HC Deb 25 May 1932 vol 266 cc507-14

I beg to move, in page 14, line 3, to leave out Sub-section (1).

This Sub-section seems to me to be a device to avoid showing that the Budget does not balance. [Interruption.]


May I appeal to you, Mr. Chairman, to obtain a hearing for my hon. Friend. Perhaps you would ask hon. Members to refrain from conversation until they are outside the Chamber.


There is always a certain amount of noise when hon. Members are leaving the House, but I would ask them to leave as quietly as possible and not to indulge in so much conversation inside the Chamber.


This Sub-section is intended to be an endeavour to meet certain losses incurred by the Government in exchange operations by a transfer of money to the new fund. It is rather a curious procedure to start a new fund with a loss, and the only reason for doing so seems to me to be to avoid showing that the Budget does not balance. The sum to be carried forward out of the new fund of £150,000,000 is £8,000,000, and that really means an addition to the Debt, and Sub-section (1) of this Clause seems to have been put in as a piece of window-dressing. We have heard a good deal about the necessity of balancing the Budget, but this Bill would be more honest if it stated that a loss has been made, and, instead of meeting it out of revenue, it is going to be added to the Debt.


We have discussed this matter on several occasions, and the hon. Member has made his point more than once. I think it is known on both sides that this loss was incurred in exchange operations. It is true that it was not incurred while this Government was in power, but still it was incurred as an affair of State, and as such we accept responsibility for it. We are all agreed that the money has to be found, and it has to be found either out of current account or out of capital account. We have decided that it can reasonably be found out of capital account, and that course meets with the approval of the majority of the House. To find another £8,000,000 by taxation this year to cover this loss would not be a reasonable burden to lay upon the nation, and I am certain that it would do more harm than good. That is putting the matter from a very low point of view indeed. I hope that the hon. Gentleman will accept this explanation and will not press the Amendment.


We only desire that the Committee and the country should appreciate clearly what is being done in this Sub-section. It is important to notice that the Chancellor of the Exchequer, who was such a purist as regards the balancing of his Budget, has now admitted, through the Financial Secretary, that this is the capitalisation of an annual expenditure, and that it is a sound and proper thing to do.


It is not a capitalisation of an annual expenditure. Even in this country we do not go off the Gold Standard every year.


The right hon. and gallant Gentleman will not suggest that this loss was of the nature of a capital loss. It was a loss of a nature that would normally be borne in the annual Budget of the country. I agree that there are often circumstances in which it is advisable that such a sum should be capitalised; in fact, it is wise to capitalise many sums, such as unemployment insurance in exceptional years; but when one is so very careful to point out to others that they must not capitalise sums like this, it is well that what the Government themselves are doing should be brought to the attention of the House.


We cannot accept the whole responsibility for all the transactions carried out by the hon. and learned Member's Government, but we do accept responsibility for this one.


May I point out to the right hon. and gallant Gentleman that he has not only taken over the debt, but the author of the debt?

Amendment negatived.


I beg to move, in page 14, line 15, to leave out from the word "Account," to the word "assets," in line 22, and to insert instead thereof the words: and for the purposes of the note issue, gold, silver, or. The object of this Amendment is to elucidate the purpose and meaning of some of these very curious and, on the face of them, rather absurd provisions with regard to the valuation of the assets held by the Issue Department of the Bank of England. According to Sub-section (2) of the Clause, assets in foreign currency—and the Chancellor of the Exchequer has an Amendment to include Empire currency as well—are to be valued at the rate of exchange prevailing at the date of each valuation. That is to say, if the Issue Department held £10,000,000 worth of dollar notes or franc notes convertible into gold, they are reckoned at £10,000,000. Similarly, if the Issue Department held £10,000,000 worth of South African gold minted into South African sovereigns, they would also be held at £10,000,000. But if, instead of that South African gold minted into South African sovereigns, it buys £10,000,000 worth of bar gold, that gold is reckoned, not at £10,000,000, but at £7,500,000 or thereabouts. It means, in fact, that, at a time when the cause of our world trouble is largely the sterilisation of gold, we are pursuing a policy under which 25 per cent. of all the gold held by the Bank of England is sterilised from the point of view of the note issue in circulation. While it is true that, when the Issue Department buys gold, this fictitious loss which it makes by reckoning its gold not at its true value but at an arbitrary value is to be made good out of the Exchange Equalisation Account, that simply means that so much of the Exchange Equalisation Account is withdrawn from use and the policy of deflation is again pursued, to the detriment of the very policy which the Chancellor of the Exchequer has announced, namely, the policy of endeavouring to raise the price level.

I find it very difficult to understand any meaning in the Clause except that there are still certain people who hang on to the old Gold Standard, who are convinced that there is only one normal, reasonable and possible price of gold, namely, £3 17s. 10½d. sterling for an ounce troy, and who refuse to accept the situation as it now exists and treat gold as a commodity used as a basis of our currency at its actual sterling value. It seems to me that that is mere perseverance in absurdity. It lands us in difficulties, it leads to an unnecessary measure of deflation and, worst of all, it asserts the old gold mentality and creates the impression at home and abroad that our object is to get back to the old Gold Standard of £3 17s. 10½d. per ounce.

The Financial Secretary has already, on a previous Amendment raising substantially the same issue, promised to give the matter his most earnest consideration. I do not ask him to accept our Amendment at this moment, but to give us the same undertaking so that, when the Bill reaches its final form, it shall not in any part of it unnecessarily pre-judge in the eyes of the world our future policy and give the impression that our purpose is to get back to the old gold parity, and, meanwhile, deprive the country of the use for monetary purposes of a quarter or more of the gold that it has in its possession. Not only this country but the whole Empire, and all the countries that are attached to sterling, are vitally concerned with the level that we maintain for sterling. It is a matter of life and death to Australia, India, and the Scandinavian countries. Anything that would raise the sterling price level would give them a chance of getting on their feet and meeting their obligations. Anything which depresses the sterling price level tends to make it impossible for them to go on. We are deliberately depressing the sterling price level by knocking down our note issue and basing it, not on the real value of gold, but on a purely fictitious value which can have no other meaning than the hope that we are going to return to the Gold Standard. I trust very sincerely that the right hon. and gallant Gentleman will be able to give the House an assurance that he will lay the whole matter before the Chancellor of the Exchequer, emphasising the strength of view held in every section of the House on this question, with a view to the Chancellor reconsidering it before we get to the Report stage.


I sincerely hope, as indeed, I am certain, that the Financial Secretary will not be under the same misapprehension as the right hon. Gentleman the Member for Sparkbrook (Mr. Amery). This Amendment has no connection whatever with the one on which the Financial Secretary gave an assurance to the House. In this case, I am sure the Government are correct. If it were merely a matter of bookkeeping and of just altering the theoretical valuation in the Issue Department, the whole matter would be open to argument. This Amendment would involve something quite different and would mean that whenever the sterling exchange was falling against our will and the price of gold therefore apparently going up, just at a time when in ordinary circumstances the Bank should be reducing credit, the Bank would be in the position of being expected, owing to the increased rating put upon its gold in the Issue Department, to cause expansion, and vice versa, which is exactly the opposite to what we are attempting. There is another point which is even more grotesque. If this Amendment were carried, the unfortunate Bank of England would find itself in a preposterous position in dealing with short movements of liquid money. What would be the position? Money would be coming into London against our will and altering the value of gold. The Bank of England would therefore have to put up the Bank Rate in order to force a contraction of credit which would probably attract more short money, and if the Amendment were accepted, would be put in a perfectly impossible position. For these reasons, I hope the Financial Secretary will not accept the Amendment.


I am glad to have an opportunity of congratulating the hon. Member for Central Southwark (Mr. Horobin) on the acuteness of his diagnosis, for he has pierced this difficult and complicated question to the heart. It seems to me that, if the present suggestion were adopted, the effect would be to re-value gold at intervals. What effect would that have on the object which the Government have in view, namely, to check exchange fluctuations? Imagine that there was a flight to the pound and that the pound went up from 3.60 dollars to 4 dollars. What would happen, if the Government did not wish it so to rise? Already the Government have stated that they do not wish such a rise to take place. It would embarrass traders. The only course would be to expand credit and thereby to bring down the pound. Under the Amendment, as the sterling value of gold in the Issue Department fell, the size of the note issue would have to fall by an equivalent amount—say, for example, from £162,000,000 to £148,000,000—and the effect would be to force the exchange value of sterling still higher. The reverse process would take place in the reverse state of circumstances.

I will, of course, discuss with the Chancellor of the Exchequer what I think is the underlying motive of the Amendment which has been moved by my right hon. Friend the Member for Sparkbrook (Mr. Amery). It is that a considerable inflationary movement should take place, but I do not think that it would be secured in this way. It would be an unsound way to do it. I beg of my right hon. Friend to reconsider his argument in the light of the illustration which has been given, and I promise on my part carefully to consider the argument as it is printed in the OFFICIAL REPORT and to go over it with my right hon. Friend the Chancellor of the Exchequer.


I am content with that undertaking but not with the argument which my right hon. and gallant Friend has used. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Amendments made: In page 14, line 22, leave out the words "foreign currency," and insert instead thereof the words "currencies other than sterling."

In line 37, leave out the words "foreign currency," and insert instead thereof the words "currencies other than sterling."

In line 38, leave out the words "of the Bank of England."

In page 15, line 12, leave out from the word "Account," to the end of the Subsection, and insert instead thereof the words: there may, in lieu of a payment in cash, be transferred from or to the Account securities equivalent in value, in the opinion of the Treasury, to that amount.

In line 19, leave out the word "foreign."

In line 20, leave out the words "foreign currency," and insert instead thereof the words "currency of any country and."—[Major Elliot.]

Motion made, and Question, "That the Clause, as amended, stand part of the Bill," put, and agreed to.

Clause 23 (Winding-up of Account) ordered to stand part of the Bill.

Motion made, and Question, "That the Chairman do report Progress, and ask leave to sit again," put, and agreed to.— [Captain Margesson.]

Committee report Progress; to sit again To-morrow.

The remaining Orders were read, and postponed.

It being after half-past Eleven of the Clock upon Wednesday evening, Mr. SPEAKER adjourned the House, without Question put, pursuant to the Standing Order.

Adjourned at One Minute after Twelve o'clock.