The Amendment in the name of the hon. Member for Oldham, West (Mr. Hale), in page 1, line 4, to leave out "cheerfully," is out of order.
§ Mr. Leslie Hale (Oldham, West)
On a point of order. Sir Charles, I am the hon. Member for Oldham, West, and I am not expressing any surprise at all at your decision.
§ Bill reported, without Amendment.
§ Motion made, and Question proposed, "That the Bill be now read the Third time."—[Mr. Boyd-Carpenter.]
§ 7.5 p.m.
Mr. Norman Smith
The House is being asked to give the Bill a Third Reading, and I should like to express misgivings about certain of its contents. In particular, I would point out that Clause 2 (3) refers to what the Financial Secretary, I am glad to say with much diffidence, called "a ceiling" to the rate of interest of these repayments. I do not like the word "ceiling" any more than he does.
I feel it is a great pity that this figure is retained in the Bill. The figure of £3 is such a nice, reasonable sort of sum; it is the kind of rate of interest with which ordinary men and women are very familiar in their every day lives. When they see £3 in a Bill they think it is reasonable, whereas I have a suspicion that it is put in not at all as an insurance against any Government
2102 being rapacious at the expense of the taxpayers or over-generous at the expense of the money-lenders. I do not believe that is the case at all.
I believe this nice sum is put into the Bill to hide from the ordinary man or woman in the street the circumstance that there are such things as loans at a rate of interest of something less than one-half of 1 per cent., which circumstance has been concealed very successfully from most of the general public throughout the 26 or 27 years during which I have been interested in these things.
I am very much more worried, however, about Clause 2 (1), which contains a reference to Treasury bills. I think it is a great pity that this Bill should empower the Treasury to borrow by the issue of Treasury bills. It is a great pity for this reason. Perhaps I may refer to what the Financial Secretary said on Second Reading—and I will not quote him textually. He insisted that this Bill was concerned with very short term Ways and Means borrowing, either through Government Departments, or through the Bank, with a capital B, meaning the Bank of England.
From the way in which he placed his emphasis, I had a feeling that he wanted the House to believe that the Treasury would go to the Bank of England only if they could not get the money from the Departments. I am prepared to admit that it is a perfectly reasonable thing for the Treasury to use balances which are in the hands of other Government Departments. Those balances can, in fact, be very considerable, and nobody would quarrel with the Treasury using them. It is a very reasonable thing if, for any reason, the Treasury had to go outside the Departments, that they should go to the Bank of England for Ways and Means advances—I presume at one-half of 1 per cent. although it is the studied policy of the Treasury not to take the public or even this House into their confidence in a matter like that.
But I cannot see why the Treasury should be empowered to issue Treasury bills—that is to say, to go to the commercial banks and pay them a rate of interest which at least would be seven-eighths of 1 per cent. and might well be more. I know it is arguable that the Treasury bill method has a less inflation- 2103 ary effect than the method of Ways and Means advances from the Bank of England; but in the context of the City of London as it now is, and the money market as it now functions, and the commercial banks as they now order their business, I doubt whether that argument about less inflation has any validity, because it is quite well known that the commercial banks are now working through a ratio of cash plus money market assets, on the one hand, against total deposits, on the other hand. Here is a fraction—the numerator of the fraction is cash plus money market assets and the denominator is total deposits. I would point out that Treasury bills are money market assets.
Why has this Clause been left in the Bill? I thought the explanation might possibly be found in what happened yesterday or the day before, when the commercial banks began to issue their returns for the month of November. Those returns show that their liquidity position has been affected very seriously indeed as a result of the funding operation which the Chancellor of the Exchequer announced, and indeed carried out, last month, when he funded rather more than £1,000 million of Floating Debt—that is to say, more than one-sixth of the Floating Debt. By so doing, the Chancellor diminished the availability of bills, and by diminishing the availability of bills—in view of the fact that the numerator of the fraction on which the banks work is cash plus money market assets—he jeopardised the liquidity position of the banks.
I wonder whether this Clause is left in the Bill in order that the Government may come to the aid of the banks in circumstances such as those which are arising and which, in fact, have arisen, since that funding operation. I wonder whether the Clause is left in the Bill so that the Government may come to the aid of the banks, which are, of course, private money-lending institutions, to enable them to maintain their liquidity position—incidentally, by so doing, imposing upon the taxpayers the burden represented by the difference between seven-eighths of 1 per cent. interest on Treasury bills and one-half of 1 per cent., which I presume to be—and I am open to correction, because no one outside the Treasury knows—the rate of interest of Ways and Means advances.
2104 If that is so, I have put my finger upon a very undesirable facet of our public life. The banks are privileged institutions, which alone can create credit. That is a prerogative which is denied to ordinary people—denied to people like myself, denied to forgers and coiners and criminals like Mr. Clarence Hatry. The banks are allowed to do that. Here we have something going through this House, almost on the nod, as a provision about Treasury bills in the Consolidated Fund Bill.
It is nearly 50 years since I was at Sunday school; but when I was there, in the county of Wiltshire, I remember the vicar of the parish giving us a lecture about certain people who would strain at gnats but were willing to swallow camels. I remember thinking what an extraordinary kind of person is a man who will strain at a gnat but quietly swallow a camels. It is only a little over six years since I first sat in the House, although I sat in the Press Gallery a good many years before that; and although I have been in the House for only a comparatively short time, I have observed that the House will challenge almost ferociously Measures which I would call of the order of gnats; and yet will accept, nodding, in a comatose sort of condition, gross propositions of this sort, which give a privilege to private money-making interests in the City of London—a privilege which, so far as I can see, cannot be justified by any sort of argument.
I shall not be guilty of straining at the gnat or swallowing a camel. I say what I have said on this Third Reading because I want to utter my protest at this privilege for the commercial banks being put through by the back door, by means of a Clause in the Consolidated Fund Bill, which very few hon. and right hon. Gentlemen profess to understand, but which gives the Treasury power to raise money on Treasury bills. I think that is an atrocious thing, which ought not to be allowed; and I propose that it shall not go through the House without being challenged.
§ 7.13 p.m.
§ Mr. Hale
My hon. Friend the Member for Nottingham, South (Mr. Norman Smith) always addresses the House on matters of this kind with sincerity and ability. I have a feeling, although I was not able to hear every word he used, that 2105 the House may have reached a stage when it comprehends that he is making what I suspect is an important and effective point. I must say I have not had an opportunity of consulting Cruden's Concordance about his concluding remarks, but I think there is nothing in the Bible about passing a camel on the nod.
On these matters I can only volunteer my own experience. Whenever I approach my bank, and I frequently do, for an overdraft, and whenever my application is granted—which is frequently, surprising though it may seem—so far as I know, no Treasury Bills are issued by my bank; all they do is to obtain a further draft on the Bank of England, who themselves do not issue any Treasury bills in respect of this transaction, which as far as I am concerned is quite important.
I agree with the argument which I think my hon. Friend put that there appears to be no particular reason for this procedure. After all, an overdraft in these days is merely a technical transaction, a written item on one side of a book; and so far as I have heard, there is no very special justification for certain persons in the City of London receiving £22 million or £25 million or £30 million as a result of the transactions which we are completing today.
I rise, however, to speak on a much more important matter. I ventured, with many of my hon. Friends, to put down an Amendment to the Preamble on the Committee stage, which was not called—I think, if I may say so, for very excellent reasons, because we recognise that this has become part of the enacting formula of Bills relating to the Consolidated Fund, and a part not even put to the Committee to be passed.
I do not know how something becomes an enacting formula. So far as I can find out, nor does Erskine May. I do not know if possibly anyone in this House could give any advice on that point. I should imagine that the real reason is something of the sort of which we have had a very recent instance—that the Government Chief Whip forgot about it, and that the House found that it had accepted a procedure for which there was no constitutional justification. Nor, indeed, any historical justification because the enacting formulae for some centuries do not appear to have borne very much 2106 relation to the particular problems being faced.
We find in the days of Queen Anne that it was being voted not only cheer, fully but unanimously. I am bound to say that if my hon. Friend the Member for Nottingham, South, had been present in the days of Queen Anne he would have been regarded quite obviously as anachronistic and euphemistic. I looked back to the days of Charles I and sought to find a formula that was relevant, and the only relevant one I could find was:An Act to prevent inconveniences which may happen—upon the long intermission of Parliament. That was passed in 1640 and shows that our problems have not altered very much. That was a matter of 13 years and now it is a matter of 13 weeks, but the problem is the same and the difficulties have not really decreased.
But I am putting this argument very seriously. Is it right that we should deceive His Majesty on this matter? Is there really in the House any such feeling that we have cheerfully granted this vast sum, most of it lost on purchases over which we have no control? I could pursue the historical argument, but I shall not because I do not want to say any word that would hurt anyone's feelings, but is it right to deceive the Crown on a matter of this kind? To do so can have very serious consequences.
Is the House seriously saying to the Crown that we are cheerful about these things? Is it seriously to be supposed that each of us says, "When I get my demand note for Income Tax or Surtax I cheerfully call up the stairs to my wife and say, 'They are asking me for a bit more this year. Let's celebrate."?
In fact, there is already alarm and despondency in the country. Only a few days ago we had petitions from Horn-church, Northampton and Oldham, West, protesting about the state of the country. They were petitions from Essex, the Midlands and Lancashire, and we could not have a more diverse example of the sort of feeling that exists. I observed last week that in another place, in the only Division they have had in the present Session, there were only just over 60 Members. Whatever the truth of the fact may be anyone who knows the sense of sacrifice to public service of Members 2107 of another place will realise that only poverty could have kept them away, and there were 790 absentees—although, of course, since 1911 we know that they have no right to overrule a Bill of this sort, or of enacting a formula to this particular Bill.
I think the House will have to consider in the present Session whether we can go on accepting Bills which start off in terms which are clearly terms to deceive and clearly are not terms that express what His Majesty's subjects feel about this matter at all. If hon. Members opposite have been to speak to their constituents about pay as you earn they must have found this to be true. I am not speaking of the efforts of the civil servants charged with the melancholy duty of having to collect tax from us. I have always been received by them with every courtesy, although I believe they still remember against me certain frivolous letters I wrote to them when a sergeant in the Army asking whether I was expected both to fight the war and pay for it. However, that is past now.
I am sure that most of them at some time must have felt a certain amount of remorse when sending the 10-day notice, just as those who received them must have done so, and I am sure that an officer of the Inland Revenue must have felt some mortification on behalf of his wife and children if and when he found it necessary to post to himself a 10-day notice, and must have had a moment of hesitation and reluctance, and wondered whether it could not be delayed by a few days, even though he realised that it was important that His Majesty should be supplied with the necessary revenue.
My hon. Friends and I who had put down the Amendment do not wish to take His Majesty's Government by surprise in this matter, and we would not wish to press this matter unduly at this moment, but we shall undoubtedly, on other Consolidated Fund Bills, have to ask them to consider this important matter, and consider whether we cannot devise a formula much more in accordance with the spirit of the day, and more reflective of the alarm and despondency, some expression of which we have seen during the last few weeks.
§ 7.20 p.m.
§ Lieut.-Colonel Lipton
My hon. Friend the Member for Oldham, West (Mr. Hale), has reminded me of an old radio character, Mrs. Mopp, who constantly said that it was "being so cheerful as kept her going"; and we hope that this lack of cheerfulness will not add to the alarm and despondency about which he has spoken. Among our greatest national assets must be included the vigilance of my hon. Friend the Member for Nottingham, South (Mr. Norman Smith), on these occasions, and the unending supply of erudition that emanates from my hon. Friend the Member for Oldham, West. I do hope that the Financial Secretary will take heed of what has been said in this debate. I should like for a few moments to re-inforce a few things that my hon. Friend the Member for Nottingham, South, has said.
It was, I think, made clear on Second Reading that it is now almost common ground that when the banks create additional deposits which are in effect money they are really doing it through notes. In those circumstances, I think it is true to say that the banks are in a very special and privileged position. It may be necessary for a variety of reasons for the Government in this Bill to borrow this money by the issue of Treasury bills.
My hon. Friend the Member for Nottingham, South, is of the opinion that the Government should be able to borrow at short-term from the banks at no rate of interest at all. In this connection I would draw the attention of the Financial Secretary to what was said by no less eminent a person than my right hon. Friend the Member for Leeds, South (Mr. Gaitskell), who speaks on these matters with all the authority that appertains to an ex-Chancellor of the Exchequer.
These are the words he used:I do hold the view that there is no reason why, in a uniform banking system, the Government should be required to pay more than the additional costs incurred by the banking system as a result of their taking up the Treasury bills in question."—[OFFICIAL REPORT, 30th November, 1951; Vol. 494. c. 1980.]That surely is a reasonable argument to put forward that would help to reduce the rate of interest that the Government are having to pay on Treasury bills to an even smaller figure than whatever is the rate at the moment.
§ Lieut.-Colonel Lipton
One-eighth of 1 per cent., says my hon. Friend the Member for Nottingham, South. It would be even less than that figure if the only cost charged to the Treasury were the additional cost incurred by the banking system, because the additional cost incurred by the banking system in connection with Treasury bills is limited to the actual cost of the clerical labour involved in making the necessary entries into the books of account that have to be kept.
Surely, in those circumstances, and in view of what my right hon. Friend the Member for Leeds, South, said, it will not be too much to expect the present Administration, seeking to economise in every direction, to consult with the joint stock banks in this matter. I am quite sure, regardless of our general views on the subject of the City of London and of the joint stock banks system in general, that it would be found, particularly with a Conservative Administration in power, that the directors of the joint stock banks would be only too happy to co-operate with the Government in ensuring that, so far as the cost of Treasury bills is concerned, the interest rate should be limited to the actual additional costs that the banking system incurs.
I hope that the Financial Secretary will consider this part of the argument which has been raised in the course of the debate on this Bill. This issue has not been raised by hon. Members who could perhaps be dismissed by the Financial Secretary as irresponsible back benchers. The words I have quoted represent the considered view of an ex-Chancellor of the Exchequer, and to that extent I hope that they will not be overlooked.
§ 7.26 p.m.
§ Mr. Boyd-Carpenter
I shall endeavour to reply to the observations which have been made by the three hon. Members who have taken part in this Third Reading debate. I think that I can begin by re-assuring the hon. Member for Nottingham, South (Mr. Norman Smith). He was very perturbed that he was being made to swallow a camel—the camel of the Treasury bill rate. I can assure him that so far as this Bill is concerned, it is a very remote possibility that he will be compelled to absorb that particular form of nutrition.
2110 As I said on Second Reading, the provision in the Bill relating to Ways and Means borrowing to be effected by Treasury bills is purely an emergency provision, and it is not the intention, nor, indeed, has it been the practice for many years, for borrowing for this purpose to be effected by Treasury bills at all. Therefore, I can say to the hon. Gentleman that if there is any question of his being forced to absorb a camel this afternoon that is more likely to be the responsibility of the Kitchen Committee of the House than it is of the promoters of this Bill.
I should explain perhaps once again why it is the intention of the Government to continue the practice adopted for this kind of borrowing. In the first place, resort is made to the balances standing to the accounts of the different Departments of State. That is obviously the most economic form of borrowing. In respect of many of them where there is no statutory investment arrangement, the borrowing is free of interest.
It is obviously an economic proposition which I should have thought would appeal to the hon. Gentleman. In default of sufficient funds being available in that way, resort is made to the Bank of England, and, in practice, these two sources of supply have been sufficient to meet the needs of this kind on borrowing for many years. Perhaps I should repeat, in order to make the position clear, that the provision in Clause 2 (1) of the Bill is merely to deal with some unforeseen contingency which, we hope, may not arise.
I would emphasise that point also in reply to the hon. Member for Oldham, West (Mr. Hale). Treasury bill borrowing in general has no effect in this direction. It has effect under the National Loans Act, 1939, and is only included here as an emergency provision. I should like to say a word if I may, without getting into trouble with the rules of order, with reference to a word in respect of which the hon. Gentleman sought to table a deleting Amendment in the enacting words of the Bill? The word is "cheerfully."
I should be sorry to see any cheerfulness being sought to be removed from any of our transactions. I realise, of course, that the hon. Gentleman intended a 2111 serious point in what he said, and I will endeavour to deal with it in the same spirit. The word "cheerfully" first appeared, so far as we can trace, in these Bills in Chapter 17 of the Acts of the 57th year of his late Majesty King George III, and it has been a consistent practice, as I understand it, since then to include this adverb in the enacting words of similar provisions.
§ Mr. Boyd-Carpenter
I am bound to admit that there is a certain Regency air about the phrase. It is, perhaps, none the worse for that. I do not know whether the hon. Gentleman really wants to make much of it. It seems to me perhaps not inappropriate that the characteristic which our people do share of cheerfulness in difficult times should be firmly and resolutely stated when we are faced with the difficult and disagreeable process of making money available for public purposes.
To the hon. and gallant Member for Brixton (Lieut.-Colonel Lipton}—lest I seem to neglect his speech—may I say that what I said to his hon. Friend the Member for Nottingham, South, applies equally to his arguments? Whether there is force or not in what he said on the general question of interest rates, with particular reference to Treasury bills, is a matter which, I think, I should probably be out of order if I tried to pursue, because in this Measure we are really in practice not concerned with them. We are concerned with the type of borrowing to which I referred a few moments ago in reply to the hon. Member for Nottingham, South.
In the circumstances, as this is now the last stage of a somewhat, I will not say prolonged, but not entirely short process of implementing the decision which the House took some days ago in connection with four Supplementary Estimates, I hope that the House may be prepared to carry the matter to its logical and constitutional conclusion and give the Bill its Third Reading cheerfully.
§ 7.33 p.m.
§ Mr. Douglas Jay (Battersea, North)
Although we do not oppose the Bill, and although the Financial Secretary is perfectly correct in saying that it does not affect the general issue of Treasury bills, nevertheless, I do not think that we can finally allow it to pass without making one more emphatic protest against the Government's decision to raise the rate of interest on Treasury bills and to impose this extra heavy load on the taxpayer.
The sum involved is very large, and not merely do we not accept it cheerfully, but we do not accept it at all. It amounts to an addition, as the House knows, of £25 million a year gross and £16 million even when we have allowed for some return by way of Income Tax. That is far from a negligible sum. I believe, to take one example, that the whole school meals service cost £25 million a year. Therefore, we are imposing by this raising of the interest rate an extra sum, if we take the gross sum, equal to the whole cost of such an important social service as the school meals service.
We realise that the Government's professed intention, at any rate, in raising the interest rates is to secure the restriction and limitation of the expansion of credit. We believe that that can be achieved without this increase in interest rates. I will not argue our reasons for that at length, because my right hon. Friend the Member for Leeds, South (Mr. Gaitskell), did so in the debate on Friday. But it does seem to us to throw rather a cynical light on the Government's professions of enthusiasm for economy in public expenditure that their very first act has been to make this increase—
On the Second Reading of the Bill I did permit a fairly wide discussion of this matter of the interest rate, although it is not in the Bill at all. But on Third Reading I hope that the right hon. Gentleman will confine himself closely to the Bill as it is.
§ Mr. Jay
I was going no further than to assume that what was in order on the Second Reading would not be very far out of order on the Third Reading. I merely propose, in my concluding sentence, to say that we record again an 2113 emphatic protest against this decision to raise the rate of interest on Treasury bills.
§ Question put, and agreed to.
§ Bill accordingly read the Third time, and passed.