§ The rate at which any person required by the bank to sell gold bullion to the bank under the provisions of Sub-section (2) of Section eleven of the Currency and Bank Notes Act, 1928, shall sell the same to the bank shall, instead of the rate mentioned in that Sub-section, be the price at which gold was valued for the purposes of the last valuation under Section two of this Act.—[Colonel Nathan.]
§ Brought up, and read the First time.
§ 4.51 p.m.
§ Colonel Nathan
I beg to move, "That the Clause be read a Second time."
The object of this Clause is to bring into line with the present market value of gold, and, indeed, with the proposals contained in this Bill as to the valuation of gold for the purposes of the Issue Department, the price at which the Bank of England may requisition gold in accordance with the provisions of Section 11 (2) of the Currency and Bank Notes Act, 1928. Under that Act the bank has certain rights as to the requisitioning of gold and the price payable by the bank in the event of the requisition. Though the term is not actually used in that Sub-section, the price arising out of the joint operation of that Section, and of Section 4 of the Bank Charter Act is 85s. per fine ounce of gold. That price has persisted as long as there has been a right vested in the bank to requisition gold from certain persons, subject to the qualifications mentioned in the statute. It was reasonable and right that that should be so at a time when the gold actually held by the bank itself was valued at that figure.
The price of gold was until the last few years relatively stable; the fluctuations were insignificant. The reason why the price of 85s. was fixed as the price at which the requisition might be made was, it may be assumed, that that was the price at which gold was valued by the bank, and that it was, in fact, the current market price. The law provided that the Bank of England should be entitled to buy gold at the current market price. It is the object of my Clause to ensure that that procedure shall be adopted in future, as it has been in the past. It would of course have been a striking anomaly if, during the last few years when the price of gold was rising steeply above 85s. the bank had been under the compulsion of paying the market price for gold in the event of a requisition, while immediately 1180 upon acquiring it it would have to have written off the list the difference between 85s. per ounce and the market value, or, alternatively, the Exchange Equalisation Fund since 1932 would have had to have borne the loss. Certainly I might say, as a matter of practical business, that in the City of London the opinion has been widely held that, if the bank should at any time feel itself called upon to requisition gold, it would not be requisitioned at the statutory price of 85s. but would in fact be requisitioned at a figure approximating to the market value.
It is upon that footing that very large and important transactions have been carried out in the way of lending money upon the security of gold. Until relatively recent times there would have been no difference in this respect between the holders of gold in the United Kingdom and the holders of gold outside the United Kingdom, for the market price would have been the same for the holders inside the United Kingdom and the holders outside the United Kingdom. That was the position up to 1931, and the only difference in the rights of this class of holders was that, in the case of United Kingdom holders, the bank could compulsorily take over their gold at that price, whereas as far as foreign holders were concerned, they would have to buy it at that price, there being no obligation upon the foreign holder to sell. The Financial Secretary, in his closing statement on the Second Reading of the Bill, said:It is not proposed to alter that Statutory provision.…the object of which is simply to prevent gold hoarding."—[OFFICIAL REPORT, 6th February, 1939; col. 709, Vol. 343.]If my right hon. Friend would be good enough to look at Section 11 of the Currency and Bank Notes Act, 1928, he will see that the purpose of the Section is rather exceptionally set out. It is stated that with a view to the concentration of the gold reserves and to the securing of economy in the use of gold, in effect, the bank is to have the right to requisition in certain instances. The importance of the Section lies not in the price at which the bank may buy, but its purpose is fulfilled by giving the bank the right to buy it compulsorily, and it is that which prevents what the right hon. and gallant Gentleman referred to as hoarding, and without reference to the question of the actual price. In fact, the actual price, at the time when the 1181 1928 Act was passed and until we went off the Gold Standard, was the market price, and I am now suggesting in this Clause that the situation which existed until 1931, and which was interrupted by the vicissitudes and new experiences of the situation in which we were involved after going off the Gold Standard, should now be restored to what it was before.
I would point out to the Government the very extraordinary position that would result if this were not done. The value of gold physically in this country but owned by persons not in the United Kingdom, retains its value whatever the market price may be, say, 148s. an ounce, and it cannot under this Bill be bought from them at any price below that at which they are willing to sell, whereas the value of gold physically in the United Kingdom and held by United Kingdom holders is compulsorily placed at the fixed figure of 85s. per ounce. It is a figure, by the way, which would enable the bank immediately to write up its assets upon the acquisition of this gold at the expense of the United Kingdom holder as compared with the holder who is not in the United Kingdom. The provision that there should be compulsory powers in the Bank of England as long as the Bank of England maintains its present status under our financial system, seems to me to be a thoroughly right and proper one. The circumstances envisaged by the Section of the Act of 1928 is right and proper and should not be touched. The only point is the price at which the bank should buy, and it should be brought into line with the exchange position as regards the gold held by the bank itself. I would quote the words of the Chancellor of the Exchequer on Monday last. He said that the effect of the Bill will be thatthere will be applied to the gold in the Issue Department what is its real current value and not the somewhat antiquated thing which can be traced back through the days when we were on the Gold Standard."—[OFFICIAL REPORT, 6th February, 1939, col. 671, Vol. 38.]If it is necessary that the Bank of England's gold, which it holds to-day, should be brought up to the market value, what possible argument can be advanced against the bank paying the same price for the gold which it requisitions from United Kingdom holders?
§ Sir J. Simon
May I ask the hon. and gallant Member whether his proposal 1182 would apply to a hoard of 20,000 sovereigns?
§ Colonel Nathan
There is exemption up to 10,000, but I think the right hon. Gentleman will find—I speak subject to correction—that where coins are concerned they are to be taken at their nominal value.
§ Sir J. Simon
I wanted to know whether if the hoard took the form of 20,000 sovereigns, or 10,000 sovereigns if you like, they could be taken at 85s., but that if it consisted of exactly the same quantity of bullion gold, it should be taken at 148s.
§ Colonel Nathan
The market value of the sovereigns is 148s. per oz., and the bank when they requisition the gold should do so at 148s. an ounce. I am sure the right hon. Gentleman will not wish to quarrel with me on the exact wording of the Clause, the purpose of which I have tried to make clear. If he will accept the purpose of the Clause, there will be an opportunity for him to ask the Parliamentary draftsman to put the Clause into a better shape. My object is not to commit myself or to ask the Chancellor of the Exchequer to commit himself to the particular form of words on the Order Paper, but to obtain his acceptance of a principle which seems to me to be sound, which the Clause makes sufficiently clear, which I hope I have made clear, and which has given rise to a good deal of discussion and some anxiety in the City of London. I have respectable authority, no less than the "Economist" of last Saturday, in support of the proposal which I have put forward. The "Economist" said:Though the point is not specifically covered in the Bill, the right of the authorities to buy compulsorily at 85s. per ounce any gold holding over£10,000 owned by a resident of the United Kingdom will presumably lapse.I am not suggesting that there should not be the compulsory right but that it should be exercised at the market value instead of on the purely artificial value of 85s. per ounce. I must emphasise the new situation that has been created in the differentiation between foreign holders and British holders. A foreign holder will retain a value of 148s. per ounce, but the Government will be putting the United Kingdom holders to a disadvantage compared with the foreigner, because they will have to accept 85s. The 1183 foreigner can go to any bank and lodge gold at 148s. per ounce and raise money upon it for commercial and banking purposes. If the Government refuse my Amendment, gold in the hands of a British holder will only have a market value of 85s., and no bank will advance to the British holder more than 85s. per ounce thereon, so long as there is any liability for that gold to be taken compulsorily at 85s.
There is another point which I should like to raise, quite independently of the merits of this particular proposal. I suggest to my right hon. Friend that he will need an Amendment of some such kind as I have suggested, for under the Act of 1928 the price payable by the bank on compulsory purchase is to be ascertained by reference to Section 4 of the Bank Charter Act; but by Section 4 (2) of the present Bill it is declared that Section 4 of the Bank Charter Act shall cease to have effect. But the present Bill goes a great deal further than that, because in the Schedule it repeals Section 4 of the Bank Charter Act. The result is that whereas under the Act of 1928 the reference for the purpose of finding the price will have to be made to that Section of the Bank Charter Act, by repealing that Section in this Bill, Parliament will have deleted it from the Statute Book. It will, therefore, not be there to refer to. That is a question which is independent of the merits of my actual proposal, but it is one which I suggest calls for the consideration of my right hon. Friend, and I submit it for his consideration.
§ 5.7 p.m.
§ Mr. Bellenger
I should like to give an illustration in support of the arguments advanced by my hon. and gallant Friend. Large companies, apart from individuals, or it may be individuals in those companies, are in the habit of holding some of their reserves in gold. They can hold them also in gilt-edged securities if they want, and take the risk of those securities going up or down; but if they feel, as they are entitled to feel, that gold is a much more secure and stable asset in which to invest their reserves, they are entitled to do so by buying gold. I believe some of them do that. What is to be the effect if the provision in the Clause is allowed to remain and the bank can call on gold reserves if they are over£10,000 at 85s. per ounce? It means, 1184 in effect, confiscation. I should have thought the National Government would have been the last body of people in the world to attempt to confiscate the reserves of their own friends.
Can the Chancellor of the Exchequer see what propaganda value he is giving to us in the Labour party? Can he not see the effect in the City of London at the next Election when the Labour party put up candidates and appeal to the business men whose reserves in gold have been confiscated at 85s. an ounce, when they have probably had to pay 148s. an ounce? It will not then be Socialism that will be feared, but the National Government. I suggest that the last thing any hon. Member would wish to see disappear from this House would be that ancient institution, the representation of the City of London; but that may be the effect if the Chancellor of the Exchequer does not see the substance in the argument put forward so cogently by my hon. and gallant Friend. I hope that for that reason he will accede to the request we have made, and allow those who wish to invest their reserves, small or large, in gold, to have the market price if the bank desire the gold for their own purposes some time or other. I can well understand the necessity for avoiding hoarding, but the bank should not be entitled to prevent that by confiscating a certain part of an individual's assets invested in gold. I hope the right hon. Gentleman will give a satisfactory answer from our point of view.
§ 5.10 p.m.
§ Mr. Price
I should like to support the proposed new Clause. I understand that there are a great many companies who have based and valued their assets on the assumption that any future operations in gold or any assets they have based on gold would be valued at a higher figure than the 85s. laid down in the Bill. If it was necessary for them to write down to 85s., as it would be necessary if the Amendment were not accepted, the effect would be deflation. They would be restricted in their future operations, and that would have a very ill-effect at the present time, particularly as we have 2,000,000 unemployed and are in a trough of depression. How far we are down the trough, and whether or not we are going along the bottom, only the great experts can say, and possibly even they do not know.
§ Mr. Price
The Bill as a whole has the general effect of writing up the value of gold for the purpose of making it possible for the Exchange Equalisation Fund the better to protect the currency. In other words, we have a bigger and broader basis on which to carry on. The Amendment seems to me merely to extend to those institutions, businesses and companies who happen to be dealing in gold, the principle of making it possible for them also to operate upon a wider basis. It may not have a very big effect, but at least it would have the effect in this time of depression of making an expansion possible for the borrowing capacity of these businesses. It is well known that in times of depression it is advisable for the banks, the Bank of England in particular, to go out into the open market and buy securities. That is called open market operation, and is done to expand credit and make it possible for there to be a greater basis of commercial operations. Those are well known financial measures adopted at a time like this. We could do the same thing, on a small scale it is true, something like the open market operations, to expand the basis of borrowing in order to meet the general industrial position. It might not be big but at least it would be something, and I hope the Chancellor of the Exchequer will give serious consideration to it.
§ 5.15 p.m.
§ Captain Wallace
Anyone who listened to the explanation of this new Clause by the hon. and gallant Member might have gathered the impression that my right hon. Friend the Chancellor of the Exchequer had inadvertently perpetrated an appalling injustice in the Bill. As the hon. and gallant Member will imagine, there is a good deal more than meets the eye in this apparently innocent proposal. Before I deal as briefly as its importance will allow me with the Amendment, let me clear up the point which the hon. and gallant Member brought to my notice at the close of his speech. I am advised that there is legal authority that the repeal of one Section of an Act does not affect Acts which incorporate that Section by reference, and, therefore, his point as to the repeal of a particular Section of the Bank Charter Act is adequately dealt with. The hon and gallant Member in moving the new Clause laid particular stress on 1186 Section 11 of the Currency and Bank Notes Act, 1928. That Section is deliberately retained by the Government of set purpose. Its object was to concentrate all the gold reserves in the national interests, and I hope hon. Members will bear that fact in mind in considering this new Clause.
It is obvious that the most effective use can only be made of the country's reserves of gold if they are concentrated under the control of the monetary authorities of the country. The first Sub-section of Section 11 provided that it should have effect so long as Section 1 (1) of the Act of 1925 remained in force. That part of the Act of 1925 provided that the bank should no longer be bound to pay its notes in gold and was the provision which effectively prevented the use of gold for internal circulation. In fact, the concentration of the gold reserve is only possible so long as gold is not required for internal circulation. I should make it clear that the Section only applies to gold held by "any person in the United Kingdom"; it does not apply to gold held by persons resident abroad, and the bank cannot therefore acquire compulsorily gold in this country which is owned by persons outside the United Kingdom. The concentration of domestically owned gold has now, for all practical purposes, been achieved. But I think the Committee will agree that it is important that any gold held in the future by residents in the United Kingdom should be available to the central authorities if necessary. It is also still important that nothing should be done to encourage fresh hoardings of gold, particularly at a time when the Chancellor of the Exchequer has taken special steps, through the banks and other channels, to stop speculation both in gold and in the foreign exchanges.
Let us face the fact that the hoarding of gold is an unsocial act. First, it diminishes the effectiveness of the central control on our gold reserves. Secondly, if private or business funds are held in gold rather than invested in securities or deposited in the banks, then the money available for financing industrial, commercial and governmental requirements is pro tan to reduced. I imagine that hon. Members opposite would regard that as a bad thing. In the third place, the hoarding of gold not only implies but fosters distrust in the country's currency. For all these reasons 1187 it is desirable in the highest degree that the monetary authority of this country should remain armed with every reasonable deterrent against gold hoarding and this Section 11 is for this purpose. Legal deterrents and prohibitions against the hoarding of gold exist in most other countries. I do not think, in view of what has been said, that hon. Members in any quarter of the House are in favour of gold hoarding here or elsewhere.
The hon. and gallant Member's arguments, which prima facie are plausible if not reasonable, are that the powers conferred on the Bank of England by Section 11 are unreasonable, since they enable the bank to buy gold at 85s. per fine ounce when the market price is about 148s. If there is, however, to be any legal deterrent at all to the hoarding of gold it would really be futile to allow the bank to purchase gold merely at the current market price. Such a provision might in fact mean that the bank would actually pay a hoarder more than the gold had cost him, and as we are agreed that hoarding is an anti-social act we do not want to run any risk of giving encouragement to anybody to hoard gold. Everyone knows what the law is and has been on the subject for the past 10 years and nobody can have any grievance against my right hon. Friend if this provision is applied to him. For these reasons I hope the Committee will reject the Clause.
§ Colonel Nathan
How does the argument of the Financial Secretary run in view of the fact that when the 1928 Act was passed 85s. was the market price, and until 1931 the bank was under an obligation to pay the market price? How is it that only since 1931, and then only because of fortuitous circumstances, has a discrepancy arisen between the market price and the statutory price? How is it that what was right in 1928 ceases to be right in 1939? If the market price was right in the one year why is it not right in the other? Has the Financial Secretary paid sufficient attention to the great disadvantages to British holders unless my Clause be accepted?
§ Captain Wallace
I realise the point of the hon. and gallant Member's argument. All I say is that there has been placed in the hands of my right hon. Friend a considerably stronger deterrent against what is admitted to be an un- 1188 social act, and I do not think my right hon. Friend is much inclined to throw it away.
§ Question, "That the Clause be read a Second time," put, and negatived.