§ Motion made, and Question proposed, "That the Clause stand part of the Bill."
§ 6.58 p.m.
§ Mr. MORGAN JONESI hope the Chancellor of the Exchequer will be able to give us some explanation as to the reason for certain changes in this Clause. If my memory serves me aright, in the 1928 Finance Act the then Chancellor of the Exchequer made a provision, which was binding upon the Chancellor in 1929 and his successors, that the annual charge in respect of the National Debt should be £355,000,000. That money was to cover, of course, two items, namely, the cost of interest and management and also a Sinking Fund. I think it will be agreed by everybody that, as the interest 1786 falls, so the Sinking Fund would naturally rise in amount. Now under Subsection (1) of this Clause, that fixed sum of £355,000,000, which was to have been the annual charge, is now reduced to £224,000,000, a drop the Committee will see of £131,000,000. This £131,000,000 is made up by three items. There is the abolition of the Sinking Fund, saving, by way of conversions, of interest amounting to £30,000,000, and also a saving of £40,000,000, due to the low interest on Treasury bills. On this occasion the Sinking Fund is abolished. I will not speak of the wisdom of that kind of finance. In ordinary times we would regard it as thoroughly unsound. Whether the present condition of affairs justify it, I need not discuss.
The abolition of the Sinking Fund raises difficulty in regard to certain specific sinking funds which are statutorily attached to particular parts of the National Debt. Under Sub-section (2) of this Clause, money is to be provided for those specific sinking funds by means of fresh borrowing. We are to borrow to pay off debts. As I understand it, the £7,000,000 of which the Chancellor 1787 spoke in his Budget statement is earmarked for that particular purpose. Now the £224,000,000, to which a reduction has been made this year, is not merely a charge for this year; it is to be the "permanent annual charge." It is to be binding upon the successors of the Chancellor of the Exchequer. I put a proposition to the Chancellor of the Exchequer in this way: Suppose there were a rise in the rate of interest of Treasury Bills, then, Since the figure is £224,000,000 and there is no Sinking Fund, clearly, with the rise of interest, the actual cost of management and interest to the State may very well exceed £224,000,000.
To the degree that it exceeded £224,000,000 the Budget would be unbalanced even this year. Not only would it be unbalanced but, to the degree that it exceeded £224,000,000, we would have what might be called a negative sinking fund. We might easily see a rise in the rate of interest this year, and certainly it might happen in future years; although with regard to future years it would be possible for the Chancellor of the Exchequer to alter the terms of the Finance Bill. Even this year we might have a rise of the rate of interest, and to that extent the Budget would be unbalanced. Will the Chancellor of the Exchequer be so good as to give us some justification for the change indicated in Sub-sections (1) and (2) of this Clause? We have no intention of voting against the Clause, but we want some statement on the subject.
§ 7.5 p.m.
Mr. CHAMBERLAINI will do my best to answer the point which the hon. Member has put to me. First of all, I think it may be that the word "permanent" has been a source of difficulty to the hon. Member. The word "permanent" has reference to the structure which has been the form in which we have made our Fixed Debt Charge for a number of years. Circumstances have changed completely, but we keep the framework of that structure in being, and accommodate the changed provisions we are making to the permanent structure in that framework. It does not mean that the sum included in the Fixed Debt Charge is permanently £224,000,000. The sum previously represented by £355,000,000 is now represented by the £224,000,000. 1788 It is perfectly true that the original Fixed Debt Charge comprised both interest and Sinking Fund. The interest varied from year to year and, in varying, might reduce the amount available for the Sinking Fund. If there is no Sinking Fund provided, and there is an increase of the cost of management and interest of the debt additional borrowing has to take place to meet the deficit which would not otherwise have been caused. I think that will make clear the question of this particular arrangement.
§ 7.7 p.m.
§ Sir S. CRIPPSThe right hon. Gentleman has not dealt with one point. He says that this structure has been continued because it is the structure laid down in 1928. Surely the whole basis for that structure has gone. A. fixed sum, covering interest payment and Sinking Fund, was to be put aside annually. There was always latitude in the Sinking Fund for an increased rate on Treasury bills and so forth. As long as one had that latitude in the Sinking Fund, it was a wise and proper thing to make the permanent annual charge on a permanent fixed basis. Has the Chancellor of the Exchequer calculated interest on Treasury bills at the present rate and put that into the sum of £224,000,000?He has not got latitude in his Sinking Fund as in the past, and we want to know if there is any latitude for borrowing if the present extraordinary low rate of Treasury Bill interest rises during the year. If there is not, the right hon. Gentleman cannot do as he could do last year or the year before—fall back on the Sinking Fund for the purpose of making good that interest. This year he has got nothing upon which to fall back, and we are anxious to know whether the rate has been calculated on Treasury Bill interest on the basis of the presen interest —extraordinarily low rates—or whether there is any sum of money in this £224,000,000 which gives some latitude in the Treasury Bill rates daring the ensuing year?
§ 7.10 p.m.
Mr. CHAMBERLAINWhat the Treasury have to do is to make the best estimate they possibly can, and they have to take into account possible variations up and down. In circumstances such as this, when the rate of interest 1789 is what I may call abnormally low compared with the experience of past years, it is not likely there is to be any further decrease, and no such decrease has been allowed for. It is also perfectly true that it would have been possible to repeal this system of Fixed Debt Charge and put in an estimate of the amount required for interest. It was considered that this general idea of a Fixed Debt Charge was one which commended itself to the House, and we did not want to suggest that we desired to put an end to that system, but rather to mark the completely temporary nature of the present suspension of the Sinking Fund. It is anticipated in future years, when we are perhaps in a more happy condition, that it may be possible again to restore the Fixed Debt Charge to a sum approximately in the neighbourhood in which it was to begin with, when this particular difficulty about a possible rise in the rate of interest would not occur.
§ Sir S. CRIPPSIs there anything in this estimate which gives any latitude for an increase in the rates of interest on Treasury Bills during the year?
Mr. CHAMBERLAINI am not prepared at the moment to say exactly on what basis the cost of interest was estimated. If I had had notice of that question, I would have provided myself with the information. At the moment I am not able to get it, but I shall be happy to supply it.
§ Sir S. CRIPPSPerhaps at a further stage, if I ask the question again, the right hon Gentleman may give the information?