§ Order for Second Reading read.
§ The Chancellor of the Exchequer (Sir Kingsley Wood)
I beg to move, "That the Bill be now read a Second time."
This Bill is introduced to confer on the Treasury the powers necessary to carry out an Agreement, the text of which has been published as a White Paper, under which the Treasury receives a loan of 425,000,000 dollars against collateral security consisting largely of the so-called direct investments, that is, subsidiaries of British companies and the like in the United States. I am going to suggest to the House that this Agreement affords a satisfactory solution to the very difficult problem how to make the best use of these American assets for war purposes. When we surveyed our resources it was evident that besides readily available gold and dollars we should have to mobilise British-owned investments in the United States, and that securities which are not marketable in the ordinary way by sales on the Stock Exchange would have to play an important part. While, therefore, steady progress was made with the acquisition of marketable securities and their resale in New York, special attention was given to the problem of how to make the best use of the direct investments. I need hardly tell the House that we were fully alive to the drawbacks of selling direct investments and reluctant to force valuable property on to an unwilling market or to interfere with the existing channels of trade, which will be more than ever needed in the years to come.
Many of these direct investments are almost impossible to sell at the present time. American subsidiaries may be merely selling agents for the parent company in England, or their ties with an English parent may be so close that if they are cut away from the parent, the subsidiary company might lose much of its value. Finally, the operation of American anti-trust legislation prevents, in many cases, the sale of such a subsidiary to other interests active in the same line of business. Nevertheless, a means of action had to be found. The passage of the Lease-Lend Act did not put an end to the need of solving the question. The 1174 situation called for the use by Great Britain of those resources as a response to the unparalleled measure of aid offered to her by the Lease-Lend Act, and we were firmly resolved to take every step in the direction of self-help.
Moreover, it has to be observed also that, enormous though the help afforded by the Lease-Lend Act is, it does not and cannot cover all our requirements for dollars. We had to find dollars to meet commitments for armaments and other supplies incurred before the Lease-Lend Act, and we had to provide means outside our normal dollar income from exports, etc., which is required to cover considerable expenses, some of which are outside the United States and must be met in dollars, and others of types which cannot possibly be covered by the Lease-Lend Act. With these ends in view full investigation has been made on the spot of the possibilities of making the best use of our direct investments. So long as borrowing, whether with or without collateral, was impossible, owing to American legislation, it seemed practically impossible to find an alternative to outright sale.
As is well known, one such sale was actually and necessarily effected, that of the majority of the shares of the American Viscose Corporation. It was followed by another transaction in which, by a happy combination of circumstances, it proved possible for the British American Tobacco Company so to arrange a loan to an American subsidiary from the Reconstruction Finance Corporation that the greater part of the resulting dollars accrued to the Treasury. The general solution of our difficulties was made possible for the first time when the Reconstruction Finance Corporation obtained powers from Congress to make loans to belligerent Governments against collateral in the form of American securities. No time was lost in taking advantage of those powers, and the Agreement which underlies this Bill is the result.
The essential provisions of the Measure are that the Treasury secure a loan of 425,000,000 dollars at 3 per cent. interest for a term of 15 years with an option on certain conditions to extend to 20 years. As regards the rate of interest, I would say at once that it certainly cannot be regarded as excessive for a large external loan, however good the security may be, and it is, of course, comparable with our 1175 own 3 per cent. War Loan, 1955-59, yielding £2 19s. 6d. The loan is secured by collateral, and it is provided that the income produced by the collateral shall be devoted wholly to providing for the interest and the repayment of the loan. The collateral consists of the more important direct investments. These will remain the property of and under the control of their present owners. They include, in the first place, British insurance interests in the United States, whether in the form of subsidiary companies incorporated in the United States or of branches operating there. In the former case the shares of the subsidiary companies form the collateral. In the latter case, the income of the branches is assigned to the lender.
The direct investments used as collateral also include the shares of a number of other British-owned subsidiaries, besides insurance companies. In addition there is a block of marketable securities already acquired by the Treasury by the normal process of Vesting Orders, but not yet resold. There is also a further block of similar marketable securities still in the hands of British owners. We expect to arrange to receive about 100,000,000 dollars a month, dependent upon a proportionate amount of collateral being deposited. Of course, we can deposit very quickly the vested marketable securities owned by the Treasury to an amount sufficient to cover the first 100,000,000 dollars, and we can then get the necessary-documents from insurance companies and other direct investments and borrow the remaining marketable securities.
As a good deal of public interest has been expressed in this connection, it might be well for me at this stage to say a word in particular about the insurance companies. Where the operations in the United States are conducted by subsidiaries, the latter declare a dividend payable to the parent company. This depends upon the earnings of the subsidiary, the management of which is, of course, prudent and conservative in determining the amount which should be distributed and will have full regard to the necessity for maintaining unimpaired the financial strength and resources of the company. As regards branches, the American Superintendent of Insurance allows rent and income from investments to be remitted to the United Kingdom. What is released 1176 to this country will go to the Reconstruction Finance Corporation, and in addition, while the profits of insurance business normally remain to strengthen the position of the company, withdrawals for remittance to this side may be made in so far as the Superintendent of Insurance allows them. These also would go to the Reconstruction Finance Corporation. I need hardly say, as hon. Members will observe this in the provisions of our legislation, that in all cases the company will receive from the Treasury the sterling equivalent of the income receivable by it, whether as dividends from an American subsidiary or as remittances from its American branch. The House will also observe that the dollar securities of subsidiaries of British insurance companies are neither to be sold nor pledged. These securities are held as a reserve against the dollar liabilities of the insurance companies under their outstanding policies.
§ Mr. Benson (Chesterfield)
I think that the American statement said that the assets of the American insurance companies were some 200,000,000 dollars over and above the requisite holding against our policies. Will the right hon. Gentleman say whether this sum is also pledged.
§ Sir K. Wood
I will refer to that point later in my remarks. As to the Agreement itself, it should be emphasised that the lender is the Reconstruction Finance Corporation, and, of course, the terms and conditions of the loan all reflect that fact. The terms and conditions of the loan are in fact based on American commercial practice, and I am advised that the various stipulations are normal in contracts of this type. Thus the Agreement contains detailed provisions regarding the collateral which is to be deposited with the Federal Reserve Bank of New York as agent for the lender in negotiable form. Mandates will be given for the payment of dividends, etc., direct to the lender, and provision is made for the lender to take over the securities and all rights therein in the event of a default. The collateral is to be maintained at a value in excess of the amount of the loan remaining unpaid from time to time.
The Agreement provides for the application of the income received from the collateral, first to cover the interest due on the loan and then to a minimum sinking fund of 7,500,000 dollars a year. 1177 Any surplus after setting aside the standard reserve of one-half year's interest will be used to reduce the principal of the loan. The House should also observe that it is open to the Treasury to repay the loan in advance, and securities forming part of the collateral may be sold with the consent of the lender, the proceeds going to reduce the loan. There will thus be three separate accounts: first, a Current Interest Account, into which one half-year's interest will be paid; secondly, the minimum Sinking Fund Account of 7,500,000 dollars, payments into this being credited against principal as and when received; and, thirdly, a Reserve Account. After setting aside a sum equal to one half-year's interest, which will be permanently held, and on which one per cent. interest will be credited to us, the balance of the income from the collateral will be promptly utilised to reduce the principal outstanding.
I would like to tell the House something about the matter of interest. The annual service of the loan is interest at 3 per cent. on 425,000,000 dollars, or 12,750,000 dollars, to which must be added the sinking fund of 7,500,000 dollars a year, giving a total of 20,250,000 dollars. The estimated yield from the collateral and from the insurance companies' branches is 36,000,000 dollars, and it will be seen, therefore, that not only is the loan fully covered as to capital, but that the loan service is amply assured as to income. Moreover, the dollar income available from the deposited securities and from the insurance branches affected is sufficient at its present level to repay the whole loan at maturity.
I also wanted to explain to the House that, in fact, much of the immediate action that is necessary to carry out the Agreement could be taken by the Treasury under the Defence (Finance) Regulations, subject to Orders in Council being sought should any amendment prove necessary; but no doubt hon. Members who have followed this matter will have observed that such powers are derived, of course, from the Emergency Powers (Defence) Acts, and would lapse with the expiry of those Acts after the war, while, of course, the Loan Agreement continues for a period of 15 years. Therefore it is necessary, as I do to-day, to seek explicit powers from Parliament to enable the Treasury to do all things necessary to carry out the Agree- 1178 ment, and it will also be observed that it is why we meet to-day to take this special course, as I am sure we all desire to do. It will also be observed that the Agreement will not come into full effect—in other words, the loan will not be made— until we are in a position to satisfy the lender as to these powers which we are obtaining to-day. The Bill takes the general form of empowering the Treasury to make Regulations requiring securities and sources of income to be placed at the disposal of the Treasury in suitable form. The first Regulations so made are to be laid before the House of Commons and will require confirmation by a specific Resolution. The House has already before it, as a White Paper, a draft of the Regulations which it is proposed to make, and it is hoped that these will make fully clear to my hon. Friends the use the Treasury proposes to make of the powers for which it asks in this Bill.
I thought it was well, as I did on a previous occasion on another matter, to let the House see the whole picture in regard to this proposal. They have the whole of this Agreement before them and the whole of the Regulations. An affirmative Resolution will be asked for, in order that this matter shall be completed so far as we are concerned. This will be asked for immediately after the passage of the Bill into law, in order that suitable advice that the Act has been passed, as provided for in the Agreement, and the Regulations made there under have become effective, may be sent to the Reconstruction Finance Corporation in order that the Agreement may come into full operation.
§ Mr. Pethick-Lawrence (Edinburgh, East)
When the right hon. Gentleman says "immediately," I do not think he means to-day, but early next week.
§ Sir K. Wood
Yes; we have, of course, to get the Royal Assent to this Bill. Only then can we deal with the Regulations, but the point I want to make is that the House does see the whole picture to-day. I want to make the point that we desire to conclude this matter and to tell our friends in America that the matter has been completed.
§ Mr. Tinker (Leigh)
Can the right hon. Gentleman say what is the difference in the percentage of interest on the external loan this time, as against previous external loans?
§ Sir K. Wood
I will make inquiries and will try to give my hon. Friend the information. The Bill goes on to lay down the duties of the Treasury by providing for the eventual release, to their owners, of securities to be placed at the disposal of the Treasury, or for payment of their value in sterling if the securities are not released, or are acquired by the Treasury while on deposit. In any case, payment in sterling will be made of the equivalent of the dollar income— whether from securities or otherwise—to which the owner is entitled but does not receive owing to the provisions of the Agreement. There is also this to be said. The sterling equivalent of the dollars received by the Reconstruction Finance Corporation, and applied to the service of the loan, will be calculated at the official rate of exchange. As a matter of machinery, payment will, in the first instance, be made from the Exchange Equalisation Account, and, so far as the dollars are utilised to pay interest or principal on the loan, the sterling equivalent forms a charge on the Consolidated Fund under Section 3 of the National Loans Act, 1939, and will be repaid to the Exchange Equalisation Account out of the Consolidated Fund.
I hope, and believe, and have every evidence to think, that with this explanation and the documents before the House, the Agreement concluded will be regarded as satisfactory. It provides us with a very considerable sum in ready cash and solves all the manifold difficulties which, as I have already explained to the House, surrounded any plan of selling our direct investments. The Agreement provides that these investments will remain the property of, and under the direction and control of, their existing British owners, and, of course, it avoids the loss and dislocation which would follow a forced sale. Eventually, when this loan is paid off, they will be liberated from the lien now placed upon them and will revert to their owners. I think there can be no doubt that the Agreement has safeguarded the interests of all parties concerned, and I think the House can confidently be asked to give a Second Reading to the Bill.
There is one final word that I would like to say, and it is right that I should say it. I am sure that it will be endorsed by the House, and that the House would wish me to give expression to the very 1180 warm feelings which have been aroused, both in the House and the country, by this very concrete evidence of the further sympathetic understanding of our difficulties which has been shown by the Administration of the United States. Mr. Morganthau, the Secretary of the United States Treasury, and Mr. Jesse Jones, Federal Loans Administrator, have spared no pains in bringing the Agreement to a successful conclusion, and their helpfulness in this field is yet another example to which I am very glad to pay my tribute, as I know my hon. Friends will be, of the ready and willing co-operation by the United States in the great task that confronts the two democracies.
§ Mr. Pethick-Lawrence (Edinburgh, East)
We are indebted to the Chancellor of the Exchequer for one more lucid exposition of a somewhat complicated proceeding. As I see it, the Bill owes its origin to two main facts, and I am not going to be mealy-mouthed about those two main facts. I propose to call a spade a spade, and to describe them by the names by which they will be understood by the public. The first main fact is the default of this country on the debt to the United States after the last war; and the second is the failure of the Viscose sale. I should be wandering too far from this Bill if I dealt with either of these matters at length, and I will only say, with regard to the second, that it is well known that the Viscose sale had a very disappointing result from the point of view of the British Exchequer, and, I imagine, to an extent not hitherto realised, because the matter is not finally disposed of, to the parent company and the shareholders in this country.
With regard to the other question, the default of our Government on the loan made by America during the last war, that is, of course, rather a sore subject, particularly on the other side of the Atlantic. Not only in this case, but in the general case, debtors and creditors take a rather different view of the matter of default. The debtor always has excellent reasons why the money, which he had every intention of paying, was not forthcoming at the right moment, reasons which may reflect on the lender or which may be due to circumstances which, the debtor is most careful to explain, are entirely outside his personal control. But the creditor may not always take the 1181 same view; he is inclined to say that the money was borrowed on the assumption that it would be repaid, and that it ought to be repaid at the appropriate moment. It would be very undesirable to pursue this matter at great length. I know that it is held in this country that one of the difficulties may have been slightly due to the attitude of the creditor himself. That was the difficulty which was found in paying in goods, and the fact that in certain circumstances the value of money was allowed so to change that the payment of interest in terms of gold money became an increasingly heavy burden upon the economic position of the debtor, not only in regard to our own debt, but in regard to the debts of other countries placed in somewhat the same position in relation to us or to the United States. But, as I said, I do not propose to go into that: it is a sore subject. We have to acknowledge our debt to the administration in America for allowing this matter not to stand in the way.
But the actual fact was that, in consequence of this debt, Congress passed a certain Bill. That Bill prevented the Administration lending money to any country which had defaulted previously on its debt. That shut out, in the ordinary way, any loan to this country; so that is really responsible for the particular form of loan which is represented by the proposals that the Chancellor of the Exchequer has brought before us to-day. The proof of Anglo-Saxon common sense and the good will of the American Treasury is that they found a way through this difficult commercial, financial, and political situation. It reflects the determination of America, whatever may be the political obstacles, that Hitler shall not be allowed to win this war. Broadly speaking, as I understand the proposal, it is to substitute a commercial arrangement between nationals for an arrangements between Governments. That may not be its technical form, but in effect that is largely what it is. There are, therefore, two stages in the position. There is a stage which our Government have already concluded with the American Government, and there is a stage which our Government have to carry through with our own nationals, because this is not a loan from one Government to another; it a loan from this corporation which is being set up in the United States.
1182 Incidentally, I should like to ask the right hon. Gentleman what exactly is the position of this corporation. Is it getting its money by public subscription in the United States or from the American Administration itself? I do not think that that is definitely stated, and I should be interested to know the precise position. So far as we are concerned here, our Government are borrowing the money but are having to pay as collateral something which is not in their own possession but is at present in the possession of British Nationals. It is that fact which necessitates the passage of this Bill. I want to ask two or three more questions, which seem significant and worthy of an answer from the right hon. Gentleman. What is the precise significance of this sum of 425,000,000 dollars? It can hardly be described as a round figure. Is it intended, however, as a round figure; or is it the largest sum which the Government would consent to under the circumstances; or is it in any way an estimate of our needs? If it is an estimate in any shape or form, of what is it an estimate? I could have understood 500,000,000 dollars, which is a round sum, but 425,000,000 dollars seems a nice, balanced figure.
In the second place, I want to ask this question, which I think to a certain extent is already answered. I gather from the speech of the right hon. Gentleman that he hopes that the full amortisation of the loan will be available out of the income of the securities which are to be used as collateral. I gather, therefore, that at the end of the 15 or 20 years our nationals will still hold the capital of this collateral. The Chancellor of the Exchequer said that that capital would be returned to them at the end of the period. He made a specific and categorical statement to that effect, but I cannot help feeling that that is really an intention of the Government. I do not think that there is anything in the Bill or in the Regulations which makes such a stipulation; in fact, I think there is something in the regulations directly contrary to that, something to which the Chancellor himself referred. He said that we would, of course, pay to the present owners of these securities the income as it arose in sterling, as an equivalent to the amount which is being absorbed by the service of the loan in dollars in America, and 1183 that if any capital were taken away, we should equally pay the value of the capital. Surely, that conflicts with the statement that all the securities will be handed back to the owners at the end of the war. I imagine that we shall take all the interest, with a view to helping to pay off the loan, and that we expect and intend that that will be sufficient, and that when the period of 15 or 20 years is over we shall be able to hand over the capital securities to the owner. But if I understood the problem aright, I do not think that the Chancellor of the Exchequer has made that plain, unless his speech can be taken on those terms. I believe that it is the intention, and that the Government believe they will be able to fulfil it, but that it is not bound up with any specific promise in the Bill itself or in the Regulation.
My next question to the right hon. Gentleman is this: Can he tell us anything about the question of how far other needs for dollars are being adequately met? I do not understand that this 425,000,000 dollar loan is regarded as the final and complete estimate of all the dollars that we shall want from now to the end of the war. If the war should last a very short time, it may be that the 425,000,000 dollar loan is quite adequate, but not if the war should go on longer. As I understand it, there are certain things which are being imported from the United States that, even at the present time, under the very generous provisions made in the Lease and Lend Act, are not covered by that Act. The question I want, therefore, to put to the Chancellor of the Exchequer is this: If there are, over and above the provisions of the Lease and Lend Act, any imports that we are securing at the present time from the United States, is it anticipated that this loan will be adequate, together with our exports, to cover all our requirements in that respect? I imagine that the Chancellor of the Exchequer will probably be able to give an affirmative answer to that question. If he is not able, can he say anything with regard to the prospects, as he foresees them, of the future?
The final question that I want to put to the Chancellor is this: The matter of the rate of exchange between the dollar and the pound arises on certain points under these provisions, and I want to ask the 1184 Chancellor of the Exchequer whether he is able to say anything with regard to the rate of exchange that is likely to prevail during the war I imagine that the British Government and the Government of America have some agreement by which the rate of exchange at the present time is more or less stable. But I would like to pursue the matter a little beyond the end of the war, or beyond the period which, in the last war, was called "the duration," which goes quite considerably beyond the end of the war. The right hon. Gentleman will not forget that after the last war ended, as things reverted to normal, there was considerable alteration in the rate of exchange, with very disastrous consequences. I do not want the right hon. Gentleman to tell me, even if he could, the precise plans that he has made to prevent a similar misfortune occurring again, but I would like to ask him whether he is carefully envisaging this problem, and whether he has already in view steps which will help to solve it when the time comes? I would not like to feel that we were drifting into a state of affairs in which we repeated the mistakes that took place at the end of the last war just simply because we had not taken the trouble to consider the position.
We do not know in the least when the war will end. It may go on for a very long time. It may go on for a medium amount of time. But we have always to bear in mind—and we certainly hope that it may be so—that the war might come to an end very much earlier than we anticipate, to our very great advantage and satisfaction. It would be a silly misfortune if, owing to that very happy result, we were caught napping without having taken any precautions to deal with the circumstances of the time.
The points to which I have been referring up to now have been points which affect mostly, and concern the interests of, the general public. They are the larger issues affecting this loan that has been envisaged by the Chancellor of the Exchequer, but we have, of course, also to consider very carefully the precise text of this Bill and the relationship which is effected through it between the Government and the persons who are being asked to hand over these securities as collaterals. I should be inclined to say with regard to this what I said a few days ago with reference to another Bill, that, if we were living in ordinary peacetime, I could 1185 not consider the provisions of the Bill as very satisfactory. They seem to me to give a very wide discretion to the Treasury, who are not called upon to prove that what they are asking for is reasonable, but merely to state that, in their opinion, it is reasonable, and that is very wide power to give to a Department.
In the first place the Regulation is subject to positive approval, but subsequent Regulations are only subject to the negative approval of the House. But I do not think that that ends the matter. These Regulations have conferred upon the Treasury very wide powers, and if the Treasury were to use them improperly, obviously, grave injustice might be done. It is only because we have such a good Treasury—if I may put that point of view —and a good Chancellor of the Exchequer that the House is likely to confer these wide powers. If it were otherwise, the holders of these securities might be seriously affected by the decision to which the Treasury came In ordinary peacetime we might hesitate to confer upon the Treasury and the Chancellor of the Exchequer such a wide discretion dealing with the powers of private individuals. I do not imagine that the House will take much exception to it to-day just because we are not living in ordinary times. We have to accord wider powers in order to get on with the job, knowing always that any abuse of such powers, if it did arise could, in that event at any rate, be called into question by this House, if it could not be called into question by the courts of the land.
That is what I wanted to say with regard to this Bill and its wider assets, and I would only like to end by saying in my own words what the Chancellor also said at the end of his speech. This Agreement, and the fact that it has been possible to make such an agreement, should be a great heartening to us and should show us how friendly disposed towards us is the American Administration. It would have been very easy for the American administration to have sat back upon Congress and to have said that no accommodation was possible. The American Administration has not merely shown its friendliness, but it has also shown, if I may say so without offence, its ingenuity in handling the political situation in America. Speaking for myself and 1186 those associated with me, I would like to express my agreement with the Chancellor in extending to the American Administration our thanks for the way in which they have handled this matter and have enabled us to meet what was otherwise a very great difficulty, and for showing us once again their determination with us that Hitler and all that he stands for shall not be allowed to go forward to a successful issue.
§ Sir Percy Harris (Bethnal Green, South-West)
I would like to associate myself with the blessing which has been given to this very important Bill. It is also a very significant Bill, not only because of the large amount of money involved, but because of the principle that it stands for. It is a thoroughly sound transaction; it is an example of the Treasury at its best, and, incidentally, as has been said, of the American Treasury at its best as well. It is in marked contrast to the Viscose deal, which has, unfortunately, left a rather unsavoury atmosphere behind it. Here is the best kind of financial arrangement with America, and it does show the good will of the American Administration, not merely in words, but in a material form, translated in the most skilful way.
As I understand it, this transaction winds up the balance left over under the "Cash and carry" plan. We were originally allowed to buy munitions in America only in return for cash. That was the principle laid down at the opening of hostilities. We have exhausted our cash resources, and this 425,000,000 dollars winds up what is left over under the original arrangement. After that— and perhaps I shall be corrected if I am wrong—we come under the new system-of the Lease-Lend Act. That is the interpretation I make of this particular arrangement. It is quite clear to me that the Chancellor of the Exchequer could have made an arrangement of this kind under the Defence Regulations, but these continue only from year to year, and if we were to make an arrangement which was satisfactory to our friends in America, obviously it had to be for a term of years and be based on a permanent Agreement. That is why this legislation, as I understand the position, is necessary. One of my main purposes in intervening in this Debate, apart from my desire to express my approval, is to emphasise 1187 that this Bill in no way impairs the sound position of the British insurance companies, which are very much involved. The credit of British insurance companies among insurers, either of life or property, throughout the United States, is unchallenged. It is one of the big assets of this country, and for many years we have received vast dollar payments as the result of the profits and skilful management of the British insurance companies in America.
United States law in reference to insurance companies in the various States is involved, but in most States there is a special arrangement for deposits to cover the liabilities of the company, and I think I am right in saying that most of these companies have to provide for a dollar income. It should be made clear to the insurers in America as well as the shareholders of the parent insurance companies in Great Britain that this Bill in no way interferes with either the companies' sound financial position or their prestige. It would be unfortunate if that was not emphasised. Incidentally, we owe a debt to the enterprise and ability of these great insurance companies, which, especially during the last 25 years, have provided these sound sources of revenue. They have placed themselves at the disposal of the Government and the Treasury. They have co-operated most closely and have shown a loyal spirit which is an example to traders and business men throughout the country.
§ Sir K. Wood indicated assent.
§ Sir P. Harris
I would like a little enlightenment about the Reconstruction Finance Corporation. I do not quite understand what is its constitution and directorate. Although I know it is associated intimately with the Government, I do not know what exactly its relations are, and I think it would be to our advantage if we knew. I am sure the whole House approves this Bill, which is a feather in the cap of the right hon. Gentleman the Chancellor of the Exchequer, who at this moment has put this proposal through. It is a remarkable tribute to the close relations between America and ourselves, and I cannot help thinking that with all their boasts and claims the Nazis and members of the Axis, whether they are in the East or the West, 1188 will be looking with envy at this country, which, in the middle of a great war, can get this generous financial assistance from our friends on the other side of the Atlantic. They could ask and demand but there is no way in which they could get credit. Financially, this is perhaps one of the most hopeful signs. Financially, the Axis is thoroughly discredited. This Bill shows that in spite of two years of war the financial standard of the British Commonwealth is still A1 in the opinion of the best judges on Wall Street and elsewhere in America.
§ Major Sir George Davies (Yeovil)
I think the House, and indeed the whole country, can congratulate my right hon. Friend the Chancellor of the Exchequer on the fact that he has been able to bring forward to-day this Bill, which seeks to put into operation the Agreement which has been reached between ourselves and the American Treasury. I would like to associate myself with the tributes which have been paid to the American authorities, the Treasury and others for the part they have played in this matter, but we should not forget the part played by our own representatives of the Treasury and the Bank of England, who have been for weeks in Washington trying to put through this scheme. It is not only complex, but it is delicate, because it is not entirely confined to finance. There are political considerations in the background. I shall not be so venturesome as to follow the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) in his comments upon the American debt after the last war. I would only give this curious personal experience which I had some 10 or 15 years ago, when that subject inevitably arose, wherever Englishmen and Americans came into contact. A prominent American legislator in conversation with me, was following what was at that time the common procedure on this subject. I said to him, "What would you have us do, if we should be able to make the necessary arrangements with those who owe us money? Would you have us pay you in gold? There is not enough gold in the world to do so." He said, "We have more gold than we know what to do with." "Then," said I, "would you have us pay in goods and services? "and he said," That would upset all our industrial arrangements." When I asked 1189 him finally. "What would you have us do" his reply was, "Could you not give us a cheque?" That seemed to be his solution to the problem and, in the same way, this Bill is a mixture of finance and politics.
As the right hon. Baronet the Member for South-West Bethnal Green (Sir P. Harris) has pointed out, this Measure covers the gap between the time when we had dollar securities with which to make purchases in the United States, and the time when we were no longer able to fall back on them, and it is a great tribute to the desire of the American people that their country should become, as they themselves have said, "the arsenal of democracy" under the Lease and Lend Act. When we started, there was not time to think of whether we were going to be able to afford to pay for the large-scale orders we were placing. We had to order and to get the goods. At that time we had various resources available and these were then increased by mobilising —to use the Chancellor's word—certain assets of which we all know, readily realisable assets which were quoted on the markets on both sides of the Atlantic and could be taken over, so as to increase our dollar credits in the United States. But there did come a time when the orders outstripped our resources to pay for them, and we were unable at that moment to take advantage of the provisions of the Lease and Lend Act which was then hovering in the background. Consequently, this Bill is to cover that gap.
Having mobilised those readily realisable assets, from that moment there remained a large number of assets, the property of British subjects in the United States, which could easily be used in the same way to realise dollars, but concerning which there was difficulty as to the actual impounding by the Treasury. It was difficult to arrive at a reasonable value of these assets on an unready if not unwilling market. We had our experience in the Viscose Corporation episode which showed that few, if any, were getting advantage out of it because the original owners were getting a miserably inadequate compensation and the Treasury was not getting anything like full value. The only people who might be regarded as benefiting were individuals in the United States—rings and such-like—who wore able to get valuable securities at knock-out prices. This 1190 scheme aims at avoiding that situation and therefore instead of realising the assets, it is proposed to use them as collateral pledges for the loan.
The complications involved must be very great indeed. Certain matters have already been touched upon by previous speakers and there are some other things which puzzle me. For example, a large number of these assets are in the ownership of trustees. To what extent will the Bill empower the Government or the Treasury to override the provisions of trust deeds so that these assets, where they are in the ownership of trustees, can be surrendered as collateral security for this loan? My mind is somewhat relieved by this passage in the Explanatory Memorandum:Neither ownership nor control will pass to the Reconstruction Finance Corporation except in the event of a default.One of the anxieties expressed by many who are interested in this great transaction is lest during the period of these assets being pledged for this loan, the Reconstruction Finance Corporation would have the right to override the directorates of the businesses concerned, appoint their own nominees, and practically run those businesses even though there had been no default. One can readily understand that in a case of default such a provision would have to be made, but a great many minds would be relieved if it were realised that the administration of these businesses, whether insurance companies or undertakings of any other kind, will be unaffected by the provisions of this Measure.
Another difficulty presents itself to my mind. We speak of the aggregate income of all these pledged assets being used for the service of the loan—for the payment of interest and expenses and sinking fund —during the period of the loan, whatever it may be. But the assets concerned vary in income-producing capacity. Some may be producing no income and others very substantial incomes and it puzzles me to know how those differences are to be evened out. Arising out of that point, there is a definite question which I would put to the Chancellor. As the bulk of the loan is being paid off, are the pledged assets to be reduced gradually pari passu with the payment of the loan as a whole, or will they continue to be pledged until the loan has been completely discharged? That is an impor- 1191 tant consideration to those concerned— whether they can look forward to having their securities released before the expiration of the period of the loan.
There is another matter of some importance. As I understand it, the present beneficiaries or owners of these securities will have the borrowed value paid to them here in sterling at a fixed rate of 4 dollars and 4 cents. The beneficiaries will not derive the income which they were accustomed to receive from their American investments because that income is being impounded for the service of the loan. Whether it is for a shorter or a longer period, during the time of the loan, they will be deprived of a substantial portion of the income which they had been receiving and they will be paid a lump sum in sterling here. It will be open to them to invest that sum in something which will produce perhaps 3 per cent., less the enormous tax obligation which the right hon. Gentleman has placed upon us. Such people may say, "My American securities will be released from this pledge in a certain period and this sterling amount which has been paid to me I can regard for that period as income and spend it accordingly, and, at the end of the period, while I shall have spent all the sterling which I received here, I shall be recouped by enjoying once again the income and full ownership of my securities in the United States." The thought which is passing through my mind is, Would that sterling sum, in such circumstances, be regarded as income for the purposes of Income Tax here? What he does with this sum should surely be immaterial to the Treasury. But if he does spend it as income will he find himself mulcted in Income Tax and Surtax?
Overriding all this, however, there is one great consideration which comes under the heading of politics rather than of finance and which needs to be touched on somewhat delicately. We are hoping that at the end of this war our co-operation with the United States, in every direction, will be a great deal closer than it has been in the past, and if this is to be the case, one of the things that will have to be reduced is the barriers which are gradually being built up as a result of tariffs and of exchange freezings and blockings—all those things which have impeded the progress of industry and 1192 therefore of prosperity and the increase of the wealth of the world. One of the things which will be a factor in recovering the position which the world has gradually lost since the last war, is that in such closer co-operation with the United States there should be more instead of less mutual ownership of industry in each country by each other country. If, as a result of these measures for raising dollars in the United States, we are going to find that British capital in the United States is to be squeezed out—as has happened to some extent already—and if all the securities which for so long have been dealt in by the citizens and residents of this country, securities representing British capital, which, to our mutual advantage, have gone towards the development of the United States are to change hands—then instead of opening up our mutual activities, we shall see a movement which narrows them and puts us again into watertight compartments. I can see nothing but great disadvantages in any such development, and so I sincerely hope that after the war, as a result of the temporary measures which are being forced on both sides, our approach will be not wishes to realise assets held in the other's country to a still greater extent, but rather that we want to see these mutual interests expand and increase, to the great advantage of the two great democracies, and therefore to the peace and prosperity of the post-war world.
§ Mr. Benson (Chesterfield)
The Bill we are now discussing is, as the right hon. Member for Bethnal Green (Sir P. Harris) says, another feather in the cap of the Chancellor. But I would like to warn the Chancellor that if he goes on collecting feathers at the present rate, he will be rather like a Red Indian brave by the time the war is over. I have no observations to make on the general principles of this Bill; it is an important Bill, and it will affect a very large number of private individuals, and so I make no apologies for briefly examining some of the details which have not so far been mentioned. This Bill impounds, apparently for a period of some 15 years, probably £150,000,000 of English capital. We are borrowing some £106,000,000, and our collateral must be very nearly £150,000,000, a good deal of which is held by private individuals, many of them possibly of not very great wealth. I am not 1193 at all sure that the Regulations as drafted are altogether fair to the owners of the capita] that we are impounding. To begin with, their capital is frozen for some 15 years. I know that under the Agreement there is a possibility of the release of the assets, but if the loan is to be amortised by the income arising from them, the Finance Corporation cannot afford to release any very great part of those assets, otherwise it would upset the income for amortisation purposes. The only chance which the owners of impounded capital have of getting their money back quickly is if, for some reason or another, their right to release is extinguished and they are compensated at the market value at the time, or if they are given the right of sale with Treasury permission.
Is this rather harsh treatment of the owners absolutely necessary? Is there any particular reason, for instance, why the Treasury, if requested by an owner, should not buy these securities at the market price and issue Government war securities aganst them? It would not be an inflationary step, because it would be a capital transaction and not an income transaction. Again, is there any particular reason why compensation should be at some future market value? I think the owner of impounded capital ought to have the option of being compensated at the present market value, since he cannot realise his security. Is there, further, any reason why the Treasury should take power to control the sale of these impounded assets? Does it really matter to the Treasury whether the shares in a given company are owned by A or by B? What is the reason for the Treasury taking power to control sales, at any rate between British nationals in this country? The owner of such shares cannot sell, except subject to the lien of the Treasury. The owner is very much in the position of a mortgagor, who can sell his interest without in any way interfering with the security of the mortgagee, or of a leaseholder, who can sell the lease without in any way interfering with the powers and interests of the landlord. If the Treasury says that the power to refuse to allow a sale will be exercised only on very rare occasions, and that normally the right of sale can be exercised with merely a formal permission from the Treasury, a good deal of the objection to that restriction would 1194 go, but if the Treasury are going to put obstacles in the way of the sale of these impounded securities, I think they will inflict a hardship on the owners which is not justified by any advantage which the Treasury can get out of it.
There is one question that I should like to put in passing, and that is, Why is repayment of capital, if it takes place, and the regular payment of sterling income in lieu of dollar income, made through the Exchange Equalisation Fund? The Exchange Equalisation Fund does not seem to come into it except as an agent. In fact, it seems very largely a technical transfer; the money ultimately comes out of the Consolidated Fund, and why it should not be paid directly from the Consolidated Fund to the recipient I do not know. Why it should come from the Exchange Equalisation Fund and then be repaid out of the Consolidated Fund to the Exchange Equalisation Fund is something which I cannot understand. There is one Sub-section in the Bill, Sub-section (7) of Clause 2, which raises a very old grievance of mine, and that is the right of certain individuals to accumulate an income abroad which is not liable to tax unless it is remitted to this country. That, of course, is the income arising from private businesses and partnerships abroad. Why this indefensible exception was made to the general rule that income arising abroad is taxed whether it is remitted or not is something I have never been able to understand. We have never had any really adequate explanation on that. When we discussed the matter in 1940 the present Financial Secretary—
§ The Attorney-General (Sir Donald Somervell)
The provisions which my hon. Friend refers to, affecting partnerships or foreign possessions, would not, I think, come into question, because possessions of that kind would not, as I see it, come under the Agreement. The part of the Income Tax Law which is at issue here is that part which provides that in the case of ordinary securities a man only pays on the remitted income if he is a person not domiciled here or a person not normally resident here. I do not think my hon. Friend takes exception to that, because it does not seem unreasonable when applied to people not permanently resident in this country.
§ Mr. Benson
While thanking the Attorney-General for his assurance, I am 1195 not quite sure he is correct when he says that income arising from foreign businesses and partnerships will not come under the scope of this Bill. What happens is that foreign businesses and partnerships build up reserves, and these reserves are very frequently invested in securities of the country of origin. It is highly probable that you will still find, held by British owners, a considerable amount of securities, American securities, which are involved in these transactions but which are the reserves of businesses and partnerships in America. If I can have an assurance that income of that type and accumulated reserves of businesses and partnerships, when remitted here, do not fail to attract tax, my objection will be removed. But I do not think that will be the case, because, when the last impounding of securities took place, this point was raised, and the Chancellor gave an assurance that income which was not now subject to tax owing to the fact that it was not remitted, would not attract tax because is was remitted compulsorily by the Government. Apparently the same thing is to happen here. It is for that reason that I very strongly object to the extension of this privilege. The defence put up by the Financial Secretary was that we must have these reserves. That defence will not stand examination for two minutes. It is utterly unsound, and, in any case, if that is the only defence, now that the reserves have been built up and now that they have been brought over here, there is no reason why they should not attract tax.
The right hon. Gentleman the Chancellor of the Exchequer said that the provisions under this Bill could be carried out by a Defence Regulation, but the provisions affecting income which is compulsorily remitted under this new Clause are not drafted, although Sub-section (7) says that Draft Regulations will be made as to the control of this income. There is nothing in the Draft Regulations themselves which deals with that, and perhaps the Chancellor will give some indication of the terms and conditions which are to be applied to this income under Subsection (7), which takes it out of the ambit of tax.
Section 6 of the Regulations gives a definition of ownership. That is fairly wide, and judging by the pains and penal- 1196 ties which the Bill and the Regulations hold out to anyone who attempts to evade the surrender of their securities, the Government are taking the matter very seriously in order to bring every possible security into their net. But when I read Sub-section (6), which defines ownership, it strikes me that it is considerably narrower than the definition of ownership which would arise in the Finance Acts, 1936 and 1938, when we were dealing with the transfer of assets abroad. It is a very complicated matter, and I do not wish to be dogmatic about it, but there has been a very considerable transfer of assets abroad for the purpose of avoiding taxation. As hon. Members will remember, the methods adopted for these transfers were most complicated, involved and obscure, and everything was done to evade the possibility of the Board of Inland Revenue tracing the transaction and attaching it to any given owner. A considerable amount of this was done, and the Treasury found it necessary twice to legislate against it. In 1936 it was found that there were considerable loop-holes, and in 1938 the Government once again introduced legislation to widen the scope of their net. There must have been a considerable amount of money being used for this purpose, because had it been chicken feed, the Government would not have troubled about the matter.
I do not think that in the definition of ownership in Sub-section (6) we go quite as far as we did in those two Finance Acts, and that means that a certain amount is likely to escape. As I say, I do not want to be dogmatic about it— it is a complicated and technical point. Will the Chancellor of the Exchequer look into it and see how far money which was exported for the purpose of tax avoidance will escape the net he is casting in his Regulation? I have no other criticisms to make on the details of the Bill. I would, however, express to the Chancellor of the Exchequer that this method of financing, a mutual co-operation between the two great democracies is far more satisfactory than merely dumping the shares on the commercial market to fetch the best price obtainable at the moment.
§ Sir Irving Albery (Gravesend)
It is only natural that my right hon. Friend who is the Chairman of the Public Accounts Committee should, in welcoming 1197 this Bill, refer to the former default between this country and the United States. On that point I would draw attention to the fact that when this default occurred the fact was not fully taken into account that this country among all the belligerents was the only country which after the war definitely stated its intenton of fulfilling and its belief that it could fulfil its obligations incurred during the war. Also the fact remains that other belligerent countries which were under an obligation to us defaulted. Owing no doubt to circumstances beyond our control, there was undoubtedly a general defaulting, which this country had endeavoured to avoid. I think that when this new loan is being completed it is as well that it should be recognised that this country had every honourable intention, and, quite apart from the difficulties which have already been mentioned, it would in any case have been impossible for this country alone to honour its obligations when every other country defaulted.
Apart from that, I only want to touch on one or two details of the Bill. The hon. Member who spoke last raised several points, some of which I think need consideration. It is certainly a most unfortunate thing that on a Bill of this kind we practically have no Committee stage at all. I understand that it is to be passed through all its stages to-day, and that practically means that there will be no Committee stage. As a matter of principle that is deplorable, though in the circumstances it cannot be helped. I should like to draw attention to one or two points which give me great concern. Clause 2 says:If at any time the right to the release of any security is extinguished, the Treasury shall as soon as may be thereafter pay in respect of the security such sum in sterling as they may determine, being a sum which in their opinion is not less than the market value thereof at that time.Where there is no market value whatever, it is to be a sum agreed upon, determined by arbitration, as the fair value between a willing buyer and a willing seller. What does the Treasury really mean by market value? I take it they mean market quotations. I cannot see what else it can mean. Many of these securities are owned in this country, and, although they may be dealt with on the other side of the water and have had a market there, just because they have been 1198 frozen, there is to-day practically no market, and a great many of the market quotations are purely fictitious. They do not represent the value of the security in any real way. I would ask the right hon. Gentleman to take that into account. As I read the Clause, he seems to have a great measure of discretion. I hope he has, and I hope there will not be any hard and fast rule as to how they shall apply this criterion of what is called the market value, which is not a real criterion, and the subsequent provision where they speak of the fair value as between a willing buyer and a willing seller. I trust that when there is any real doubt as regards the nominal market value, they have power to apply the alternative suggested in the subsequent provision. Otherwise I congratulate the right hon. Gentleman on having carried through what must have been an extremely difficult operation. The general approval that it meets with cannot perhaps be more emphasised than by the fact that we only wish it could have been done earlier and that it had included some of the other securities which have already been spoken of.
§ Mr. Loftus (Lowestoft)
I support my right hon. Friend's plea that there is great doubt as to what will be the market value when there is obviously a restricted market or no market at all. I join in the general chorus of appreciation of the work of the Chancellor of the Exchequer in introducing the Bill. I should like to include in my appreciation the no doubt very able work done by the Treasury officials in moulding the Bill into its present shape. It is one more example of the capable and efficient work of the Treasury in the recent handling of some of these financial war problems.
I rise to say a few words in support of the Bill chiefly because for many years I have been opposed to the whole idea of great international loans. I have always believed that they are a cause of friction between nations and are one of the main causes of the unsatisfactory interregnum between the two wars in the last 20 years. We had colossal loans for financing German reconstruction 15 years ago, the results of which were entirely evil. I praise the Bill for many reasons. First of all, for the first time in any international loan arrangements it as it were eliminates the problem of transfer. In all these international troubles and difficul- 1199 ties due to international loans the fundamental problem has been how to transfer the interest. It can only be done in most cases "by transferring goods from one country to another. The whole post-war financial arrangements of the world broke down partly because the creditor country would not receive interest in goods and, therefore, the interest could not be paid. In this very capable arrangement organised by the Treasury there is no problem of transfer because these British companies earn their interest in dollars in the United States, and those dollars are used to accumulate a fund to pay the interest on the redemption of this loan. Again, I think it is most desirable in the case of the valuable assets of our insurance companies that they should remain a British possession. Here again we have the immense improvement that, instead of selling our assets, as in the Viscose case, we pledge them and retain possession. The third point is that this loan has a clear-cut scheme not only for providing the interest but also with redemption clearly arranged for. I have always held that every international loan should clearly provide for annual redemption and should not be for an indefinite period of time. I congratulate the right hon. Gentleman on those three things, first, the abolition of the problem of transfer, secondly, the retention of the assets by ownership in this country, arid, thirdly, a clear-cut scheme for annual redemption. I pay my tribute once again to the enormous financial help which is being given to us by the American Government and people, and I am glad that this balance, due to America before the Lease-Lend Act came into operation, of dollar liabilities is to be settled on such a very capable and sound basis. I congratulate my right hon. Friend and the Treasury on that fact.
§ Sir John Mellor (Tamworth)
I want to ask the Financial Secretary to deal with one question in his reply. The income of American branches of British insurance companies is to be appropriated for the purposes of this Agreement. Can the Financial Secretary give an assurance that it will still be possible for those branches to increase their dollar reserves in proportion to any future expansion of business?
§ The Financial Secretary to the Treasury (Captain Crookshank)
My right hon. 1200 Friend is very satisfied with the way in which this Bill and the Agreement with which it is concerned have been received by the House. The Bill is purely a side line and provides the machinery. The fundamental point is the Agreement, which has been the result of considerable negotiations. I should like to thank the hon. Member for Lowestoft (Mr. Loftus) for his generous tribute, thoroughly well-deserved, to the various officials and persons who have been concerned in conducting the day-to-day negotiations. He was good enough to say that the work of the Treasury in war-time was very praiseworthy. It is also in peace-time; it is not limited to the war. It may interest him to know that in what he said he was echoing the comments I received through the post not very long ago. It was a quotation from a paper published in the United States, which gave a somewhat similar tribute to that of the hon. Gentleman to our financial arrangements during the war with the United States, and said that it was one of the most successful parts so far of the war front. I am glad the hon. Gentleman feels the same way.
A whole series of questions has been addressed to me, and I will try to answer them. If I miss one out, I am sure that I shall be excused, because they have been very technical in their nature. The discussion has not been critical in the ordinary sense but rather exploratory. The right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) started by asking me what was the Reconstruction Finance Corporation and its relationship to the United States Government. He will, I am sure, excuse me from going into a detailed explanation of the various organs of administration in the United States, but I can inform him that this is a statutory body. The right hon. Gentleman asked where it gets its money from, and I understand that it borrows sums which are at the disposal of the United States Treasury. Then he asked me what was the significance of the sum of 425,000,000 dollars. There is no significance in it. What was originally aimed at was a round figure of 400,000,000 dollars, but at the time when this was being negotiated there were going on parallel discussions—it would not be right to specify them—and when this particular Agreement came forward they were merged and the figure raised to 425,000,000 dollars.
§ Mr. Pethick-Lawrence
It has been suggested in the speeches that the 25,000,000 dollars correspond with what we owed before the Lease-Lend Act came into operation. I should like to know whether that is so or whether it is independent of that.
§ Captain Crookshank
It is not directly related to that, because. that figure is larger. It is a sum which will be available towards paying for some of the commitments which were entered into prior to the Lease-Lend Act. As my right hon. Friend pointed out, there were various other payments which we had to make in the United States in dollars for which this is necessary. The right hon. Gentleman asked whether it is the intention on the termination of the Agreement to return the capital assets which have been pledged to their present holders or their heirs. Generally speaking, the expectation, and the intention, is that that should be done, but in Clause 2 (1, a), the contrary is provided for as necessary. We have to reserve that right because some of the 15 years will be war years, and it makes it impossible to give a final decision on that point, but the right hon. Gentleman expressed the expectation and the intention correctly. He also asked whether the amount of dollars which we can earn through our exports and the like, added to the loan, will be enough for our dollar needs. I am afraid it will be impossible to answer that at this stage. One hopes, and one can wait and see, to use an old phrase, but one cannot be definite.
Then the right hon. Gentleman asked some questions with regard to the rate of exchange and whether we were keeping our eye on some of the difficulties which arose over exchange problems between the dollar and the pound after the last war. Exchange problems are not strictly relevant to this arrangement, because what we are doing is to take these dollars in the United States which would otherwise have been transferred to this country by individuals and using them for the purposes of this loan. Individuals are being paid here in sterling the income which they would otherwise have got in one way or another. Therefore, the exchange question does not concern the Bill at all. As he knows, exchange problems have been very prominent in the minds not only of the Treasury but of all interested in these matters for a long time, and one hopes 1202 in this as in so many other things, that having had two wars in one generation we may profit from some of the lessons we learned in war number one.
The right hon. Member for South-West Bethnal Green (Sir P. Harris) expressed the hope that this arrangement would not in any way affect the stability of our insurance companies, a hope which we all share, and I do not think that any careful reading of this Agreement would lead one to any other conclusion than that there is no reason why their stability should be called in question as a result of what is being done to-day. My hon. and gallant Friend the Member for Yeovil (Sir G. Davies) asked about the position of trustees, but I was not quite clear about the point he had in his mind. If he was asking what happens if some part of the income derived, say, from insurance policies or income from marketable securities which have been pledged under the Agreement comes into trust funds here— and I would point out that they would have been getting the income in any case, only it is now in sterling instead of in dollars—if he were asking what is the position of the trustees with regard to that income, the answer is that they are in exactly the same position that trustees are in as the result of Government intervention in any monetary matters during the war. If he were asking about American trusts in the United States, I can only say that that is not a matter with which we are concerned.
I am sorry that this is rather a catalogue of replies, but it is inevitable in view of the questions put. I come now to the hon. Member for Chesterfield (Mr. Benson), and I think I can answer him very simply. He asked why the Treasury required power to control sales of assets and whether they would normally give consent if A wished to sell to B, both being British subjects. A study of the Agreement will show that it is the Reconstruction Finance Corporation which has to give consent in the first instance for any of these sales or transfers, and, of course, if they gave consent, I cannot imagine why the Treasury should not do so as well. They are the people who are primarily to decide for their own reasons whether such transfers should or should not be made.
§ Mr. Benson
This is a rather important point for a large number of individuals. 1203 Has some form of machinery for dealing with this matter been devised, or in the case of a sale being proposed, will it be held up indefinitely until some modus vivendi has been arrived at between the Treasury and the Reconstruction Finance Corporation?
§ Captain Crookshank
But quite a number of those have already been vested. The list in the Schedule is a mixed list. Some of the securities have been vested by previous vesting orders and have now no interest for their previous owners; some have not been vested and are taken over in this form; but it is the R.F.C. which is primarily concerned. Then the hon. Member asked some questions which, if I may say so with respect, have little to do with the problem we are now discussing. They were about the income tax position. I know that that is a favourite horse of his to ride and also that it is common form for him to say that any reply I give on that subject is unsatisfactory, and now that we have both got that off our chests I would refer him, as he was dealing primarily with Sub-section (7) of Clause 2, partly to what the learned Attorney-General interjected in reply and partly to the answer which was given by Lord Simon on 20th March, 1940, to be found in cols. 2008-9 of the OFFICIAL REPORT which dealt, as regards most of this problem, with the taxation of foreign income. Briefly, under Sub-section (7) that income will not be chargeable so long as the taxpayer can show that it has not been expended or used in the United Kingdom but remains available for transfer abroad again in a specified banking account or in identifiable investments. That is in the case where ordinarily that income would not come to this country. The position is explained in detail in the statement to which I have referred the hon. Member and as it is not really very relevant to the matter we are considering if he has further difficulties perhaps he will put down a question or take the opportunity of the next Finance Bill— some way off I hope—to raise it. The same remark applies to his comments on tax avoidance.
1204 Then he asked why it was necessary for the Treasury to keep such a close watch, in cases where a transfer was made, on who were the new owners. The answer is that we must know who the new owners are in order that when the period of the loan comes to an end and the question arises of returning to the owners the securities which have been borrowed, we shall know where to go to find them, because the property in those securities will have passed from those who had them and who made whatever declaration or statutory document had to be filled up in regard to the matter as a whole. That is why we have to keep track of the owners.
Then the hon. Member and the hon. Member for Gravesend (Sir I. Albery) both raised a question as to difficulties about the words "market values" The view of my hon. Friend the Member for Gravesend, who has discussed this question before in connection with Vesting Orders, really is that market value does not mean anything at all, and that what we are dealing with is the quotation on the market, which at a given moment may have little relevance to the actual value of the shares dealt in. He asked whether in that case there was the option of coming to some agreement as to the real value instead of adopting the market value. If there were any reason to doubt the soundness of the market value I should think the Treasury would probably take that course. We are in a hypothetical area, but it is to be remembered that the securities which are referred to here are not securities which in themselves have a market quotation in London.
§ Sir I. Albery
Will the right hon. and Gallant Gentleman allow me to illustrate that point shortly? Take a security like Canadian Pacific which is quoted in New York and in Canada and in London. When those quotations are translated in terms of official exchange, they do not tally. The quotation in New York is much lower than the market quotation here.
§ Captain Crookshank
Probably in such a case that point will have to be taken into consideration. But I was dealing only with the securities to which this Bill refers, and I am advised that the great bulk of them have no market quotation in London.
§ Sir I. Albery
I am sorry to have to interrupt my right hon. and gallant Friend again. I only used that as an illustration. You can have a market value in New York for the securities for which you are dealing, and it may have been customary for most of the dealings to be on that market. But dealings have since ceased, the market in New York, is nominal and the quotation is not a real one, because no transactions are taking place. In that case you get a quotation which does not really represent the facts.
§ Captain Crookshank
I quite see the point, and my hon. Friend made it quite clear that he was dealing only with an illustration. It is our intention that the incomes of these marketable securities should be used merely for the purpose of the loan, and that afterwards the securities should be returned to the owners. Perhaps my hon. Friend was not here when I pointed out that the whole reason for having paragraph (1, a) was that we should safeguard ourselves in cases where it was necessary, for one reason or another, to sell these securities. I hope that the difficulty which he has in mind will not arise.
My hon. Friend the Member for Tamworth (Sir J. Mellor) asked me a question, but I have not been able to study the answer very carefully, as I did not realise that he was going to sit down so quickly. He asked whether insurance companies would be allowed to increase their reserves in proportion to any future expansion of business. I am glad to be able to help him there. If he has the agreement in front of him, he will see Article 3, paragraph 10. This provides that insurance companies should carry on as they have done in the past with regard to the maintaining of reserves and the distribution of income. The liberty to place sums to reserve is naturally included, as the corollary of the distribution of income, although it is not actually specified in that paragraph. It is to the interest of everybody concerned that corporations and insurance companies should be able to carry on on such a basis that they will be able to give the service which is required of them.
§ Mr. Benson
I asked the Chancellor whether the 200,000,000 dollar surplus assets of the insurance companies would be charged.
§ Captain Crookshank
Oh, yes. I beg the hon. Gentleman's pardon. The answer is to be found in the announcement made by the United States, and in Column 801 of the Official Report for 22nd July, where it states:In addition to the foregoing, there will be assigned to the Reconstruction Finance Corporation earnings of United States branches of the 41 British insurance companies not incorporated in this country. Nett assets of these branches in this country represented by investments in the United States over and above reserves necessary to meet their policy obligations in this country is approximately 200,000,000 dollars, consisting largely of cash and United States Government securities."— [OFFICIAL REPORT, 22nd July, 1941; col. 801; Vol. 373.]That is merely a description of the assets at a value, probably a rough one, put upon them by the United States authorities. They merely put in this Clause about the assets of the insurance companies which are to provide income for the service of the debt for descriptive purposes. There is no question that the assets behind the insurance companies' branches are concerned in this matter at all. I was asked also about the 3 per cent. basis of this Agreement compared with previous foreign loans. As a matter of fact there has been no foreign loan since the last war, except a few short-term credits in 1931. That is probably a painful subject for hon. Gentlemen opposite to refer to in detail and is probably not what the hon. Member for Leigh (Mr. Tinker) had in mind. I will therefore merely say that in the last war the rate was 5 per cent. and 5½ per cent., and when it was eventually funded the rate was 3 per cent. rising to 3½ per cent. From that point of view, a 3 per cent. loan for this period and at this moment of difficulty is satisfactory.
§ Question, "That the Bill be now read a Second time," put, and agreed to.
§ Bill read a Second time.
§ Bill committed to a Committee of the Whole House.—[Major Dugdale.]
§ Further Proceeding postponed, pursuant to the Order of the House this day.