UNEMPLOYMENT FUND (INVESTMENTS) (Hansard, 14 May 1948)

§ Sir John Mellor (Sutton Coldfield)
I propose to call attention to the recent investments of the Unemployment Fund, a matter which, whether they know it or not, must be of great importance to all the people of this country. In the year ended 31st March, 1948, £77 million of Government Stocks were added to these investments, but no short-dated or medium-dated stocks were purchased during that period. All this new money went into long-dated or undated stocks, and the new purchases included no less than £55 million of what is commonly known as "Dalton Undated Stock." It is evident that this involves a change of policy, and I want to ask the Financial Secretary to the Treasury who changed that policy and why.
One would expect that funds of this kind, so far as investments are concerned, would be kept in a liquid state. The risk of unemployment is not easily predictable as to time or extent, and, if long-dated, or still more undated, stocks are subject to forced sale at a time of depression and when markets are bad, inevitably a heavy loss must be suffered upon their realisation. If the right hon. Gentleman is going to say that there are quite sufficient funds invested in short-dated stocks and it does not matter about the rest, then I want to know why the Government proceeded to collect contributions which were not required for the stability of the fund? As I have said, this change of policy in investment from investing in short-dated stocks to putting, during the year added 31st March, 1948, the whole of the new money into long-dated and undated stocks is a surprising one. We naturally inquire what was the motive for the change.
There is a view which is fairly generally held, and which I share, that the motive was that the Government wished to support the gilt-edged market, for this reason: On 1st January all railway stocks vested in the Government. On 1st April all electricity stocks vested in the Government. The compensation which was to be given to the railway and electricity stockholders was dependent upon gilt-edged market prices upon the vesting dates, so that if prices for long-term gilt-edged stocks were 2509 higher, less favourable terms of compensation were given to the railway and electricity stockholders. Therefore, my submission is that the Government desired to support the gilt-edged market and especially the long-term stocks in order that they might give less to the unfortunate railway and electricity stockholders, who were to be compensated.
The Unemployment Fund, in my submission, is a trust fund and should be treated as such, in the same way as all other national insurance funds, and as the National Insurance Reserve Fund should be treated when it comes into being on 5th July this year. I suggest that it would be improper in any case for the Government to manipulate the Stock Market for any purpose, even with money which had been properly at their disposal, but I say that it is positively shameful for the Government to use trust funds for such a purpose. The consequence so far as the unemployment fund is concerned is that there has been a heavy deprecation of the holding of the Dalton undated stock. It is all very well for the Chancellor of the Exchequer to say that there is no loss until the stock is sold out. It may be that there is no realised loss, but the loss is there, and surely any prudent person must take note of the sharp adverse difference between book values and market values. I would like to know from the Financial Secretary what that difference amounts to today. I want to ask where the responsibility resides for making these investments—

§ Sir J. Mellor
On 11th May, in reply to a Question regarding these investments from my hon. Friend the Member for New Forest and Christchurch (Colonel Crosthwaite-Eyre), the Chancellor said: The Treasury have not increased the holding. The increase is by persons responsible for the investment …."—[OFFICIAL REPORT, 11th May, 1948; Vol. 450, c 1972.] Who are the persons responsible for the investment? Section 58 of the Unemployment Insurance Act, 1935, provides that money accruing to the Unemployment 2510 Fund may be transferred to the National Debt Commissioners for investment. It is common knowledge that those Commissioners never meet. They are like the Board of Trade which, I understand, last met in 185o. It is interesting to note that in 1911 Mr. Horatio Bottomley asked the then President of the Board of Trade about the attendance of the Archbishop of Canterbury at the meetings of the Board. Mr. Buxton gave this ingenious answer: His Grace has been as assiduous in his attendance as any other member of the Board. …— [OFFICIAL REPORT, 17th May, 1911; Vol. 25, c. 2008.] We can say the same thing about the present National Debt Commissioners. They have all been equally assiduous their attendance—except the Chancellor of the Exchequer, whose assiduity has been wholly misdirected.
The Interpretation Act of 1889 says: The expression 'national debt commissioners' shall mean the commissioners for the time being for the reduction of the national debt. The National Debt Reduction Act, 1786 as subsequently amended, provides that the Speaker of the House of Commons the Chancellor of the Exchequer, the Master of the Rolls, the Accountant. General of the Supreme Court, the Lord Chief Justice and the Governor and Deputy-Governor of the Bank of England for the time being respectively shall be those commissioners. The Act later states: All powers and authorities which the said commissioners are or may be enabled of required to exercise by the present or any future Act or Acts of Parliament shall and may be exercised by any number, not less than four, of the said Commissioners. In other words, a quorum shall consist or four Commissioners.
I want to know whether the National Debt Commissioners have delegated their functions. If so, by what instrument, when, and to whom? We know that there is a National Debt Office. Who is the effective authority over it? If the National Debt Commissioners never meet, obviously they cannot be that authority. I submit that the real position is that the Treasury have usurped the authority of the National Debt Commissioners. believe that the Chancellor of the Exchequer is ex-officio chairman of the National Debt Commissioners. If he and 2511 the Governor and the Deputy-Governor of the Bank of England went into a huddle, they still would not form a quorum of the National Debt Commissioners.
By what authority are these investments made? The Unemployment Insurance Act, 1935, says that the investments are to be made by the National Debt Commissioners. They never meet, but the investments are made. I hope that the Financial Secretary will explain to the House from where the authority for making these investments is derived. It would be profoundly unsatisfactory to find a position in which, whether they have authority or not, the Treasury are controlling the policy of investment of trust funds like the Unemployment Insurance Fund. It is most unsatisfactory that the Treasury should be able to use such funds in the market for purposes in no way connected with the Unemployment Insurance Fund. Such funds should be administered in a way which is disconnected entirely from Government policy. The investment should be made solely from the point of view of the stability of the Fund, and should have regard to no other circumstances whatsoever. Therefore, I say that such funds should be put beyond the control of the Treasury altogether. I make the definite suggestion that, unless some more appropriate authority can be found, these funds should be placed in the hands of the public Trustee, who would be in a position quite independent of any Treasury control or influence to ensure that these funds are invested in a way which will best serve the interests of the Fund itself.

§ Colonel Crosthwaite-Eyre (New Forest and Christchurch)
I understand from the account that there is £530 million in the Fund and £79 million is in "Dalton" irredeemables. I should like to know how one-sixth of the total issue of this stock has been collected. Even if there were some reason for putting money in this stock, it seems very odd that one-sixth should have been taken over. I should like to know also why £55 million has been put into this stock in the last year, and when that stock was bought. In the Press and in this House the right hon. 2512 Gentleman the Member for Bishop Auckland (Mr. Dalton) has been blamed for the Government's financial policy, but I believe I am right in saying that it is the present Chancellor of the Exchequer who, in the first few months of this year, in order to bolster up the market, which was sagging desperately, made these investments.
Why is it considered right to put over £8 million into Transport 3 per cent. Stock? That stock was issued in a manner which has been criticised very often, and I do not think it is too much to say that the market was rigged before it was issued. It was issued in such a manner that it could never stand at par. How is it, when all this was said in the financial Press, that £8 million has been put into this stock? Of all the vicious principles in Government finance, there is nothing worse than using a particular fund designed for specific beneficiaries to bolster up Government financial policy. It was not so long ago when a similar issue to this was brought into question and the Government of the day fell. I hope that the Financial Secretary will be able to justify how it comes about that of £530 million nearly one-fifth has now been put into stock for no conceivable benefit to the community, but in order to satisfy Socialist finance and to maintain a market hopelessly rigged by the very gentlemen who are now using public funds to keep themselves in office.

§ The Financial Secretary to the Treasury (Mr. Glenvil Hall)
The hon. Member for Sutton Coldfield (Sir J. Mellor) and the hon. and gallant Member for New Forest and Christchurch (Colonel Crosthwaite-Eyre) had some hard things to say about the way in which the money of the Unemployment Fund has been invested. I suppose that looking at the matter superficially, without going into it very deeply, they are right to come to the conclusions to which they have come. I have, however, to tell them and the House that they based what they had to say upon a complete misapprehension of the facts. For example, the hon. Member for Sutton Coldfield called attention to recent investments and said that there has been a change of policy. He wanted to know who had changed it, and why. It is my job to tell him that this policy is not a policy which was initiated by the 2513 present Government. It was decided upon before the results of the last General Election were made known.
As I understand it, the criticism is that it is wrong in principle for the resources of this particular Fund to be invested in long-dated or irredeemable stock. The further charge is made that the reason for this change of policy has been not to benefit the contributors to the Unemployment Fund hut in some way to underpin the gilt-edged market. I suppose the underlying motive of all that has been said has been to carry on the vendetta against my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) and the policy he pursued, which I think was a right and proper policy, of trying to provide cheap money. It is not my purpose this afternoon—for one thing there would not be time—to defend my right hon. Friend's policy, but I think posterity will see that it was eminently right. It has given industry, the taxpayer and the local authorities money at a cheap rate when all of them badly needed it after the war. It has helped to rehabilitate industry, to build houses and in so far as is possible when taxation is so high, to relieve the taxpayer.

§ Mr. Brendan Bracken (Bournemouth)
Then why does not the right hon. Gentleman carry it on, if he agrees with it?

§ Mr. Glenvil Hall
I have here some figures which I did not get out for this Debate but for another occasion. If I quote them, it will serve to show what I am trying to say. In 1919 the average rate of interest on servicing the internal National Debt was 4.9 per cent. Thanks to my right hon. Friend and—I wish to he quite fair—thanks to the policy of the Government of the day during the war, and to the reduction of the rates of interest which this time have been put into operation, there has been a terrific fall in the average rate. It is now 2.2 per cent.
As those who follow our finance Debates will remember, we are budgeting this year for something like £500 million to service the National Debt. If the cheap money policy had not been pursued, and if the same sort of thing had happened as happened after the last war, we should be spending twice that amount, and should need a much greater increase in the Income Tax in order to service it. Therefore, although it is not my job at 2514 the moment to defend the cheap money policy, I am surprised, even shocked, that hon. and right hon. Gentlemen opposite should not be supporting the Government. This is not a Socialist policy which we are carrying out. It should be common ground on both sides of the House that it is our common duty at this time to embark on a cheap money policy, if we can.

§ Mr. Bracken
Of course, the cheap money policy did not begin with the arrival of the right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton); it dates back for 25 years. The truth of the matter is that we all agree with cheap money but we object to rigging the market in order to create synthetic cheap money. Our objection to the right hon. Gentleman the Member for Bishop Auckland was that he rigged the market in his anxiety to do something which was highly desirable.

§ Mr. Glenvil Hall
I will come to that charge in a minute. I was saying, in passing, that underlying the criticisms that have been made, there is a vendetta against my right hon. Friend for trying to achieve what I think we should all want to see achieved, namely, cheap money. It is quite wrong of the right hon. Member for Bournemouth to say that that policy was followed 25 years ago after the last war.

§ Mr. Bracken
Twenty years ago.

§ Mr. Glenvil Hall
Earlier, that was not the case.

§ Mr. Bracken
Mr. Chamberlain began it.

§ Mr. Glenvil Hall
That may be; but that was much later. What is the answer to the charges which have been made The view that has been expressed is based on the failure to realise that circumstances have changed. There are changes in relation to the Fund itself, and there are also changes of an economic kind. In the old days the Fund was based on the assumption that there were trade cycles, and that a boom was inevitably followed by a slump; that there was always a pool of unemployed, and that now and again that pool reached considerable dimensions. During the war it was agreed—and both sides of the House were involved in this —that we should try to achieve a situation in which we had full employment. 2515 It is part of the policy of the present Government that full employment should be achieved, and that we should carry on the policy of full employment. Unless something definitely goes wrong we hope that in future, with the knowledge that we now have of economics, and with the assistance of both sides of the House, unemployment of the dimensions which we knew in the old days will not occur again. That has to be borne in mind.
Another thing which must be remembered—this is a point I want to try to drive home to hon. and right hon. Members oposite—is that in 1946 we passed the National Insurance Act, which laid down that there should be an amalgamation of these various funds—the National Health Fund, the Old Age Pension Fund, and the Unemployment Insurance Fund which we are now discussing. In the old days it was quite impossible—or so it was thought, and events have proved those who thought so to be right—to put money in any shape or form to reserve; that is, using it, not in order to have it there in liquid or semi-liquid form for use in an emergency, but as an endowment fund which would bring in an income, year by year, to assist the objects for which the money had been raised. It is part and parcel of the underlying financial structure of the National Insurance Act that year by year a sum should be put away to reserve. A reserve fund has been set up and we hope that, year by year, it will yield money to, and for the benefit of, those who come under what we colloquially call the Beveridge Scheme.
The curious thing is that this is not a new thing so far as Governments are concerned. It is true that, in the old days, the Unemployment Insurance Fund had to be kept fairly liquid because of recurrent slumps. Those who ran it, therefore, took the view—and I think possibly it was a proper view—that the money should be invested in securities which had not more than about 10 years to run. But this did not apply to other funds of a similar kind. The National Health Fund had not the same pressures put upon it; part of it was put to reserve in accordance with the policy of every successive Government. It is not something new. It is a policy which was also followed by Governments of which the right hon. Member for Bournemouth was such an 2516 ornament, and it is a policy which will continue now that the funds are being amalgamated. So far as the National Health Fund is concerned, Governments have always invested—I will not say enormous sums—very large sums in local loans. If hon. Gentlemen opposite tell me that local loans have always stood at par, I beg them to turn up the financial journals—

§ Mr. Bracken
Not at par. That is the important part.

§ Mr. Glenvil Hall
Let me develop my case in my own way. It is true that 3 per cent. local loans have always been used. I took the trouble this morning in anticipation of the Debate to get a friend of mine to look up some figures. In 1920, just after the last war, local loans were down to 45⅝ and Consols down to 40⅜—

§ Mr. Bracken
We all agree.

§ Mr. Glenvil Hall
Those are gilt-edged securities. Moneys of this kind must be invested in gilt-edged or Government guaranteed securities which are next door to, if not entirely, gilt-edged. We cannot put public funds of this kind into all sorts of securities. They must go into Government gilt-edged securities. Looking down the list, we find that Government stocks go up and down, and it is quite immaterial and quite wrong to pretend that there has been a heavy loss unless it has been essential to sell the stock and securities one has bought at something less than one gave. I do not believe that, in the old days, the only thing for the Government of the day to do was to invest in gilt-edged securities without making sure that they were investing in something which would never go below the rate at which they bought it. We must remember that the Government have only one outlet for their money, namely, gilt-edged securities. They cannot control indefinitely the price that those securities will fetch at any given day in the market; therefore they must buy at the best price they can. That is what the Government have done.

§ Mr. Bracken
The right hon. Gentleman is absolutely right in what he says about the fluctuations in Consols and so forth. The accusation of the hon. Baronet the Member for Sutton Goldfield (Sir J. Mellor) is quite a clear one. These funds 2517 were used to support what are called "Daltons." They were not invested on the long-term basis but used so that the right hon. Gentleman could carry out his insane ambition for a 2½ per cent. yield without taking any market factors into account. I congratulate the right hon. Gentleman and his colleague the Chancellor of the Exchequer on their good sense and judgment in abandoning the discredited Dalton policy.

§ Mr. Glenvil Hall
That neither adds to the discussion nor throws any additional light on this subject. Up to now I have made one point, that the Government must invest this money in gilt-edged securities and that they must invest that money in what is open to them. So far as the Fund is concerned—and after the appointed day all these funds will-be concerned—much of the money should be invested in long-term or irredeemable stock if that stock is the best thing to buy at that juncture. In buying what are colloquially called "Daltons," savings bonds and Transport stock, the National Debt Commissioners have bought what would give the best yield at the time when they bought. There is not the slightest doubt about that. I have gone into it. It is quite obvious that, in looking round the market to invest this money, they have bought what was the best to buy in the altered circumstances and for the purpose of building up a reserve.

§ Mr. Bracken
Ten million pounds of it.

§ Mr. Glenvil Hall
A figure of £80 million has been bandied about as though this money has been taken along by the brokers acting on behalf of the National Debt Commissioners, and as if the whole of that sum was spent in one day in bolstering up a falling gilt-edged market. What happens is this: This money comes in week by week. The surplus is then passed over by the Ministry of Labour and National Service to the National Debt Commissioners. It is part of the instruction to them that they must invest it as soon as possible after it reaches them. Therefore they invest the money in relatively small amounts which are quite incapable of bolstering up the market or preventing the gilt-edged stock from slipping.

§ Mr. Glenvil Hall
The right hon. Gentleman shakes his head. He has had a long experience in office but he is not there now—

§ Mr. Bracken
That is only too obvious.

§ Mr. Glenvil Hall
I am speaking of what I know. It is a fact that these moneys are invested as they come along—

§ Mr. Bracken
That is true.

§ Mr. Glenvil Hall
They are not invested by the Chancellor. He is much too busy to go down to the City and mess abort in this way—

§ Colonel Crosthwaite-Eyre
Mess about is right.

§ Mr. Glenvil Hall
That is not his job. The moneys are invested, as they were in the time of the right hon. Gentleman, by the proper people acting under authority, and according to instructions. They buy the stocks that will give the best yield.

§ Sir J. Mellor
Yes, but under what authority? Will the right hon. Gentleman deal with my last point? What is the authority?

§ Mr. Glenvil Hall
It is the same authority as was invoked by previous Governments—

§ Mr. Bracken
To be quite fair to the right hon. Gentleman, of course, the Treasury have an overriding control of these funds. We could end this Debate now if the right hon. Gentleman would give this assurance: that the Treasury in no instance asked the Commisssioners of National Debt particularly to buy the so-called Daltons. Was any instruction given by the Treasury that they should be supported?

§ Mr. Glenvil Hall
I can give that assurance. The only instruction they get is to seek the best yield for the money they have at that moment to invest, bearing in mind the purposes for which it is to be invested.
The hon. Baronet said that the Treasury have usurped the rights of the National Debt Commissioners, and the hon. and gallant Member for the New Forest (Colonel Crosthwaite-Eyre) wanted to know how the National Debt Commissioners had managed to collect so much of what he called the 2519 "Dalton" stock. The reason is that that stock, which had gone to a discount, was the stock which would give the best yield at the time they bought it. [Laughter.] I can find nothing wrong with that, or see any cause for mirth in that assertion. This policy was laid down years ago, and it is quite obvious that the Treasury, acting for the Government, must have control of these funds and that the policy must be laid down by the Government of the day. Curiously enough, we are in this matter following the policy of our predecessors because, again curiously enough, it happens, unlike most of their policies, to be a sound one. We are, therefore, doing nothing new but something which is good common sense and in the best interests of those—

§ Mr. Bracken
Why did the present Chancellor abandon the policy, and wash his hands of Daltonism?

§ Mr. Glenvil Hall
That is an assertion which cannot be substantiated—that the present Chancellor has abandoned the policy carried through by his predecessor. Both of them believe, in the cheap money policy, and it is a fact that the rate of interest moved upwards from 2½ to 3 per cent., not because there was a change of policy, but because there were certain changes in the City which led to that movement.