§ The Chancellor of the Exchequer (Sir John Simon)
I beg to move,That leave be given to bring in a Bill to extend the power of the Treasury to make rules under Sub-section (2) of Section 2 of the National Loans Act, 1939.This is the short Bill to which I referred when I made an announcement yesterday of the intention to pay off the 4½ per cent. issue of ££350,000,000 or thereabouts, on the 1st July next and to offer to substitute a new issue at the rate of 2 per cent. I am glad to know that the first reception of that proposal has been universally favourable, both in the Press this morning and also, as I am informed, according to the always sensitive barometer of the gilt-edged market. The reason for asking the House to pass this Bill, I hope in all its stages to-day, is because it deals with the powers of the Treasury to make rules in connection with the exchange of such securities. The necessity for the Bill arises from the fact that there is some doubt as to whether our existing powers to make regulations cover the present case. The provisions of the proposed Bill will empower the Treasury in connection with the issue of a new security which will be offered in exchange 229 for an old security, to make rules for requiring the holders of the securities that are to be redeemed who desire to receive payment in cash in respect of their holdings on the date fixed, 1st July, to make an application on that behalf in accordance with the rules and for securing that if they make no such application they shall be deemed, subject to the provisions of the rules, to have accepted the offer.
It is necessary to make such provision for several reasons. It is very desirable, and I think necessary, to make sure that the Treasury know before 1st July what is the amount of cash that must be found at the redemption date. I hope and expect that in this case the amount will not be very large. It is also very desirable and necessary to avoid the Treasury having to find the cash and pay out to individuals who, because of mere inertia, have failed to make the communication, but who nevertheless are perfectly willing to accept the offer if it does not involve some positive exertion. We have to be sure that it is done with perfect fairness to all concerned. Such an offer has to be fully explained, as I did yesterday; it has been announced in the newspapers, and explained on the wireless, and we have posted to every registered and inscribed holder a prospectus giving full information. There is no possibility of unfairness.
It is desired that the Bill should be a Bill which gives the Treasury this power not only for this issue, but in general terms, because I think it is manifest that where the Government offer to convert they should, subject, of course, to a proper interval of notice, have the machinery to make sure either that the situation that results from the conversion is largely accepted, or, on the other hand, that the holders who wish to claim to be paid in cash have the right to do so. It is for these reasons that I have asked leave to introduce the Bill, and if the House gives me that permission, I hope we may proceed to the Second Reading, on which any further necessary observations can be made, and that the remaining stages of the Bill may be taken to-day.
§ Mr. Pethick-Lawrence
As we have been asked to pass the Bill through all its stages to-day and as the Chancellor has made his explanation at this stage, I take it that it will be convenient for those who wish to say a few words to do so now.
230 The Bill is a modest one, and it deals mainly with a technical point, namely, whether those who do not express any preference should be assumed to have concurred in the conversion of their holding from its present form into the new form which the Chancellor is offering. I think it is a wise proceeding that the Treasury should take advantage of what the Chancellor has called inertia, or I would call friction, for the benefit of the nation. Curious though it may seem, there is a large number of people who do not trouble to express themselves one way or the other and it is quite a good thing that those people should be assumed to have accepted the Chancellor's offer.
I should like to say a few words, however, on the larger question of the Conversion Scheme with which this Bill is incidentally concerned. In the first place, I am glad that this opportunity has arisen for putting a figure upon short to medium term rates of interest, and I am glad that the Chancellor has seen fit to take advantage of it in the way he has done. Before the outbreak of war and since the outbreak of war, hon. Members on these benches have consistently and persistently pointed out the great importance of a low rate of interest on loans borrowed for the prosecution of the war. I am happy to think that that view has been supported by hon. Members in all parts of the House. Therefore, in putting forward these proposals, the Chancellor is assured in advance of the support of the House, and that foreknowledge of support has enabled him—I will not say pushed him—to put forward these proposals. I am glad that the figure of 2 per cent. has been selected rather than the 2½ per cent. which prevailed up to the outbreak of war; and I hope this rate of 2 per cent. is a pointer to the rate which will be offered when issues of large new loans are made. I need hardly say that when money is borrowed for the prosecution of the war, the rate makes all the difference in the world. During the last war, the rates ran up until they reached 6 per cent., and even over 6 per cent. after the war was over, and in consequence the country is loaded down to-day with the enormous charges which have been one of the Chancellor's severe problems since the last war. If we can get through this war with a different scale of rates from those which prevailed during the last war, the burden which future Chancellors will have to meet 231 will still be exceedingly heavy, but it will not be such, I hope, as to break the back of the taxpayers of the country in the days that are to come.
There is one further observation I desire to make. With this rate of interest on short to medium term loans there is closely bound up the rate of interest on day-to-day money on which the Treasury Bill rate is ultimately based. The conversion which the Chancellor is making is of course from a 4½ per cent. loan of a comparatively long period to a 2 per cent. short to medium term loan; and that 2 per cent. rate is really comparable with 2½ per cent. on the existing National Defence Loan which is for a somewhat similar term. What is happening is that the Chancellor, quite properly in my opinion, and to the benefit of the Treasury and the country, is really reducing the rate on short to medium term loans from 2½ per cent. to 2 per cent. I want to contrast this with the fact that the cost of Treasury Bills has gone up since the war began from a little over ½ per cent, to a little over 1 per cent. I am aware that this matter is not wholly within the Chancellor's control. But the Bank of England rate, the rate which the Joint Stock banks give to their depositors, and the price of call money are all matters which, although not nominally controlled by the Chancellor directly, are in that kind of no-man's land where the Chancellor has, if not direct control, a great deal of influence. In view of the action which the Chancellor is taking on this other matter at the present time, an action which is supported by hon. Members in all parts of the House, I ask the right hon. Gentleman to use that influence which he possesses to bring about a reduction in the price of day-to-day money and so lower the cost of Treasury Bills. Having made those remarks, there is nothing further I need add, except to say that my advice to my hon. Friends is that they should give support to the proposals of this Bill, and that I shall offer no objection to all its stages being taken to-day.
Mr. Graham White
This is no doubt an opportunity to remove any doubts about technicalities, and the Bill should proceed through all its stages as soon as possible. These considerations are not likely to influence the opinion of the House or of the public either one way or 232 the other with regard to the conversion operations. It is proper that power should be taken to make definite rules on these technical points, and I should imagine that it is unlikely that many people, either through indifference or inadvertence, would neglect to take the necessary steps. There is one other point besides that of inadvertence or inertia to which I should like to call attention, which I hope may be taken into account in framing the rules. In the circumstances in which we live, it is extraordinarily difficult to obtain the completion of transactions, especially in the case of joint holdings. There are many people who are out of the country now, serving in His Majesty's Forces or serving the country in some other way, and in the case of joint holdings it is very difficult to get the necessary co-operation and assent to transactions. The point that I would like to make is this, that when the rules are framed, I hope sufficient elasticity will be retained, on proper cause being shown, to see that the wishes of the various people, although they may be ascertained a little beyond the particular date appointed, may be taken into account. That is a small point which in ordinary times might not be very important, but at present, when so many people are serving in out-of-the-way places, it might lead to inconvenience and possibly to some injustice.
§ Sir J. Simon
There are residents overseas, there are holders serving in the field, and there is the case of joint but separate trustees. I had observed that, and I had intended to say, and I say now, that the House may be assured that any applications for repayment which for any reason are delayed beyond the day appointed for closing the lists will receive sympathetic treatment.
I thank the right hon. Gentleman for that statement. It only remains to say, on behalf of my hon. and right hon. Friends on these benches, that we cordially approve the proposals for conversion to which this Bill is preliminary. It seems to us that they are well conceived in the public interest, and further, because they are conceived in the public interest, they preserve the rights of all holders of the securities to be converted, and they probably fulfil all the reasonable anticipations of these holders. 233 I think there is no doubt whatever that they will all be willing, in every possible case, to play their part in this initial stage of our war finance. I do not feel any doubt about that in my own mind. I think they really wish to receive direction and a lead from the Chancellor.
In reference to what was said by the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence), I feel with him that it is only on these lines that we can so conduct our war finance that, when the war is over, we shall be left with National Debt of manageable proportions which it will be possible for the nation to bear. I have no doubt these are the lines on which the Chancellor of the Exchequer proposes to proceed. I do not need to point out that this is not the only opportunity that there will be of effecting savings in this direction. If I remember rightly, in the National Loans Bill which we passed last Session provision was taken to enable an exchange of securities to be made at or before maturity, and no doubt when the proper time comes for a major war loan to be issued, an opportunity may be given to the holders of the £322,000.000 of 5 per cent. Conversion Loan to co-operate with the Treasury, on appropriate terms, which may lead to a further saving of interest. This proposal does effect a saving of interest which, even with the gigantic figures in which we now have to consider our national finance, is a matter of moment, and there may be further opportunities for making savings as time goes on. It only remains for me to express the hope and belief that this operation, the first major financial operation of the war, will be a complete success.
§ Mr. Boothby
There is general agreement on all sides of the House with the proposal of my right hon. Friend. Nevertheless, this is a very momentous occasion, because in fact what the Chancellor has done has been to lay down for the first time the rates of interest which he thinks ought to prevail in the opening phase of the war. The interesting thing is that his view has been accepted, not only on all sides of this House, but also by the City of London, thereby confirming a view which I have long held, namely, that, given the existing control over the exchange and over the export of capital, the Chancellor of the Exchequer, within limits, is practically able to state 234 what rate of interest he proposes to lay down for this country. There is no doubt whatever that the rate of interest laid down by him yesterday in this connection has been accepted by the financial community as a whole.
Nevertheless, I would point out to hon. Members opposite, and to other Members of the Labour party, that if you lay down a rate of interest of 2 per cent. on a short-term loan—and I think we must all hope for a maximum of 2½ per cent. in the meantime on medium term loans—by the time you take into account the prevailing standard rate of Income Tax and a possible increase in that standard rate in the next Budget or the Budget after that, there is not an awful lot of jam left for the rentiers at the end of it. That is, I think, as it should be, but I think hon. Members opposite should realise that these conditions do call for a very considerable sacrifice on the part of the rentiers of this country, a sacrifice which I think they have already shown they are cheerfully prepared to make. If you add up the figures, there is not an awful lot left at the end of it, especially when you take into account the possibility that if the war lasts for any length of time, there may be a certain general depreciation of the value of capital in addition.
There is one point which the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence), who led for the Opposition, made, which I think is of some importance, and that is the question of relating the rates paid for call money and day-to-day money in the City of London with the general rates which the Chancellor of the Exchequer has prescribed by what we are doing to-day, because I imagine that for the present financial year, at any rate, most of the borrowing will be done on a short-term basis, through the banks and through the note issues. Therefore, it is very desirable, in the interests of the taxpayer and of the State, that at the present time particularly short-term money—and by that I mean the very shortest-term money—should be kept at as low a rate as possible. It is slightly out of proportion at the time to the general rates which are being laid down by the Chancellor for medium and long-term loans, and I think my right hon. Friend could probably find himself in a position to make a proportionate adjust- 235 ment which in the next six months might save the taxpayer a certain amount of money. At least I think this question is worth his consideration. Meanwhile, I think we are all agreed that my right hon. Friend has chosen not only the courageous course, but the right course, in laying down the rates of interest for medium and long-term loans which he has done.
§ Bill ordered to be brought in by the Chancellor of the Exchequer and Captain Crookshank.