NATIONAL LOANS BILL (Hansard, 2 May 1944)

§ Mr. Woodburn (Stirling, and Clackmannan, Eastern)
I would like on the occasion of the Second Reading of the National Loans Bill to raise a point of some technical interest, but also one of importance from the point of view of the cost of running the war.
I am not sure whether it is within the knowledge of the House that the Select Committee on National Expenditure is not authorised to make any inquiry into the cost of borrowing for running the war; that is a kind of expenditure which does not come under our purview. Therefore, it falls to the House in some way to 1251 examine from time to time what that occasions in the way of expenditure. I would like to raise the special point of the amount of money paid to the banks in this country on account of new money created by them for the purpose of running the war. I am not quite sure from the replies given on behalf of the Chancellor as to whether the Government take the view that the banks do not create money at all. If they take that view, they are certainly at least 30 years behind the times in regard to the economists, and certainly they are holding a view which is contrary to the declared opinion of the Macmillan Committee, and the declared opinion of many authorities who have dealt with this subject.
When the Financial Statement is presented to the House, there is no indication there as to what proportion of the money which is borrowed is a transfer of existing purchasing power from the community to the Government—which I will describe as real borrowing—and the gap which is filled by the creation of extra credit by the banks. In rough figures, the Ways and Means advances of these Treasury Bills have increased by £2, 000,000,000 since the war began—they have multiplied over three times—and the banks have created Treasury Deposit Receipts to the extent of £1,376,000,000. They have transferred £600,000,000 odd to War Loan, which means that the rate of interest has been increased from 1⅛ per cent. to at least 2½ per cent. If we take the cost of this, so far as one can judge, the additional income to the banks for this servicing of Treasury Bills amounts to about £20,000,000 a year, and the Treasury Deposits Receipts to about £14,000,000 a year and, on the Conversion, about £12,000,000 per year which would appear to be an extra interest payable to the banks in these various forms of £46,000,000 per year. This year, about £700,000,000 seems to have been added to this gap, which means a further £7,000,000 interest to the banks.
The question I would like to put to the Chancellor and to the right hon. Gentleman is whether the House can have any explanation of what steps are taken to see that that payment is justified. Now I know that it might be replied that the banks pay back excess profits in the same 1252 way as any other firm, but we know that it is the tradition of the banks to build up their strength, and that usually takes the form of what are called hidden reserves. I am assured by a person qualified to know, since he is part of the machinery of the banks, a bank director, that banks have ways and means of doing that, which we all know. I think it is true to say that in some cases the banks do not value their property at anything like the extent at which it ought to be valued, and there are other ways of sinking costs. To some extent, I think the banks are really their own masters in declaring what are their profits.
Is there any service that the banks are rendering to the country which justifies this extra income being paid? I do not take the view that you can have what is called interest-free money, because the banks must pay their clerks, they must keep up their organisation, and they must carry through the service which is required. I recognise that in the course of the war the banks have had less of what are called ordinary deposits, which may be normally at the rate of five per cent., and, therefore, that these ordinary deposits are not bringing the same income to the banks. Even there, however, the ordinary deposits in the banks, so far as I can see, have come down only by about £100,000,000. That is only a reduction in their income of £5,000,000 per annum. Now the banks have, if anything, smaller staffs than they had before the war. There may be some costs which have gone up, but this is an enormous sum to be paying out. The Question I would like to put to the Government, which it may not be possible to answer to-day, is: If it is right that the profits of the Issue Department of the Bank of England should come to the State, and they amount to about £9,000,000 per year now, what justification is there for a huge income which arises out of Government action not coming to the State but going to the private banking concern's of this country? What steps are taken to ensure that the assets of the banks are not being built up in what is normally considered a legitimate fashion but which is depriving the Government of the excess profits which ought to come back? To the best of my knowledge, the banks so far have not paid excess profits and have not shown excess profits.
1253 The other point I would like to put is this. When the war is finished, I see no possible way of reducing this huge indebtedness. Looking back, it is amazing to see that the deposits of the last war were about £500 less than a million pounds, and the Cunliffe Committee reported on this increase owing to the incidence of the last war. But now it has gone up to thousands, and these thousands of millions will remain as a permanent part of our debt for ever. The only way it can really be liquidated, and one of the ways which will be adopted, is to borrow from the public at a greater rate than 2½ per cent. in order to pay off the bank loans at 1 per cent.; in other words, to liquidate the bank loans we have to double the rate of interest payable on the loans. If our national income after the war becomes reduced, all these costs spread over a smaller national income will raise a problem, perhaps beyond the capacity of this country to meet. From the point of view of the future I think that this is a question which must be looked at seriously. I raised the point two years ago, argued the case in detail and proved the point, so far as the creation of bank deposits are concerned. At that time the Chancellor promised to look into it and to reply to me. So far, however, nothing has been said and I think, when the Government are asking us to pass a National Loans Bill authorising them to borrow, and when we are appealing to the general public to hand over their money in great quantities to the Government, any kind of lending which might have the effect, at least after the war, of lessening the value of the people's savings, or in any way making it more difficult to pay the interest on the legitimate transfer of purchasing power from the people to the Government, must be carefully looked into.
As I say, I have no objection to the banks receiving payment for the services they render, I have no objection under the present system to them receiving a reasonable profit, but I think that the Government and the country must look very carefully before paying over to the banks the millions that are mounting up merely as the result of activities which are for Government action, and the creation of the necessary power to make use of the labours and energy of our population.

Mr. Asshetan
My hon. Friend did not give me notice that he would raise this particular matter to-day, and I should not care to give him a full reply on the matters he has raised without considerable thought. They are matters of very great interest, and also of very high financial policy, and an opportunity may perhaps offer itself before very long when either I, or my right hon. Friend the Chancellor of the Exchequer, may be able to deal with them at some considerable length. I should, however, like to make one or two short points.
My hon. Friend referred to the fact that the banks have much smaller staffs now than they had before the war, and therefore their expenses must have been reduced. As against that, he must not overlook the fact that the banks are making up the pay of their men who are away at the war. That, of course, is a very considerable burden upon them. Then again, on the question of excess profits, my hon. Friend suggested that up to now banks had not paid excess profits. I think that the late Mr. McKenna, who wrote a pamphlet on this subject not very long before he died, also referred to the fact that at that time no banks had paid any excess profits. I think I. can give my hon. Friend this assurance on behalf of the Board of Inland Revenue, that if the banks have not paid excess profits they have not made excess profits. The officials of the Board of Inland Revenue are quite aware of all the various arrange-merits made and quite properly made by banks and other institutions for building up their reserves and for providing against the future. All that of course will be taken carefully into account by the officials of the Board of Inland Revenue when dealing with these particular questions. I hope my hon. Friend will allow me to leave the matter there to-day and I ask the House to give this Bill a second reading.

§ Mr. Benson
I would like to add one word with regard to what my hon. Friend said about banks. Both he and the Financial Secretary are rather groping in the dark, far the simple reason that neither of them has any information as to what the banks are doing and what profits they are making, and that applies to the whole of the country. The banks are now so vital a part of what one might call the national machinery of finance that 1255 I think it is about time that the old cloak of obscurity which has always shrouded banking activities and banking accounts should be lifted. There is no reason why banks should not publish accounts just as full as those of industrial concerns, but the annual accounts published by banks give no vital information whatsoever. They leave one completely in the dark as to the position of the banks and I think that is very unhealthy. If banks were really private concerns, there might be something to be said for allowing them to comply barely, and with the minimum amount of information, with the Companies Acts, but the banks have now become, as I have said, so vital a part of our financial machinery that the country is entitled to much fuller information about their financial position, their profits and their activities. It may be, if that information were published, that much of the suspicion against banks would disappear, but unquestionably the fact remains that they appear to have made very handsome increases in their revenue owing to financing Government borrowing.
That may or may not be true, but it appears to be so and it can only be dissipated if the facts are published. With regard to E.P.T. another problem arises. It is perfectly true, as Mr. McKenna said, that the banks have not hitherto paid it, but they were extraordinarily fortunate in their standard years in that bank profits took into consideration the variations in the value of investments and assets, and in that the standard years happened to be years in which investments increased in value, with the result that the banks had an extraordinarily high standard for E.P.T. purposes due, not to their earnings, but to their earnings, plus a very big jump in the value of assets that they held. That is the reason why they had not paid E.P.T. hitherto. There are grounds for assuming that they are making on their current transactions a very much higher income than was represented in the standard years by their normal trading activities. As I have said, what we require is more information about banking accounts.