CLAUSE 23.—(Power of Treasury to guarantee loans issued to redeem existing guaranteed loans.) (Hansard, 5 June 1934)

§ Mr. ALBERY
I beg to move, in page 14, line 27, after the first "loan," to insert "of the same maturity."
The reason I have put this Amendment down is that it is particularly necessary that this Committee and the House of Commons generally should have special regard to the question of guaranteed loans. I do not believe that the Clause as drafted intends to do anything but make provision for a perfectly reasonable replacement, by conversion, of any loans guaranteed by the British Government which might be suitable for conversion, but as it is drafted it appears to me that it might possibly give a greater degree of latitude to the Treasury than would at first be supposed. If I may give an example, it seems to me that if a loan, possibly guaranteed for a foreign State, were to come to maturity in five years' time, there is nothing in the Clause to prevent the Treasury from replacing it by a so-called conversion loan which might have a maturity of some 20 or 25 years' later date than the maturity which was being replaced. If such a thing as that occurred, the Treasury would be in fact guaranteeing what would amount to an entirely fresh loan, without the prior consent of this House. That, I think, is an entirely undesirable thing to do.
To show how careful we ought to be about these matters, one has merely to look at what has happened already in the case of certain loans that we have guaranteed. There is at the present moment a loan guaranteed to Greece, which is in default. We guaranteed it in gold, and it is costing a great deal to protect our guarantee. We have guaranteed a loan 829 to Austria, and unfortunately there is every reason to believe that that loan would be in default if we had not guaranteed another loan to help them pay the interest. If my hon. Friend the Financial Secretary to the Treasury could assure me that I have misread the Clause, and that the Clause will not permit of a conversion loan being replaced by one of a very much longer maturity, I would save time by withdrawing my Amendment. He will refer me, possibly, to the last part of Sub-section (1) of this Clause: Provided that no guarantee shall be given under this section unless the Treasury are satisfied that the substitution of that guarantee for the guarantee of the loan to be redeemed will benefit the Exchequer. But I must tell him that I should not consider that that was a satisfactory explanation. I take it for granted, of course, that in this matter the Treasury will on all occasions act in a manner which it believes to be to the advantage of this country, but it, like other people, occasionally makes mistakes, and in this matter of giving guarantees past history already shows that it is very dangerous, and I do not think that a responsibility of that kind ought to be parted with by this House of Commons.

Mr. HO RE-BELISHA
The whole Committee recognises in my hon. Friend the Member for Gravesend (Mr. Albery) a vigilant guardian of the financial practices of the nation, and it is right and proper that any powers taken by the Treasury should be closely investigated. I do not know whether I shall succeed in assuaging the anxieties of my hon. Friend, but if it be his desire to elicit a statement of the Government's intentions, I think their intentions are entirely in consonance with his own desires as expressed in his speech. As the Clause is drafted, there is nothing to prevent the Treasury from guaranteeing a conversion loan for a period extending beyond the date of final maturity. There is nothing to prevent it, and we do not think it would be safe to insert a proviso to that end, for if we did so, it might be in conflict, in our judgment, with the actual proviso in the Clause which was read to the Committee by my hon. Friend, and which says that no guarantee shall be given unless the Treasury are satisfied that the substitution of that guarantee for the 830 guarantee of the loan to be redeemed will benefit the Exchequer. We are, therefore, called upon to judge, when there is a question of a conversion, whether or not it will benefit the Exchequer, and we must be satisfied under that head. My hon. Friend, with his great experience in the City of London, will realise that when there is a question of making a conversion loan the Treasury must compare the risk under a scheme of lower annual payments over a longer period with the risk under a scheme of higher payments during a shorter period. The Treasury must, I submit, be trusted to exercise a discretion in the national interest. We have limited our discretion in the most practical way possible by providing that the conversion loan—and this is a part of the Clause that the hon. Member did not read—must be solely for the purpose of providing for the redemption of the first-mentioned loan. It must be solely for that purpose, and it cannot be used, except in defiance of this provision, for making a loan of an extended period which was never originally contemplated. I do not know that I have satisfied my hon. Friend, but I submit to him quite seriously that the acceptance of his Amendment might be in direct conflict with that proviso, which imposes upon the Treasury the duty of assuring itself that the terms of any conversion loan shall be of benefit to the Exchequer.

§ Mr. ALBERY
Will the hon. Gentleman mind explaining how it will prevent that?

§ Mr. HORE-BELISHA
I endeavoured at the outset of my speech to explain that, and short of repeating myself I cannot explain it any further. I say-that the Treasury must have regard to whether a conversion loan will benefit the Exchequer, and in order to do so it must compare the risk of lower annual payments over a longer period with the risk of higher payments over a shorter period. Anyone making a conversion loan must take those two factors into consideration, and if we have to extend the period in order to save the interest, then we are acting in the interests of the Treasury. My hon. Friend would prevent us from extending the period. Therefore, the Treasury might not be able to secure the very best terms, and that, I say, would be in conflict with the proviso to this Clause.

§ Mr. ALBERY
May I point out to my hon. Friend that, first of all, there is no obligation to make the conversion? We are talking of a loan which is about to become due. Even if the Clause were altered as I suggest, the Treasury would still be able to consider whether it was an advantage to make a conversion or to leave it as it was. Further, I do not think my hon. Friend has taken another point into account. He talked of the interest, which is of importance, but this is only a question of a guarantee, and when it comes to a question of risk, there can be no doubt that a shorter risk at a higher rate of interest, if it is guaranteed, must always be less than a longer risk at a lower rate of interest. I should not see any objection if my hon. Friend varied my Amendment so as to give the Treasury a latitude of five years, but I think it is altogether wrong for this Committee to allow the Treasury to do what in fact is giving this country's guarantee to what is in practice a fresh loan.

§ Mr. HORE-BELISHA
My hon. Friend now raises two further points, with which I will try to deal. There is, of course, no compulsion to make a conversion at all. The position is that there are borrowers enjoying a Treasury guarantee who would be desirous of converting on to a lower interest basis if they could retain the guarantee. That is the purpose of this Clause. There is no compulsion—it is a purely voluntary act—and before consenting to continue the guarantee the Treasury has to be satisfied that it is in the national interest that it should be so continued. The lowering of the rate of interest, says my hon. Friend, is of no specific value to the Treasury. Of course, it is not in any direct sense, but if the Treasury has given a guarantee to any company or a borrower, and the borrower can get his money on better terms, then the company is in a sounder position, and there is less chance of the guarantee having to be called upon. That is the answer to the point raised by my hon. Friend.

Captain CROOKSHANK
My hon. Friend has raised a point of substance and importance, and I think the Financial Secretary would be well advised to consider the matter further before the Report 832 stage. If he would do that, it would be very helpful. I cannot see the value of the proviso that the Treasury is to be satisfied that the new guarantee is going to be to the benefit of the Exchequer. That is what the Treasury is there for. Does it mean that when this proviso is not put in the Treasury loses all interest in anything to the Treasury's advantage? The wording does not seem to be adequate, nor does it seem to me that if we pass this Clause Parliament maintains sufficient control over these possible conversion operations. The Financial Secretary did not tell us what series of loans the Treasury have in mind in putting this Clause into the Bill. Is it a very large volume of loans that is likely to some up for possible conversion, or is it one or two specific loans? In which case they are taking far too wide powers. If it be a question of guarantee, then Parliament should retain control in each specific case.
In this Clause we are giving, apparently, to the Treasury, if this form of words be accepted, a complete option, without reference to Parliament. All they have to do under Sub-section (4) is to come to the House with the statement of the guarantee given under the Subsection as soon as may be after it has been given. Therefore, Parliament has no say in the matter. While it is very interesting to get a report after the event, obviously that is no check on the Treasury with regard to the terms of a conversion operation of this kind. I hope the Financial Secretary will look into the matter further. My hon. Friend said that he did not particularly stress the words, "of the same maturity," but that he was willing to give a little time if the Government thought a few years would help them better. I do not think that is right on the information so far vouchsafed to us—there may be more forthcoming because it is our experience in these financial Debates that you start a small point and before you have finished you have discovered a great deal of information, interesting and useful, which otherwise we should not have elicited—to give this unlimited power to the Treasury. The Financial Secretary did not give any indication whether this is a big thing or a small thing; it is just a thing. We want to know which it is. If it is a matter of some real consequence, then 833 we think that a little more thought and a little more explanation would be an advantage. The House should maintain the general principle which all Parliaments have adopted in regard to guaranteeing loans.

§ The CHAIRMAN (Sir Dennis Herbert)
The questions that the hon. and gallant Member has asked are hardly covered by the Amendment. They could be better discussed on the Question, "That the Clause stand part."

§ Mr. CHARLES WILLIAMS
I should like to say a few words in support of my hon. Friends. Apparently, the object of the Amendment is to get a guarantee that there shall be a time limit to these guaranteed loans. Many of us have been dissatisfied about the guaranteeing of certain loans, and we do not want to see the principle extended too widely. Unless we lay down certain restrictions, as the mover of the Amendment seeks to do, we shall be giving freer power to the Treasury to encourage guaranteed loans. My hon. Friend opposite has done a really valuable piece of work in drawing the attention of the Committee to the position which has arisen under this Clause. We have been extraordinarily unfortunate on one or two occasions in some of the loans guaranteed by the Treasury. I admit that the Treasury now is well looked after by the Financial Secretary and the Chancellor of the Exchequer, both people of great ability, but we are here legislating for a considerable time to come.

§ The CHAIRMAN
The hon. Member is going far beyond the Amendment. If the hon. Member who moved the Amendment would ask leave to withdraw it, the principle of the Clause could be discussed on the Question, "That the Clause stand part."

§ Mr. C. WILLIAMS
I was trying to point out that there is one way in which we could limit a course which I thought was unsatisfactory. I listened to the arguments in favour of the Amendment and the arguments of the Financial Secretary, and I am convinced that it is necessary to have words inserted for the purpose of limiting the powers of the Treasury.

§ Sir WILLIAM DAVISON
This is a very important matter. As the hon. 834 Member for Torquay (Mr. C. Williams) has said, many of us for some time have been dissatisfied with regard to the guaranteeing of foreign loans. I think it is very undesirable to have a hypothetical Clause of this kind.

§ The CHAIRMAN
The hon. Member is now off the Amendment and definitely discussing the Clause. We can have a discussion on the Clause afterwards.

§ Mr. ALBERY
If my hon. Friend can see his way to tell us that he would consider between now and the Report stage whether some safeguard could be put in, I should be pleased to ask leave to withdraw the Amendment.

§ Mr. HORE-BELISHA
I never like to mislead the Committee or my hon. Friend, and I must tell him that we have given to this matter the consideration which his Amendments always deserve. He was kind enough to give us notice of the Amendment and we had the matter specially examined. I have explained that this Amendment or any similar Amendment might in our judgment be in conflict with the proviso. Therefore, I could not hold out any hope that it would be accepted, and to say to him that we would consider it between now and the Report stage would imply that it had not received the most careful consideration. I would far sooner be straightforward and tell him that that I cannot do that, than I would mislead him into the belief that something can be done on Report.

Captain CROOKSHANK
The Financial Secretary says that the Amendment would conflict with the proviso. Assuming that the proviso is a self-evident statement of fact, would it not be much better to put in some safeguard, such as my hon. Friend suggests.

§ Mr. HORE-BELISHA
I appreciate the point. My hon. and gallant Friend said that a Debate in this House often started with a small point and developed into a magnificent consummation. That applies to his speeches. He began with a small point but he did not succeed in stumbling upon a really major point. There is nothing sinister here. There is no covert Treasury intention of abusing this power in any way. It will be used in regard to guaranteed loans only for the benefit of the Exchequer, and when it is in the national interest that the interest on the loans should be reduced by means of conversion, 835 then we shall have power to authorise the conversion and give our guarantee. We have for a long period been asked by those who are enjoying guarantees under the Trade Facilities Act to look into this matter. We have given it consideration and have made our proposal in this Clause. The Treasury must be trusted to judge the position of the market and the best terms that can be procured. Parliament in every case has been consulted and has authorised the original guarantee, whether it was under the Trade Facilities Act or in regard to a particular loan.

§ Mr. SPENS
I am still not at all happy about this Clause. I do not think the Committee has properly appreciated that the Clause applies not only to loans which have already been guaranteed by this Government but to any loans which may hitherto be guaranteed by any Government. I consider that we are giving an absolutely blank cheque for future guarantees by this Government or any other Government in respect of any loan, the terms of which the House has approved. At a subsequent date, before the loan has matured, the Treasury, without reference to this House, will be able to alter the terms on which the loan is to be continued and the rate of interest payable. It will be possible under this Clause for the Treasury to enter into an arrangement by which the capital repayable may be increased. You may have a loan of £100,000 at 5 per cent. and an alteration may be made making it £110,000 at 3½ per cent. by the exchange of securities, as in this Clause. While we on this side accept every word that the Financial Secretary has said about the Treasury as regards existing loans, it is very undesirable that this Clause should be made to apply to future loans hereafter guaranteed by this Government or any other Government. I would ask the Financial Secretary to reconsider the matter once more before the Report stage.

§ Sir W. DAVISON
I support what has been said by my hon. and learned 836 Friend. We are giving a blank cheque to the present Government and to future Governments to deal with the conversion of loans which they may make in the future without asking Parliament. If words were put into the Clause to make it clear that it only affects loans which the Government has already guaranteed, it would make a difference in my mind, but I do object to unlimited powers of this kind being given. I think they ought to be clear and definite. We ought not to allow this Clause to pass in its present vague form. At any rate we should be informed by the Financial Secretary what loans it is intended to affect, and whether it is the intention of the Government that this should be a general Clause affecting all future loans, whether the proviso for redemption is included or not.

Captain CROOKSHANK
I do not want to repeat what I have already said, but I must answer the Financial Secretary, who said that I had made a great speech and had brought it to an end without arriving at a major point. He overlooked the fact that the final point in my speech was himself. I cannot imagine any more "major" point than that. This question of loans has brought down Governments before. If I remember aright, in 1924 the curious comings and goings that went on at the time" of the Russian negotiations, which eventually brought about the fall of that Administration, were largely due to questions of loans, and I should be very wary, if I were my hon. Friend, in taking such powers, which take away from the purview of Parliament these lending powers on conversion. My hon. Friend has not convinced me at all. It is all very well to say that the intention of the Government is to benefit the Exchequer in the proviso. Of course it is. But the function of Parliament is to translate the intentions into statutory form and to limit those intentions so that when necessary Parliament may have the opportunity of reviewing the situation.
The Treasury under every Administration is not always right. If the Financial Secretary will look into some of the records of his office he will find that that statement is true. I hope he will ask the Chancellor of the Exchequer to reconsider this matter. It does seem to me to be a rather larger point than 837 we first thought. The Chancellor's view of it might very well be taken between now and Report. Obviously, the Treasury must try to benefit the Exchequer in everything that it does. It remits taxation and it imposes taxation for that purpose, so that on the balance what it does is to the good of the financial situation of the country. Therefore, to say that because these words are put in the proviso the Government have done all that they need do with regard to this House, is really over-stating the case. I hope that the Financial Secretary will exercise his ingenuity and see whether he cannot meet us in a friendly way before the Bill goes on the Statute Book.

§ Mr. C. WILLIAMS
This is probably the only opportunity that we shall have of discussing this Clause. If we pass it now it becomes part of the Act. Will it come up again next year for discussion, or will it become permanently part of the machine for dealing with these loans. If it comes up for revision next year I should be happy to let it go through now. It is interesting to note that the only people here who have stood up in this matter of loans, for strict financial administration, have been Conservative Members, and that no Liberal has thought fit to have any dealings in such an important matter.

§ Mr. ALBERY
Does the Financial Secretary feel himself to be in a position to guarantee to this Committee that if this Clause is passed, at no future date will any Government issue under this Clause a conversion loan of such a nature that in effect it becomes an entirely fresh loan and fresh commitment by this country?

§ Mr. HORE-BELISHA
I hope that in the few observations which I make I shall not omit to deal with any point of criticism. Mention of the word "point" reminds me that my hon. and gallant Friend the Member for Gainsborough (Captain Crookshank), no doubt for the purpose of denying a charge which I had not in fact made, namely, that he ended his speech without making a point, said that he had ended his speech with a very good point, namely, myself. That is not a flattering observation. For the defini- 838 tion of a point is something which has position but no magnitude.
The hon. and learned Member for Ash-ford (Mr. Spens) is fearful of the future. He says that under this Clause it would be possible to vary the terms of loans which Parliament has authorised. Of course, that is the whole purpose of the Clause, if to vary them means to do something which at once benefits the borrower and benefits the State. The hon. and learned Member is under a misapprehension if he thinks that we are taking power in this Clause to guarantee any future loans. In every case Parliament would have to authorise such a guarantee. All that does happen under the Clause is that we are empowered to continue, as it were, the guarantee already authorised, in respect of a conversion loan, solely for the purpose of providing for the redemption of original loans. The words of the Clause are just as restrictive as the words of the Amendment, except that they do allow latitude for judgment of the circumstances at the particular time.
I think I can assure my hon. Friend the Member for Gravesend (Mr. Albery) that within the terms of this Clause it would not be possible for a Government of the future to do anything which was an abuse of these provisions, namely, to guarantee a conversion loan issued solely for the purpose of redeeming an original loan and that loan being raised in such a manner as would benefit the Exchequer. Any action outside that definition would, of course, be ultra vires any future Government. With regard to the question as to what loans it is intended to affect, which was the question asked by the hon. Member for South Kensington (Sir W-Davison), it is intended to affect all loans which may be redeemed before maturity at the option of the borrower—loans guaranteed by the Treasury.

§ Sir W. DAVISON
Future as well as past?

§ Mr. HORE-BELISHA
Future as well as past, but any future loans to be issued would have to be authorised by this House. That would require legislation. Therefore there is no danger as to what may happen in the future. I trust that if that point and the others have been made plain, this Debate has not taken place in vain.

§ Sir W. DAVISON
You say it will affect future loans and that the House will have to authorise them, but will it be clear that the proviso will also be read into the new loan?

Captain CROOKSHANK
It must be remembered that sometimes loans become grants, as in the case of the Newfoundland loan, which the Treasury transferred into a grant-in-aid without informing the House.

§ Mr. HORE-BELISHA
I will try to remember all that I am enjoined to remember. The actual words of the Clause make the point of the hon. Member for South Kensington perfectly plain. I do not think I need repeat them. I am asked, will this Clause be permanent? Of course the Clause is permanent until it is repealed. It is giving the Treasury this power in the national interest and in the interest of the borrower, until such time as Parliament shall think fit to revoke that power.

§ Mr. C. WILLIAMS
Will it come up in the Budget of next year? I understand now that it will not.

§ Mr. HORE-BELISHA
A vast number of matters come up every year at the option of hon. Members. If they desire to move a new Clause or an Amendment to any previous Finance Act, provided it is in order they may do so; but it will not come up at the instigation of the Government unless we revise our policy.