FOREIGN ISSUES (ADVISORY COMMITTEE). (Hansard, 7 April 1936)

56. Major HILLS
asked the Chancellor of the Exchequer whether he can now make any further statement in regard to the restriction on foreign issues?

Mr. CHAMBERLAIN
I am very sensible of the loyalty with which those concerned have followed the general wishes which I have expressed in this matter. I have not at present in mind any radical alteration of the restriction, but I think the time has come when there should be an advisory committee to advise me from time to time both generally upon the scope of the restriction and also upon particular applications. I have been fortunate in securing the services of Lord Kennet as the chairman of this committee, and the following gentlemen 2602 have also consented to assist me by serving upon it:

The Deputy Governor of the Bank of England,

Thomas Frazer, Esq.,

Sir Austin Harris, K.B.E.,

A. A. Jamieson, Esq., M.C.,

Lieut.-Colonel J. B. Neilson, C.M.G., D.S.O.,

R. P. Wilkinson, Esq.

The offices of the committee will be at 76, King William Street, E.C.4, and communications should be addressed to the secretary, Mr. A. E. Banham, at that address. The first meeting of the committee will take place after Easter. The matter being complicated I propose to give the committee detailed terms of reference and instructions, and I shall, with permission, circulate a copy in the OFFICIAL REPORT.

§ Mr. CHURCHILL
Can my right hon. Friend give us an assurance that he will retain the ultimate control of the operations of this committee and that, consequently, during present conditions his responsibility to the House will be unimpaired?

Mr. CHAMBERLAIN
Yes, I can give the most unqualified assurance in that respect. It will be only an advisory committee.

§ Mr. GRAHAM WHITE
Will the terms of reference make it clear that the functions of the committee will cover new commitments only?

Mr. CHAMBERLAIN
Perhaps the hon. Member will see the Paper.

§ Mr. BOOTHBY
For the purpose of information to those desiring to issue foreign loans, will they have to apply direct to the committee or the Treasury?

Mr. CHAMBERLAIN
They will save time by applying direct to the committee.
Following are the terms of reference and instructions:

1. In June, 1932, the Chancellor of the Exchequer asked intending borrowers to refrain from making new issues while the conversion of the 5 per cent. War Loan was proceeding. That request in its general form was shortly afterwards withdrawn, its purpose having been fulfilled, but since that time restrictions of lesser though varying scope have been voluntarily accepted at the Chancellor's request and with the cooperation of the City of London. These restrictions were set up in the general 2603 interest; and as the economic situation improved, it has been possible from time to time to relax them.

2. The only restriction now in force on issues, other than foreign issues, applies to the optional replacement of existing securities by new ones, if those securities rank as trustee securities and involve either underwriting or an invitation to the public to subscribe new cash; in such cases, intending borrowers are asked to approach the Treasury before the transaction is set in hand. The Chancellor of the Exchequer has however also asked that, with a view to co-ordinating the requirements of intending borrowers and so preventing congestion of the market, no issue ranking as a trustee security should be made without prior agreement with the Bank of England regarding the amount and date of the issue.

3. Foreign issues have been defined as issues on behalf of borrowers domiciled outside the Empire, or issues the proceeds of which would be remitted directly or indirectly to countries outside the Empire; but the expression also includes the acquisition from foreign holders of large blocks of securities, including securities dealt with on the London Stock Exchange, with a view to their sale in this country either by an issue to the public or otherwise. The wish of His Majesty's Government has been that, unless the Chancellor's permission had previously been obtained, no such issues or acquisition should be made.

4. The Chancellor has, however, announced that he would be ready to consider particular cases, especially those falling under the following heads:—

(a) sterling issues by a country within the sterling area where the loan is required to increase the sterling assets of that country and so to minimise fluctuations in the Exchanges;

(b) sterling issues on behalf of any borrower where the proceeds are calculated mainly to produce direct benefit to British industry.

5. The Chancellor of the Exchequer has now decided to appoint an Advisory Committee to advise him both on particular applications and, if occasion arises, on the principles which govern the restriction.

6. In their task the Committee will be guided in the first place by the general economic situation of the country.

7. The primary object of the present restrictions on foreign lending has been to protect sterling exchange against sudden and dislocating strains. In considering therefore what foreign long-term financing this country can undertake regard must be had not only to the volume of capital likely to be available for the purpose but also to the state of the exchanges and to the different kinds of pressure to which sterling may be exposed. Due allowance will of course be made for new issues on behalf of Empire borrowers, and the movement of international stock exchange securities between London and other markets must also be borne in mind.
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8. These considerations would not generally apply to loans the proceeds of which would concurrently be used to finance additional exports from the United Kingdom. This fact has been recegnised by the Chancellor in his relaxation of the restriction on foreign lending in favour of sterling issues whose proceeds care calculated mainly to benefit British industry; and the same principle should govern the Committee's consideration of proposals of this nature.

9. The Committee will bear in mind the recommendation of the Committee on Finance and Industry (Section 384) that—"in the realm of foreign investment it is primarily towards British-owned enterprises abroad that we should wish to see our energies and capital turned rather than merely towards subscribing to foreign Government and municipal loans, which absorb our available foreign balance while doing little for our industry and commerce." In this connection account should be taken of the treatment accorded to British-owned enterprises by the foreign country concerned.

10. It is of equal importance that the capital required for development in the United Kingdom should not be restricted by excessive lending abroad.

11. In deciding whether considerations such as these at any moment admit of an increase or call for a decrease in the amount of foreign new issues the Committee should keep in close tough with the Treasury and with the Bank of England.

12. In accordance with the Chancellor's announcement the Committee should give favourable consideration to applications for sterling issues by a country within the sterling area where the loan is required to increase the sterling assets of that country and so to minimise fluctuations in the exchanges.

13. The applications to be considered by the Committee will include (a) the financing on behalf of foreign Governments, States or other public authorities, (b) offers of share or loan capital to the public which involve the remittance of funds directly or indirectly to any country outside the British Empire, (c) offers (involving such remittances) made otherwise than to the public in respect of which permission to deal may be sought from the Stock Exchange, (d) the acquisition of foreign holdings mentioned in paragraph 3 of this note.

14. With a view, however, to facilitating business it is desirable that the Committee should at an early date consider whether it can give general sanction subject to specified conditions for issues of particular types involving remittances abroad which are both small in themselves arid small in relation to the total issue.

15. In considering recommendations made by the Committee the Chancellor will where necessary take into account any financial or other questions which may be at issue between this country and the country of the borrower.
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16. These instructions will be subject to review from time to time in the light of the experience gained and it would be open to the Committee if they so desire to submit any difficulties to the Chancellor for his consideration.

17. It should be clearly understood that any permission given by the Chancellor for the issue of a loan is governed exclusively by considerations of the kind above mentioned. The grant of permission does not in any sense imply any opinion as to the soundness of the investment from the point of view of the investor. That question is left exclusively for the market to judge.