HC Deb 09 February 1939 vol 343 cc1161-74

3.48 p.m.

Mr. Mabane

I beg to move, in page 2, line 25, at the end, to insert: and accordingly at the end of Sub-section (3) of Section twenty-four of the Finance Act, 1932, there shall be inserted the words 'and may cause any funds in the account to be transferred to the Issue Department of the Bank of England for the purpose of counteracting any difference between the assets of the Issue Department and the total number of Bank of England notes.' It may be that this Amendment standing in my name and that of several of my hon. Friends is technically unnecessary. It has been put down in order to clear up a point upon which some of us were in some doubt. Clause 2 provides, in Sub-section (3), that sums may be transferred from the Exchequer Equalisation Account to the Issue Department of the Bank of England. If such transfers are made, presumably the sums transferred will then belong to the Issue Department of the Bank. Some of us, recollecting the conditions in which the Exchange Equalisation Account was introduced, wondered whether the original purpose of it included powers to make such transfers, and if reference is made to Sub-section (3) of Section 24 of the Finance Act, 1932, it does appear that the use to which the funds of the Exchange Equalisation Account may be put are limited to this, that the Treasury may only cause any funds in the account to be invested in securities or in the purchase of gold in such manner as they think best adapted for checking undue fluctuations in the exchange value of sterling. It may be that this Bill will override that provision, and in that case, no doubt, the words of my Amendment are unnecessary, but it did seem to some of us that if the words proposed were added it would emphasise the fact that now the Exchange Equalisation Account has been given a dual function, a function which, I think, most Members of the House will welcome. It goes beyond, checking undue fluctuations in the exchange value of sterling and becomes an important instrument in the management of our currency internally. Therefore, in order to clear up what seems to me a point of some doubt, and, secondly, in order to emphasise the beneficent purpose of this Bill, this Amendment was put down.

3.51 p.m.

The Financial Secretary to the Treasury (Captain Euan Wallace)

My hon. Friend was right in his suggestion that the Chancellor might consider his Amendment unnecessary. In the Chancellor's view, it is. Clause 2 (3) of this Bill really takes the place of Section 25 (3) of the Finance Act, 1932, which provided that whenever gold was purchased or sold for the account of the Issue Department the difference between the market price and the old fixed value of 85s. per fine ounce should be made good to the Issue Department from the Exchange Equalisation Account, or, in the converse case, be made good to the Account from the Issue Department. This provision in the Finance Act, 1932, is now being repealed. In the Finance Act, 1932, it was not considered necessary to qualify Section 24 (3) by any reference to Section 25 (3) and in the Chancellor's view it is no more necessary now to qualify Section 24 (3) by reference to Clause 2 (3) of the present Bill. Section 24 (3) of the Finance Act, 1932, can and must be read in conjunction with Clause 2 (3) of the new Bill in precisely the same manner as it has always been read hitherto in conjunction with Section 25 (3) of the Finance Act, 1932.

I fully appreciate that the purpose of the Amendment may be to suggest that the use we propose to make of the Exchange Equalisation Account under the new Bill for carrying differences week by week in the total value of the assets of the Issue Department is inconsistent with the purpose of the account as laid down in Section 24 (3) of the Finance Act, 1932. I gather that that is the point made by my hon. Friend. The answer to that criticism is that there is no greater and no less inconsistency than has been the case hitherto with fluctuations in the price of gold. It is true that the Exchange Equalisation Account will now also be responsible for differences in the value of securities in the Issue Department. Since holdings of gold and securities are so very closely allied in the Issue Department and in the Exchange account, there is no good reason why securities should be treated differently from gold. Therefore, I hope that my hon. Friend will see that, as he suggested, his Amendment is not really necessary. Perhaps he will be good enough to withdraw it.

3.55 P.m.

Sir John Wardlaw-Milne

Before my hon. Friend replies to that appeal I rise to say that I quite appreciate what my hon. and gallant Friend has just said. It may be, provided that the Bill is always interpreted with Section 24 (3) of the Finance Act, 1932, both being read at the same time, that it is not necessary to add the Amendment to the Bill, but I hope he will forgive my saying that when we are completely altering, as we are, the original object of the Exchange Equalisation Account and giving it another and wider interpretation as well as more work to do, it seems rather a pity that something should not be added to the Bill to make clear, without any reference to any other Act previously passed, what it is we want the Exchange Equalisation Account to do in the future. I am not asking my hon. Friend to press his Amendment, because it is clearly a matter of drafting and of interpretation, but it seems a little curious not to take the more convenient method of stating clearly in the Bill what we mean to do.

3.57 P.m.

Mr. Holdsworth

I would ask whether the statement made by the previous speaker is correct, that we are making a complete alteration with regard to the Exchange Equalisation Account. I understand the Bill to be an alteration better described as for bookkeeping purposes. I do not think it ought to go out from this House that the Bill is altering any fundamental function of the Exchange Equalisation Account. The public will be very interested to know whether there is to be any fundamental change or not.

3.58 p.m.

Sir William Davison

I know that the Chancellor dislikes legislation by reference as much as I do, but this is almost a similar case. I wonder whether it would be possible for him to insert some indication in the Bill to show that this Clause is to be read with the Section to which he refers, so that when the Bill is before the public, or those who have to administer it, they will see the thing before them, and will not have to turn up a number of Finance Acts.

3.59 p.m.

The Chancellor of the Exchequer (Sir John Simon)

I should like to say a word or two out of courtesy to the hon. Gentlemen who have just made observations. I do not think we really differ from the Committee, but after this short interchange of views I hope that my hon. Friend will not seek to press his Amendment. I rather take the view which has been expressed by my hon. Friend the Member for South Bradford (Mr. Holds-worth). I cannot affirm that this modest little Bill is effecting such a tremendous change; it really is not. The situation merely is that the Exchange Equalisation Account is already liable to suffer from any fall, as well as to reap the advantage of any rise, in the market price of gold, which is contained in the Issue Department. Both accounts are run on behalf of the Government. There can be no question of there being any loss between one account and the other. They are really two different functions which are operated in close contact.

What is happening now, in the same way, is that a drop or a rise in the value of the securities in the Issue Department will also be taken care of—if I may use the expression—by the Exchange Equalisation Account. I certainly do not accept the suggestion that we are doing anything which is structurally revolutionary. It is not really the fact. There remains the question put to me, as to whether it is desirable to make the Bill plainer than it is. I think the Bill can fairly be acquitted of the crime of legislation by reference. Clause 2 is so simple that any one can follow it. I would be very unwilling to complicate it and spoil its appearance by introducing references to another Act of Parliament. Then I am asked whether the Bill is to be read with the Finance Act, 1932. The Finance Act is mentioned in the Schedule, and in view of the fact that a particular part of that Act is repealed I think even the most casual-minded commentator will assume that the rest of the Finance Act, 1932, remains. I hope, therefore, that the Committee will not make this a matter of controversy, and that the Amendment will be withdrawn.

4.2 p.m.

Sir J. Wardlaw-Milne

I do not desire to prolong the discussion and I do not quarrel with what the Chancellor of the Exchequer has said, but I do maintain—I do not think there is any real difference on the point in the Committee—that the functions which the Exchange Equalisation Account are to carry out in future are, if not revolutionary—I did not use that word—at least a complete change from past procedure, a change which I personally welcome. But it is to my mind a very definite change and something for which we can all be thankful.

Sir J. Simon

An advantage.

Mr. Mabane

In view of the statement that has been made, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Motion made, and Question proposed, "That the Clause stand part of the Bill."

4.4 p.m.

Mr. Tinker

I would like the Chancellor of the Exchequer to give us some further explanation than that which he gave on Monday. I tried on Monday to get a grasp of what this high finance meant and I have spent some time since in re-examining the speech of the Chancellor of the Exchequer. I ask him to be helpful now by telling us something about this Issue Department. So far as I can gather, we have discovered£94,000,000 more in value than we had before; that is to say, we have gone from£126,000,000 to£220,000,000. So to all intents and purposes we have that extra sum in hand. What I ask is, to what particular purpose is this money being applied? Is it for the purpose of helping to clear up what we may term the National Debt, or is it for some social use, such as old age pensions or anything of that kind? As we have£94,000,000 extra money the nation must have some idea what use will be made of it. If it is merely a book-keeping transaction, just a question of accounts, one must ask why there is any necessity to-day for causing all the trouble of revaluing forwards and backwards repeatedly?

Members of this House and the country ought to have a better grasp of the position than I have at the moment. It may be that other hon. Members are more advanced in questions of finance than I am, for I am entirely at a loss to know why the change is taking place unless it is for the purpose of this£94,000,000 being put to some better use than that to which it was formerly put in the vaults of the Bank of England. Will the Chancellor enlighten the class that is before him, for we are like a class, as we were on Monday when we were listening to him? Will he try once more to make a little plainer what this money will be used for? Will he say to us to-day, "Well, you have bothered a lot about old age pensions. I shall grant you£66,000,000 of this£94,000,000 to provide an increase of pensions." To raise that question was my object in rising.

4.9 p.m.

Mr. Bellenger

I am sure that all of us have considerable sympathy with my hon. Friend the Member for Leigh (Mr. Tinker) in continuing what the Chancellor of the Exchequer himself said in introducing this Bill—that this is a very intricate subject and not one that can be easily understood even by the alleged apostles of high finance or by those experts of which this House contains many. I have risen merely to ask for information on two points. A few moments ago an hon. Member opposite remarked on the changed functions of the Exchange Equalisation Account. It is no use saying that this Bill has no effect on that account, or that the Bill affects it only to a minute degree. As I have hitherto understood the Exchange Equalisation Account its purpose was to level out the fluctuation in sterling, and in so far as it may have kept sterling stable no doubt it has also had some effect on the currency position in this country. But now the Exchange Equalisation Account is to be used to a certain extent to guarantee—if I may put it that way—the stability of the currency. It is quite evident that when the backing in the Issue Department depreciates, when the value of the securities, of gold or other assets drops, certain transfers will be made from the Exchange Equalisation Account to the Issue Department.

As part of the function of the Exchange Equalisation Account in the past was to iron out fluctuations in sterling, we have had information given to us only periodically. I believe I am correct in saying that the gold holdings in the Exchange Equalisation Account are made known once in every three months, and that is three months later than the date for which the figures are given.

Sir J. Simon

Six months.

Mr. Bellenger

Six months. That makes the matter worse from my point of view. As the Exchange Equalisation Account is now to be used to some extent to back the currency, I wonder whether the Chancellor will be prepared to give more frequent information as to the gold holding in the Exchange Equalisation Account. When the Bill was given its Second Reading certain hon. Members, including my hon. Friend the Member for Bishop Auckland (Mr. Dalton), said that at last we had "debunked" gold, and I said at the time that I doubted the accuracy of the statement. I am confirmed to some extent by the words which the Chancellor of the Exchequer himself used on Monday. The right hon. Gentleman then said: We shall do much better if we do not show ourselves to the world as having something like£400,000,000 of bank notes covered by Government securities when in fact a substantial fraction of them is covered by gold." —[OFFICIAL REPORT, 6th February, 1939; col. 673, Vol. 343.] So it is evidently in the Chancellor's mind that gold still has its old potent effect, because he wants to show the world that our gold holdings in the Issue Department, and the value of currency in terms of gold—which he says is the only value the world can understand—are substantial. If that is the purpose of the right hon. Gentleman regarding our currency I ask him, why not give that same impression to the world by letting the world see what enormous stocks of gold the Exchange Equalisation Account holds? I ask him whether he would be inclined to give that information a little more frequently than it is given now.

The other question I want to put is this: As hon. Members know, the assets of the Issue Department of the Bank will be valued every week, and according to the fluctuation up or down certain transfers will take place between the Issue Department and the Exchange Equalisation Account. I would like to know where we shall see the effect of that. Will it be given in the Bank Return? At the moment we have no chance of seeing how the flow is taking place to or from the Exchange Equalisation Account. Perhaps it is only a matter of accountancy, but I submit that it is a very important matter for those who are studying the position from the point of view of the stability of sterling and the currency.

4.13 P.m.

Sir J. Simon

I must say a few words in reply to the two hon. Members. The hon. Member for Leigh (Mr. Tinker) did me the compliment of saying that he has been re-reading the speech which I had to inflict on the House on Monday. I did my best to avoid a lecture, for I wish to be counted amongst the learners, but I had to state it as clearly as I could and I was very grateful for the attention that hon. Members gave to what is a difficult subject. I do not think I can undertake at any length to expound the matter further now, but there are two observations I wish to make in answer to the hon. Member, and I hope he will take it as a contribution towards a fuller elucidation. First of all the hon. Gentleman asked, "What is it you are doing? What is this all about? Is it the case: that by this method you find that you possess in some form£80,000,000 or£90,000,000 which you did not possess before?" That is a very natural question. The short answer is this, and I will put it in an analogy which is probably more within the experience of ordinary people.

It is not at all an uncommon thing in a business, either small or large, or in any enterprise concerned with accounts, to attribute to some of the assets mentioned in the accounts a value which is really smaller than the value they actually enjoy. It is a prudent way of stating the amount of the assets. They are very often described as concealed reserves—not concealed in a bad sense for there is no swindling about it; but it is a prudent thing for certain purposes, if to be conservative is prudent, to be sure that you do not overvalue those things which you hold. In business people very often write down the value—one can see the reason for it—against a rainy day.

What has happened in regard to the Issue Department is really something of that kind. The Department holds a considerable quantity of gold, and, if it is to state its actual position to-day, it must attribute to that amount of gold a bigger value than it has hitherto been in the habit of doing. Hitherto it has been making what is sometimes called a prudent under-valuation. When, however, you have a great account which belongs to the State and which is in close connection with the Issue Department, it is necessary to bring the two into line, and just as, in the case of that account, we try to the best of our ability to state the values rightly and fairly, so we are proposing here, since in fact gold has greatly changed in value in terms of sterling, to state its value correctly instead of stating it incorrectly. Although, however, the value is higher than has hitherto been stated, it does not increase the sum total of anybody's possessions, but merely puts a right value on this asset instead of a wrong value.

The statement is made that by this valuation we have acquired a great deal more money to spend, but that is not so. All that has happened is that in the account the asset has been given its proper value, whereas previously the value has been understated. I share very warmly the hon. Gentleman's feeling, and I wish from the bottom of my heart that by this operation we found ourselves with another£80,000,000 or£90,000,000 which we could spend for some generally satisfactory purpose, whatever it may be. That, however, would not be a sound or, indeed, an honest thing for me to do, because really it does not mean that we have any more to spend than we had before. If we want to spend more, we must raise it by honest methods, whatever it costs. In my view it is a great advantage to have this gold in the Issue Department valued correctly, but it does not follow that by so doing we suddenly acquire a lot of new wealth; and, that being so, I am afraid we must face the fact that this is not one of those operations which immediately translate themselves into relief and benefit for any section of the community, much as I wish that it could.

Mr. Tinker

May I put the converse position? If the value of gold fell from 85s. to, say, 70s., would the right hon. Gentleman consider it necessary to impose taxation to meet the deficiency? It seems to me that, if it works in one way, it must work in the other.

Sir J. Simon

It is, of course, partly because of the possibility of changes in value that this Bill makes a further connection between the Exchange Equalisation Account and the Issue Department, and one of the reasons, no doubt, why they ought to be so connected is that the possibility must be faced of there being some variation. I am afraid we cannot get away from that, though I am sure we all wish we could. by regarding this as a sort of unexpected golden egg which has hitherto escaped attention and which the Chancellor of the Exchequer has discovered and can now distribute for the relief of the population.

Mr. Aneurin Bevan

That does not answer my hon. Friend's question as to what would happen if the value of gold fell.

Sir J. Simon

I should say that a fall in the valuation would not in itself result in that consequence, but, of course, if it goes further and further, the asset held would naturally lose value.

Mr. Bevan

If it rises further and further, the asset gains more value.

Sir J. Simon

I am sure the hon. Member would agree with most of what I have said. The hon. Member for Basset-law (Mr. Bellenger) made, not for the first time, an observation on the statements issued with regard to the Exchange Equalisation Account. I think I remember that in an earlier Debate he took a prominent part in discussing how far we could publish statements about the Account. As my right hon. and gallant Friend the Financial Secretary said at the end of the Second Reading Debate what we are now doing would not justify a change in the amount of disclosure that we can make as to the Exchange Equalisation Account procedure, and, although I know that the hon. Gentleman's inquiry is made in nothing but the public interest, still there are other people who, no doubt, are curious as to the exact movements of sterling, but who are not necessarily so entirely inspired by public spirit. My duty is to do everything I can to avoid giving such information as would assist speculators who are trying, at a loss to the State, to make profits on the swing in the value of sterling. Whatever I publish is not going to provide such assistance. It is no good having an Exchange Equalisation Account for the purpose of damping down as far as may be the fluctuations in sterling, if we publish information which is going to increase the fluctuations that we are trying to decrease. It was after much consideration that I made an announcement last year or the year before as to the publication which would be made. It has worked out very satisfactorily in the view of the Public Accounts Committee, and I think it will continue to work satisfactorily. I am sorry, however, that I cannot think that that would be a reason for giving any additional information beyond that which we now give.

Mr. Bellenger

The right hon. Gentleman is under some misconception as to the purpose of my question. He has referred to questions which I have put to him previously in this House about the Exchange Account, but I think there is an idea in his mind, which, indeed, he has expressed to me, though not openly in the House, that what I want to get is the day-to-day operations of the Exchange Account. Nothing is further from my mind. I can see as well as he can that it would be impossible to carry on business in that fashion if the whole world were to see the operations that were taking place in the Exchange Account. What I am asking him is merely this: Evidently he has found it suitable, although late in the day—certainly not when the Exchange Account was first introduced—to give certain information once every six months. All I am asking is that he should reduce that period, so that, in his own words, the whole world can see how much gold we have—apparently he wants the whole world to realise that, and that is the reason why he gives these figures every six months—and also that others may observe that the transactions which take place between the Exchange Account and the Issue Department are not such as may, perhaps unjustifiably, lead to inflation.

Sir J. Simon

If anyone has the impression that the arrangements will be such that only once every six months, and then three months late, the situation with regard to gold will be published, they are quite wrong. The Bank of England publishes the state of the Issue Department once a week. It is made up every Wednesday, and published every Thursday, and, if anyone wants to know exactly how much gold there is in the Issue Department, they do not have to wait for six months or three months; they can have it every Thursday. There is the information for the whole world to see. When I said, I think with the general approval of other hon. Members, that it did not seem to me desirable artificially to state to the world once a week that our bank notes depended mostly on securities, and only to this limited extent on gold, I was referring to the fact that once a week the Bank of England return states the value of the gold in the Issue Department. That, I think, has very little to do with the Exchange Equalisation Account.

The other point which the hon. Member put, and to which also my hon. Friend the Member for Kidderminster (Sir J. Wardlaw-Milne) referred, was as to whether we are really changing the function of the Exchange Equalisation Account. If we were, it would be quite a serious matter, but in this sphere we must speak with a due sense of proportion. The Finance Act, 1932, which set up the Exchange Equalisation Account, said that it was for the purpose of ironing out these fluctuations; but, having said that, in the very next section—Section 25, Sub-section (3)—it says: Whenever any gold is purchased or sold on account of the Issue Department during the existence of the Account, the amount by which the price of the gold exceeds the fixed value thereof shall, in the case of a purchase, be made good to the Issue Department from the Account, and, in the case of a sale, be made good to the Account from the Issue Department. That has been the law from the first moment that the Exchange Equalisation Account began to exist. The Issue Department may acquire more gold. Usually it will acquire it by purchase from the Exchange Equalisation Account, but it might acquire gold from some other source. Whenever it acquires gold, there is a certain price to be paid for it. In the accounts of the Issue Department the value of the gold is written down at 85s. an ounce. The difference has to appear somewhere. Where has it appeared? It has appeared in the Exchange Equalisation Account, whether the Account sold the gold or not. That is to say, from the first minute of its existence the Exchange Equalisation Account has been used for a purpose other than the ironing out of fluctuations; it has always been used as the place to which you could turn if there were any balancing figure to be provided for in respect of one of the elements in the Issue Department. The balance, indeed, was a pretty big one, because 85s. is a very different thing from 148s., and the whole of that difference has from the beginning been found inside the Exchange Equalisation Account.

What is the extent of the change that is now taking place? I agree that there is a change, but do not let us exaggerate it. Whether we think it is good or bad, it is really a very slight change. It is saying that, by parity of reasoning, when you are dealing with the other element which is an asset in the Issue Department's Account, the element which does not move up and down at a tremendous pace, but which may slowly grow or slowly decrease, that element also shall be kept at a constant level by being to that extent connected with the Exchange Equalisation Account. I said at an earlier stage that this was a useful little Bill and that is what it is. It is not a Bill which transforms the purpose of the Exchange Equalisation Account. For my own part, I should look at it very carefully before agreeing to anything of that kind, for the reputation of the Exchange Equalisation Account is one of our great sources of strength. We were the first country to show the world how to do it. It is being done with great skill, and we owe a great deal to the devoted men, whose work is never published, who watch this matter and serve the country so well in trying to maintain our currency value. It is a pity, therefore, for anyone, even light-heartedly, to say that it is being completely transformed. It is not. It is a tiny thing that is being done, and I think that on the whole it will produce a better and more scientific result. I hope very much that my sudden burst of enthusiasm will not have the result of prolonging the Debate, and, if the Committee can now see their way to give us Clause 2, I shall be very grateful.


Mr. Dalton

The position now is that in the weekly Bank Return the gold is to be valued on a true, as distinct from an artificial, basis, and the return will show the total value, at the current sterling price, of the gold stock in the Issue Department. Will there also be put in, in order to save people having to perform an operation of simple arithmetic, a statement of what is the sterling value every week, or shall we be left to work it out? There would be a certain convenience in inserting in the bank return not only the total value of the gold but the price per ounce on which the valuation was made.


Sir J. Simon

I am not quite sufficiently informed at the moment to be able to answer the question. As the hon. Member knows, the Issue Department account is a statutory account, and I am not sure how far the actual form of it, the framework of it, is statutory. In any case, it is a matter on which we would wish to consult the Bank of England. I have no doubt that all concerned in the business know the figure very accurately, but it is true that many of us do not. I cannot give a promise at the moment, because I am not sure whether the form is a statutory one; but, whether or no, I quite appreciate that it is convenient for those who study the return to know what is the divisor.

Question, "That the Clause stand part of the Bill," put, and agreed to.

Clauses 3 and 4 ordered to stand part of the Bill.