the Exchequer will be faced for some years to come. I regret his absence the more since this Resolution is a Resolution undoubtedly of the very greatest importance. I know of no provision in the present Budget which has raised more general interest in this country, and indeed throughout the world. In fact the only danger is that it may arouse over-great hope, because, as I have said before and may have to say again, all these provisions are founded upon the balancing of the Budget at home and strict attention to economy on the part of the Administration of the day.
The Resolution brings sharply before us the conditions of the era in which we now are. The Treasury is asking for authority to establish a Fund for the purpose of strengthening the currency and checking undue fluctuations in the exchange value of sterling. It is impossible for trade and industry to continue if the medium in which they are conducting their negotiations is constantly convulsed by financial earthquakes. The desire of the Government in this is primarily to be the handmaid of trade and industry in this country, without which it is impossible for any of the schemes for social amelioration brought forward by hon. Members from time to time to have the slightest permanent effect. The purpose of the Fund, therefore, is a greater degree of control over the currency. The Fund is to be built around the nucleus of the old Foreign Exchange Account. That Account gives a nucleus or a core of £25,000,000 sterling. In addition, the Treasury seeks power to borrow, for the purposes of this Fund, a sum not exceeding £150,000,000 sterling. 55 It seems a very large amount, but I shall refer to it again at a later stage, and I hope to show the Committee that, large as it is, it is by no means out of scale with the gigantic movements which have taken place in liquid capital during the last few months in the exchanges of the world.
4.0 p.m.
The Account will be of service in more than one way. In the first place, it will be used to purchase and hold gold and/or foreign exchange and securities of all kinds. It has been said by some, particularly on the other side of the House, that this is the Labour Government's plan to mobilise foreign securities. Yes, but like any other army, the army must first be raised before it can be mobilised. We must first have soldiers before we can call upon them to advance under our orders, and the purpose of this is to raise the necessary soldiers without which all the orders which we might give would be mere empty beatings of the air. It is true it will be possible for us to mobilise foreign securities, but the first step is the purchase of such foreign securities.
Action of this kind, as I say, is necessary, because, first of all, there is an enormous distrust throughout the world of currencies, which has been accentuated in recent months, and short-term money has been held at enormous sacrifice to the holders of possible interest return, so only that they can be assured that their capital itself will not be whittled away or swept away by some of the sudden cataclysms which we have all seen take place in recent months. This mass of capital is extremely timid, and moves from place to place at a breath or rumour, not subject to the ordinary rules of trade or commerce. As my right hon. Friend the Member for Sparkbrook (Mr. Amery) said, it is like a ship, and one of the purposes of this Account is to erect bulkheads in the ship, and to make sure that whatever sudden heel takes the vessel, it will not thereby cause the cargo to shelve over to one side, and give the ship a list from which it will take a very long time to recover.
The liquid resources of the world have been setting towards London, partly because of the confidence which was engendered by the rapid repayment of last year's credits; partly because of the farther confidence engendered by the 56 balancing of last year's Budget and the balancing of this year's Budget, winch, the Committee has reason to know, has been in many ways quite as difficult a task as the balancing of the Budget of Viscount Snowden; and partly because of the feeling that currency has had its fall in this country, and therefore is safer than other currencies to which that might have happened; and lastly, the speculators feel that there is the chance of a gamble in sterling, which may bring substantial profit to them irrespective of what injury it causes to the trade and industry of the country in whose currency the speculator happens to be gambling. The result, for the time being, is to strengthen sterling. But these fluctuations which have occurred are a great embarrassment not merely to the traders of our country, but to the traders of the sterling area, the traders of the many countries which have made the most unprecedented use of following us in their currency, although under no legal compulsion whatever to do so.
Many of the Dominions and Colonies, India, Australia and other countries also are subject to great embarrassment if sterling makes these sudden and unmanageable lurches from one side to the other, all the more so since this foreign money is not good money in the sense that we can confidently rely on retaining it. It may be quickly moved away, and, indeed, in the past we have seen it move away very swiftly indeed. Another crisis such as that, whatever our views on monetary policy may be, is one which hon. and right hon. Members in every part of the House desire fervently to avoid. Consider the size of the movement which took place last autumn. In a few weeks there was a withdrawal of some £200,000,000 from London. Our present resources are utterly inadequate to deal with movements of capital upon that scale, and it is for that reason that we seek authority from the House to build up this formidable mass of manoeuvre of £150,000,000 which the Treasury may use, in addition to the £25,000,000 already existing in the Dollar Exchange Account and the other resources of this country.
The Resolution itself sets out in Subsections, very clearly the technique by which we hope to operate, and the various puroses for which the fund will be ap- 57 plied. The earlier Sub-sections give us the power, first of all, to establish the fund, and secondly, to issue to the fund the sum of £160,000,000, and to transfer to the fund all or any of the assets of the Exchange Account. I beg the Committee's attention to this new point, that this is a Resolution enabling us to draft the Clauses of a Bill. This is not the Finance Bill itself, but draft Clauses of the Finance Bill. We must have this Resolution, but the actual time for close and intimate scrutiny of the proposals before us will come on the Second Reading and subsequent stages of the Finance Bill itself, when the actual details of the proposal are set down for the consideration of the House. This is an enabling Resolution, enabling us to draft the necessary Clauses of a Bill which, in its terms, will enable, although not compel, the Treasury, and, indeed, the Government, to take such action.
Sub-section (4) of the Resolution is, in fact, the operative Sub-section. It authorises the Treasury to raise money in any manner in which they are authorised to raise money for the purposes of the War Loan Act, 1919. The Resolution is drawn in common form, and authorises the Bank of England "to advance to the Treasury any money which the Treasury are so authorised to raise." That is a common form and appears in all Consolidated Fund Acts. It is only authorising the Bank to make temporary advances to the Treasury. The Financial Resolution does not, of course, cover all the points which will be in the Bill. The Bill, for instance, will make plain that the new account is a capital account, that it is not to be drawn upon for revenue purposes as the old Dollar Exchange Account was drawn upon. Some of the fascinating suggestions brought forward by the right hon. Member for Epping (Mr. Churchill), in his otherwise most brilliant and informing speech a few nights ago in this House, will therefore be for ever estopped, because I do not think that the House would really consider that the authorising of the Government of this country to raise money by borrowing to enable the buying of beer would be a sound policy. I am reminded by my right hon. Friend the Lord President of the Council that it would be a liquid asset. It would be on a temporary and not a permanent basis. The only 58 reference we have to these Clauses in the Resolution is the power which is given in the Resolution for the winding-up of the fund; that is to say, when the fund is wound up, it will be clear in the Clauses of the Bill that all its assets will have to be applied to capital.
I come now to a further point of the greatest interest to the Committee in general, namely, the relation between the Issue Department of the Bank of England and the new account. That is to be found in Sub-section (5, a) and (5, b) of the Resolution. There will be found the proposals of the Government connecting the Issue Department of the Bank of England and the new fund. The Issue Department holds cover against the note issue, and that amounts in all to nearly £400,000,000. The management of that department is in the hands of the Bank of England, subject to their notifying the Treasury that security is held under the Currency and Banknotes Act, 1928, and the proceeds of the note issue are paid to the Treasury. There is, of course, always a great suspicion in the minds of hon. and right hon. Members opposite that whenever the Bank of England is mentioned—though the hon. Member for East Aberdeen (Mr. Boothby) has other views about the Bank of England—that the Bank of England is operated by greed, whereas the hon. Member for East Aberdeen thinks that it is operated by malignancy. I would only 3ay that the management of our note issue has been under the expert control of the Court of the Bank of England, and so great is the confidence engendered throughout the world that country after country has joined what is called a "sterling convoy," that is to say, has followed the pilot light of these expert managers, and when any other committee is capable of showing a result like that, then, indeed, it will be time to change our expert managers.
§ Mr. BOOTHBYDid the Bank of England deliberately take us off the Gold Standard?
§ Major ELLIOTI will deal with that when we come to the specific point which allows for the repayment by the State of the loan made on the Issue Department of the Bank, and I can only say that the Bank of England did its utmost to keep safe the commercial honour of this country which had been entrusted to it.
§ Colonel WEDGWOODAt a loss of £30,000,000.
§ Major ELLIOTIt might have lost £300,000,000, and still have made a profitable transaction. The commercial honour of this country is valued far above that loss, and that the Bank of England should fulfil the obligations and undertakings into which it has entered in the face of the whole world—[Interruption.] I am explaining the action of the Treasury in allowing these great amounts to be managed by certain expert managers, and certainly the skill of the Treasury will be shown, not merely in managing its affairs, but in the skill with which it elects managers of these affairs, and often skill in selecting competent managers is as great as the skill necessary in the management itself.
Sub-section (5, a) provides the valuation which is to be put upon the foreign exchanges held in the Issue Department, that is—to put it colloquially—not what it will cost, but what it will fetch, the value at all times at the current rate of exchange irrespective of the purchase price. To enable that to be done, securities will be exchanged as necessary between the new Account and the Issue Department, which must always be kept strictly and completely solvent. The gold held by the Issue Department can only be valued at the old par. It is not proposed at this time to re-value the gold, for that must await the re-stabilisation of sterling at the level we are determined to re-stabilise it. Paragraph 5 (b) deals with new purchases and sales of gold, and provides that these also shall take place at the old par. In order to free the operations of the Issue Department from paper gains and losses in following up and down the gold reserve holdings, it is provided that losses or gains to that department shall be made good from the new Account. The effect of these proposals is that the Issue Department is absolutely solvent in every contingency. The note issue will be covered, pound by pound, by real assets at all times and in all conditions. In normal circumstances there will be a substantial surplus of assets.
§ Colonel WEDGWOODIf the gold reserves are increased shall we be able to have increased credits?
§ Major ELLIOTThat depends on where the increase takes place, but the right hon. and gallant Gentleman has put down an Amendment upon that point and I shall deal with it in due course. What I have said, covers, I think, most of the operative parts of the Resolution. There is a further specific point covered by a specific paragraph. In the Resolution which provides for making good to the Issue Department out of this fund, losses sustained in connection with the credits raised by the Bank in August, 1931. That, of course, is a transaction which was carried out at the instance of, and under the authority of the late Labour Government. We have inherited from them a liability which, of course, we shall faithfully discharge. The subject was debated in the House of Commons on 30th September last and as there is a specific Amendment on the Paper dealing with it, I shall pass from it for the present. There is a small point in connection with paragraph 5 (d), declaring the law as to the securities which may be held in the Issue Department. That is simply to say whether securities in these foreign currencies are, technically, securities or not. It is counsel's opinion that technically they are securities but it is desirable to put it beyond dispute. Therefore we are adopting a declaratory clause to declare that for these purposes the Issue Department shall be entitled to count such assets as, in fact, securities.
This proposal attracted widespread interest in the House of Commons and was the subject of contributions to Debate from the right hon. Gentleman the Member for Sparkbrook, the right hon. Gentleman the Member for Hillhead (Sir E. Horne), and the right hon. Gentleman the Member for Epping, which were equal to any financial speeches made in the House of Commons at any time. They sounded a forward note which is the essential spirit of great Britain to-day— the desire not merely to analyse the happenings of the past but to go forward from there, and confidently to embark upon new practices and new methods of procedure, which, it is true, may get us into difficulties, but which can scarcely get us into greater difficulties than our past experiences and practices. [HON. MEMBKBS: "Hear, hear!"] Hon. Members are always glad to cheer a new departure. Those of us who have, even in a mild way, the responsibility for govern- 61 meat, take those steps with much greater reluctance. We are piloting a quarter of the world. This convoy, of which the right hon. Gentleman the Member for Epping so eloquently spoke, carries in its holds, not merely treasure, but a great portion of the hopes of western civilisation. False sailing orders to that convoy might lead to a disaster, the extent of which it would be almost impossible to evalue, but which might easily result in a crash from which western civilisation would scarcely ever recover.
We have to realise that we are embarking on a policy which may lead to losses. It was said by the right hon. and gallant Gentleman the Member for Neweastle-under-Lyme a moment or two ago that the country had made losses of £20,000,000 to £30,000,000 in defending its currency. It is quite possible that losses may be made in the management of this fund. We are undoubtedly asking the Committee to take a course which may involve losses, but we hope that the gains which we seek to secure, will far outweigh even the risks that we are asking the Committee to take. The right hon. Gentleman the Member for Hillhead said, "Go, I beg you, to the utmost limits of discretion in declaring the policy which the Government desires to adopt. Here is this great engine. What are you going to do with it?" Let me then go to the utmost limits of discretion in that matter.
I will say that the Government view with sympathy the arguments put forward by the right hon. Gentleman the Member for Hillhead, but that it would be impossible for the Chancellor to go beyond the most definite statement which he made in the House, that he had no wish to see the pound forced to a level which would be injurious to our traders. The interests of the Government must be the interests of the trade and industry of this country, and the management of this fund will be in accordance with that express statement. There is a final question which I think takes this form. "This is your policy. How will you see that this policy is carried out?" This is a Treasury fund, raised under the authority of the Lords of the Treasury. The Lords of the Treasury will sign the documents under which the fund will move. It is a fund which is being brought into existence, as the Chancellor has said, to operate for the Treasury, and all the 62 profits which may be made by that fund will go to the Treasury.
The object of the fund is not a narrow object. It is the object of laying down rails upon which the trade and industry of this country may run smoothly, and in achieving that object we have the whole weight and pressure of this vast, well-informed, expert Committee of the House of Commons, which brings careful commercial opinion and considered commercial thought into our financial councils, as well as merely financial statements or departmental statements upon which a Department or even the Bank of England might operate. We have the power of debating these matters upon the Treasury Vote, and upon the salary of the Chancellor of the Exchequer. The people ultimately responsible for the fund are servants of the House of Commons, and their action can be reviewed by the House of Commons. I hope that the House of Commons would not rashly comment upon or foolishly force the hands of those who have to carry so great responsibility. But I see no reason to fear that the House of Commons will take any such course. The House in the past has known when to speak and when to hold its peace on great matters involving great national issues. There is, for example, the consideration invariably extended to a Foreign Secretary who is about to enter upon difficult negotiations with foreign countries and who throws himself upon the mercy of the House asking that they shall not tie his hands when he goes into those critical discussions.
These are critical discussions of theory and practice into which the Chancellor of the Exchequer, the Government of the day and its expert managers will have to enter in the weeks and months which are immediately before us. I am asked to go to the limits of discretion. I have already gone to those limits. Think of the condition of the market if I stated suddenly some vital decision which had behind it the power and weight of £150,000,000 sterling. We are surrounded by a great multitude of witnesses, not all of them entirely actuated by the desire to do nothing but what shall be most favourable in all circumstances to the Government of the day. The whispering galleries of the world are ringing with rumours about financial affairs just now. 63 The speculators of the world who have looted and plundered so many great currencies know well what a city this is to loot. "What a city to loot" said Bismarck. There are other financial Bismarcks with greater power to loot than ever he had watching this City. [HON. MEMBERS: "Blücher."] I knew it was an eminent Continental statesman and perhaps I was thinking too much of the administrator and not sufficiently of the soldier. But "what a city to loot." The City of London is still the greatest, the most prosperous, and the most confident of financial centres to-day, and it is in that position because in the past the British people have known how to combine politics in the best sense with finance in the best sense.
It is only by relying upon those traditions that it is possible to take a step of the importance that we ask the Committee to take to-day. "We are the people," said the right hon. Gentleman the Member for Hillhead, "God help us, who have to manage the currency." I do not know any other country in the world in which a statement such as that would not have been followed by an immediate scramble for the doors by everybody, determined to get out of that currency before another 20 minutes had passed. If the people of this country can maintain that coolness, that far-sightedness and that commercial integrity which they have shown in the past, then this experiment will succeed. But it is an experiment, and, as in all experiments there are possibilities of failure as well as possibilities of success herein. We believe that the possibilities of failure are more than over-balanced by the possibilities of success, and in that belief, we ask the Committee to give us the Resolution.
§ 4.30 p.m.
§ Sir STAFFORD CRIPPSWe could hardly fail, as has already been stated in the Budget Debate, to welcome this step forward towards a programme which we have insistently recommended and demanded ever since the National Government came into power. There were two interesting statements in the right hon. and gallant Gentleman's speech, in introducing this Motion, which I think are worthy of remark. He told us that the cause of the trouble last autumn was very 64 largely this large floating international sum which has been used with such devastating effect by the international financiers in so many countries and with so many currencies; and it is pleasing to get at last from the National Government an admission of what everybody knows was really the difficulty of last autumn, because hitherto all sorts of suggestions have been made, but the right hon. and gallant Gentleman, with that financial common sense which he always displays, has told us, quite fairly and frankly now, that the real cause of the difficulties of last autumn was this large sum of international money which was rapidly withdrawn from this country without warning and led, therefore, to the necessity of making the borrowings which had to be made, both by the Bank and by the Treasury, on foreign exchange account.
§ HON. MEMBERS: Why was it withdrawn?
§ Sir S. CRIPPSThe reason why it was withdrawn was the reason why it is always withdrawn from every country— speculation.
§ HON. MEMBERS: Lack of confidence !
§ Sir S. CRIPPSWhether it was lack of confidence or speculation may be a mere matter of words. It was withdrawn from this country because the owners of it thought they could make more money by placing it elsewhere. They are now repeating that process as regards America and France, and I do not imagine that hon. Members opposite suggest that, so far as currency is concerned, there is any very serious risk in France at present that it is not likely to be met by gold on the market, if necessary. It is not a question that they are fearing to lend their money because there is not enough gold in France to back the currency, but because they think that, by taking it away from France, they will make more money by speculating elsewhere. That has generally been the reason, ever since the War, that has led to the movement of this large sum of money, which is estimated to be from £250,000,000 to £400,000,000, which has been floating about from one capital to another just as it may please the international financiers, as the right hon. and 65 gallant Gentleman stated, without the slightest care for the good or the value of the currency of any particular country. The second interesting statement which he made was that he agreed that this was really—
§ Whereupon, the Gentleman Usher of the Black Rod being come with a Message, the CHAIRMAN left the Chair.
§ Mr. SPEAKER resumed the Chair.