§ 3.44 p.m.
§ The Financial Secretary to the Treasury (Mr. John Boyd-Carpenter)
I beg to move, "That the Bill be now read a Second time."
This Bill was forecast by my right hon. and learned Friend the Home Secretary during our recent debate on the continuance of the Supplies and Services legislation. Its main purpose is to carry forward what was then indicated to be the policy of the Government—that is, replacement of such emergency powers as need to be continued for some time by permanent legislation. The Bill covers the ground at present covered by Defence (Finance) Regulations 7AA and 7AB. In Clause 4 (2) of the Bill, provision is made for their revocation on the Bill becoming law.
The Bill also clears up what had become in some degree the confused state of the law in respect of the issue of bank-notes. The issue of bank-notes is the subject matter of Defence (Finance) Regulation 7AB, while Defence (Finance) Regulation 7AA deals with the fiduciary note issue. The Bill, therefore, falls into two parts, embodied respectively in Clauses 1 and 2, which are the main operative Clauses of this short Bill. Clause 1 deals with the issue and recall of bank-notes by the Bank of England. To make it, I hope, reasonably comprehensible to the House, I ought, perhaps, to sketch in the background.
Under common law, the Bank of England could issue notes of any denomination, but in 1826 the power to do so was restricted by statute to notes of £5 and upwards. Under the Currency and Bank Notes Act, 1914, Treasury notes were issued for £1 and 10s., but under the Act of the same title which Parliament passed in 1928, these notes were amalgamated with Bank of England notes and the Bank, therefore, was given the power also to issue £1 and 10s. notes. The present position, therefore, is that the Bank has the right to issue notes of £5 and upwards, and, below £5, notes of £1and 10s. only.
1321 As it happens, all notes above £5 in value have been called in and demonetised, although I believe that in practice a good many of these notes still remain in the hands of the public. But the only legal tender notes now in circulation are those for £5, £1 and 10s. Under existing statute the Bank can, if it so wishes, call in and demonetise the £1 and 10s. notes, but it depends upon the power given in Defence (Finance) Regulation 7AB for the right to call in notes of £5 or higher values.
Clause 1 of the Bill makes two changes of substance in the existing statutory provision. In subsection (5) it gives the right to call in bank-notes, of whatever value they may be, and in subsection (1) the right to issuebank-notes of any denomination that the Treasury may approve. At present, the position is that the Bank can issue notes of any denomination in excess of £5, but is restricted below £5 to 10s. and £1.
The second change of substance in the law is that the Bill provides that the issue of notes of these denominations shall be subject to the approval of the Treasury—that is, subject ultimately to this House, inasmuch as my right hon. Friend is ultimately responsible to Parliament forthe giving of approval or non-approval for such action. The rest of the Clause consists largely of re-enactment of existing provisions, which are scattered about in a variety of statutes. As a result, Clause 4 (2) contains quite a number of repeals. The effect of this, in substance, is to put into one Clause the general law on the subject and to give freedom both to issue and to call in notes of any value subject to the approval of the Treasury.
Clause 2 deals with the distinct subject of the fiduciary issue, which is the field covered by the other Defence Finance Regulation to which I referred. The latest statutory provision on this subject fixes the maximum of the fiduciary issue—that is, the issue of notes permitted over and above notes which arecovered by such gold as may be in the Issue Department of the Bank of England—at £300 million. That is under the Act of 1939.
As hon. Members will be well aware, that figure is completely out of line with the current position. As indicated in an answer which my right hon. Friend the Chancellor gave to my hon. and gallant 1322 Friend the Member for Romford (Lieut.-Colonel Lockwood) yesterday, the fiduciary issue today stands at £1,625 million, and the legal foundation for the fiduciary issue being at that level, as opposed to the £300 million fixed by the 1939 Act, is Defence Finance Regulation 7AA. which, as I have already indicated, it is the purpose of the Bill to dispense with. Hon. Members will agree that it is unsatisfactory that this matter should be regulated on a statutory basis which is completely out of date, modified by the use of emergency powers, and I am sure the House will agree with me that the matter ought to be put on a normal and regular statutory basis
Perhaps I might make one general comment on the effect of the Clause before mentioning one or two of the details. At one time very great importance was attached, both in the House and outside, to the size of the fiduciary issue, and it was fairly widely thought that by limiting it in one way or another one could control inflationary pressures or inflationary developments. Today it is fairly generally realised that the size of the fiduciary issue has very little to do with the general broad questions of inflation or deflation.
I should be going outside, as I understand it, the confines of the Bill if I were to go very far into these issues, but perhaps I might be allowed to remind the House that the real inflationary pressure develops, if it does develop, not from the printing of bank-notes but from the creation of credit, and that in any event the main vehicle for payments, and payments of large amounts, is, of course, the cheque or other document of that sort, and not the bank-note. The purpose of the bank-note is simply to enable people to cash their cheques, and it is certainly not a conceivable way of restraining inflation to make it impossible for people to cash the cheques that they present. The main function of the fiduciary issue today is, as I see it, to ensure that sufficient notes are available for the practical convenience of the public.
It is, of course, a fact also that the significance of the size of the fiduciary issue is rather less today than it was immediately before the war. The right hon. Gentleman the Member for 1323 Battersea, North (Mr. Jay) will recall that before the war the main gold reserves of the Bank were kept in the Issue Department, and notes over and above those authorised for the fiduciary issue were also issued against that gold. Consequently if the Bank lost gold but the demand for notes remained constant, it was necessary to increase the fiduciary issue to make up the shortage. In those circumstances, therefore, it was on occasion a fact that increases in the fiduciary issue indicated a loss of gold by the Bank.
But since 1939 the gold reserves of the Bank have not been kept in the Issue Department, except to a very trifling extent. The main reserves have been kept in the Exchange Equalisation Account, and, therefore, gold movements have not affected in any degree that one could possibly ascertain the size of the fiduciary issue. Consequently, variation in the fiduciary issue has lost the significance which up to the war it had as a kind of barometer of what was happening to the movement of gold.
The Bill proposes in Clause 2 to fix the basis of the fiduciary issue, from which one moves in subsequent subsections, at £1,575 million. That figure was selected because it was the level at which the fiduciary issue stood at the date of the Bill's introduction. As I have already mentioned, the present figure is £1,625 million. As the House will be aware, that is a usual movement at this time of year. There is an increased demand for notes during the pre-Christmas period for obvious and, indeed, for very human reasons, a movement which takes place every year. As at present advised, I see no reason for altering the base figure which stands in the Bill, although we may look at it again during the Committee stage.
§ Mr. Boyd-Carpenter
I am glad that I carry the hon. Gentleman with me on that point. It is always agreeable to find such a meeting of minds.
The House will note that Clause 2 provides that the Treasury shall have power to make increases above this figure for periods of six months or less but that the 1324 Bill is not to be continued for more than two years without the making of an order which shall be effected by Statutory Instrument and laid before the House as a Statutory Instrument. This follows, broadly, the procedure laid down in the Currency and Bank Notes Act, 1928, under which, by Treasury Minute, increases could be authorised for six-monthly periods, but if the periods ran in the aggregate more than two years, further Parliamentary action was required.
§ Mr. Douglas Jay (Battersea, North)
There is an important difference between the provision here and the provision in the 1928 Act. If I am correct, it was not merely an order but additional legislation which would be required.
§ Mr. Boyd-Carpenter
I deliberately did not phrase precisely what I said, because the Statute is not clear. The wording is, "unless Parliament otherwise determines." I should think it probably would involve legislation, but it is a rather difficult question of construction on which I should not like to be dogmatic, and that is why I used the expression which I did.
§ Mr. Boyd-Carpenter
I do not know whether that is a matter for any of the Law Officers of the Crown. It might be more a matter of Parliamentary procedure than of strict law. If any point of substance arises on it—it is more a matter for the Committee stage than for the Second Reading—I will certainly seek advice. My own opinion, for what it is worth, substantially inclines towards that of the right hon. Gentleman, that it probably means legislation, but it is a rather curiously obscure expression, as I am sure the right hon. Gentleman will agree.
§ Mr. G. R. Mitchison (Kettering)
If the hon. Gentleman is not going to deal any further with that point, Mr. Speaker, perhaps you will allow me now to raise a question of Privilege under Clause 2.
As the hon. Gentleman has just explained, there is in Clause 2 a provision for extending by order over two years the power to affect the volume of the fiduciary issue. The order is made subject to annulment in pursuance of a Resolution of 1325 either House of Parliament. The hon. Gentleman will no doubt agree that that point is a new one.
The question I wish to raise is whether it is right, having regard to the privileges of this House, that the other place alone, by Resolution, should be able to procurean alteration in the amount of the fiduciary issue or the length of time affecting the issue. Of course, if this were purely a domestic matter of the Bank of England I should have little to say, but under Section 6 of the 1928 Act there is a provision that the profits of the note issue—and that includes, as I understand it, this very matter—are to be paid to the Treasury. Indeed, the provision goes on to say that:For the purposes of the Income Tax Acts, any income of, or attributable to, the issue department shall be deemed to be income of the Exchequer, and any expenses of, or attributable to, the issue department shall be deemed not to be expenses of the Bank.My respectful submission on the matter, Mr. Speaker, is that in those circumstances the Treasury, acting in this matter by their statutory agent as it were, the Bank of England, are entitled to take—indeed are bound to take—all the proceeds of the fiduciary issue and, of course, to apply in aid of Her Majesty's needs; and that it is therefore so closely analogous to a matter of supply that it ought not to be capable of being affected one way or the other by a Resolution coming solely from the other place.
§ Mr. Speaker
There is no question of Privilege in that. So far we have before us only the draft of a Bill which can be amended by this House, and it is entirely in the hands of the House. Whilst the argument advanced by the hon. and learned Gentleman may be a good argument for deleting this provision allowing the other place to pass a Resolution annulling an order affecting our finance, whether the House accepts it and deletes the words, or rejects it and leaves thewords in, the House is not offending against its own privileges, because it cannot do so. There is no question of Privilege here.
§ Mr. Mitchison
If I may pursue the point a stage further, Mr. Speaker, may I ask your direction on this matter: would there be any question of a waiver of Privilege if we had to consider this subsection?
§ Mr. Speaker
No, there is no question of a waiver of Privilege in so far as there is no question of Privilege in it. Accepting the argument of the hon. and learned Gentleman for the purpose of what I am about to say, if the House did leave those words in, the House would to that extent have waived the Privilege which the hon. and learned Gentleman says exists. But there is merely a proposal before us now, and it is for the House to decide. There is no attempt by anyone else to influence the House or to force upon the House a course repugnant to its privileges.
§ Mr. Leslie Hale (Oldham, West)
Further to that point, Mr. Speaker. The House is in difficulty in this matter because the practice always has been to print in italics for the benefit and guidance of hon. Members, those Clauses of a Bill before the House which involve financial matters for the jurisdiction of the House, so as to warn another place that there are matters which involve Privilege and which are being reserved because they are regarded as involving Privilege.
Here is a matter of great importance which clearly affects the financial stability of the country. It is a matter which gives the Treasury power, notwithstanding the provisions of the Bill, to issue ad hoc directions increasing the total amount of currency available. If one assumes for a moment that the Treasury, without a valid reason, gives another place power on Resolution to annul that, in certain circumstances it would provoke an obvious crisis because, quite apart from anything else, the steps would have been taken in pursuance of the Minute before the annulment. Is not the House entitled to know at this stage whether, in discussing the matter at this moment, in discussing it as part of the Privilege of the House of Commons, it will be printed in italics when the Bill is before another place and will not be a matter for another place?
§ Mr. Speaker
There is no question of Privilege in this. The hon. Gentleman and the hon. and learned Gentleman can 1327 secure any object which they have in mind by putting down an Amendment to the Bill in Committee to excise any reference to the other place, but it is purely a question for the House to decide. There is no question of Privilege in this.
§ Mr. Eric Fletcher (Islington, East)
I do not wish to pursue this matter unduly, Mr. Speaker, but will you be good enough, at any rate before this matter reaches the Committee stage, to consider whether or not this Clause should not have been printed in italics? I agree with what my hon. Friend the Member for Oldham, West (Mr. Hale) says, that the House is in a real difficulty. It appears that this Clause will confer on another place powers in regard to revenue and supply which they do not have at the present moment. This point has been raised for the first time and I think the House would be grateful, Mr. Speaker, if you would take an opportunity of considering whether, when this Bill comes to be printed and therefore before it goes to another place, this paragraph should be printed in italics.
§ Mr. Speaker
It seems to me that there is a little misconception about this matter. As far as my knowledge goes, if passages in a House of Commons Bill are printed in italics that indicates that they are dependent upon the passing of a Money Resolution by a Committee of the whole House. There is nothing in the printing point, and if hon. Members wish to pursue it further, it is purely a Committee point for the House itself.
§ Mr. Boyd-Carpenter
As I understand it, this is an interesting issue which we can pursue in Committee on its merits. When we come to do so, I think I shall be able to satisfy hon. Members that there are not only satisfactory precedents but satisfactory arguments of principle for dealing with this matter in this way. However, I do not want to anticipate that discussion, which in many ways would be unfair.
Subject to that point, the procedure which I have indicated is, of course, necessary in order to vary the size of the note issue, not least because of those changes in seasonal demand which occur at Christmas and during every holiday 1328 season. It is desirable that there should be some flexibility in the regulation of the exact size of the note issue, but it is equally right that, if the matter passes beyond the realms of temporary flexibility, and if the general level looks like settling down at a somewhat different one from that laid down in the Bill, then Parliament should have an opportunity of considering it, though, as I have indicated, in my own view—and this is to some extent a matter of opinion—the exact size of the fiduciary issue is not as fundamental to our national finances as used to be believed some years ago.
That is Clause 2. Apart from the interpretation and repeal Clauses, Clauses 3 and 4, the latter of which revokes the two Finance Defence Regulations to which I have referred, that is the whole of the Bill.
§ Captain J. A. L. Duncan (South Angus)
Before my hon. Friend sits down, can he give an assurance that there is no intention in this Bill to interfere with the existing rights of the Scottish banks to issue their own notes?
§ Mr. Boyd-Carpenter
I can give that assurance, and my hon. and gallant Friend will no doubt have observed in his study of the Bill that the provisions with respect to legal tender of certain notes do not apply to Scotland.
§ Mr. Raymond Gower (Barry)
Can my hon. Friend tell the House, for its guidance, in what respect this Bill will vary the practice which has been followed hitherto, and to what extent?
§ Mr. Boyd-Carpenter
I do not think that I can answer my Friend's question without repeating the speech which I have just made, and even to please him I should hesitate to inflict it again on the whole House. Broadly, changes of substance are the greater freedom in the choice below £5 of the value at which notes may be issued, the removal of the gap which had to be closed by Defence Regulations in respect of notes which should be called in, and certain minor modifications. The main purpose is to re-enact in one Bill quite a number of provisions.
§ Mr. Speaker
Before I call the hon. Member for Nottingham, South (Mr. Norman Smith) to speak, I have to tell 1329 him that I am not selecting the Amendment in his name,That this House declines to give a Second Reading to a Bill which impedes the adoption of a Socialist currency policy and which, through facilitating the demonetisation of legal tender currency, widens the scope of capitalist money lending while giving the House of Lords new powers over finance.I am not doing so because it might tend to narrow the debate unduly. There may be other reasons against the Bill which have escaped even the comprehensive category which the hon. Member has put down. Everything that thehon. Member says in his Amendment is relevant on Second Reading.
§ 4.11 p.m.
§ Mr. Norman Smith (Nottingham, South)
I am very grateful to you, Mr. Speaker, not only for your kindness in giving me an explanation of why you are not calling my Amendment, but also for the carte blanche you appear to have given, not only to me but to other hon. Members, on the Second Reading of a Bill to which the Financial Secretary either does not attach, or wants the House to believe that he does not attach, much importance. The latter is the more probable. I have no doubt that the Government attach the utmost importance to this Bill. Indeed, the point of Privilege which was raised by my hon. and learned Friend the Member for Kettering (Mr. Milchison) is, from our point of viewand no doubt from the point of view of any hon. Member, a matter of the utmost importance.
But I see in this Bill other real dangers which have to be exposed and fought by a party which claims to speak for the mass of ordinary people in the country, as distinct from the comparatively few people in London and elsewhere who are concerned with the money market. The Financial Secretary spoke with the utmost complacency about inflation. My mind went back to the days when the hon. Gentleman was in opposition. If my right hon. Friend the Member for Battersea, North (Mr. Jay) had been occupying that position and had in fact introduced this very Bill, the opposition from the hon. Gentleman who is now Financial Secretary would have been formidable and even ferocious.
The Financial Secretary referred to inflation. It is, of course, very convenient 1330 to have a fiduciary issue of £1,575 million instead of £1,400 million. Only a year ago last February the predecessor of this Bill was printed and circulated to the House. I happen to have taken the precaution to bring with me last year's Bill for comparison with this year's, because there are differences in which the House will be interested.
I and my hon. Friends do not share the complacency about the subject of inflation which the Financial Secretary, with, I thought, a certain amount of levity, displayed in this House. It is a peculiar coincidence that we should have the Second Reading of this Bill the very morning after certain announcements were made which conveyed to the public the important fact that not only must the fiduciary note issue be increased over and above what is provided in this Bill but also that the other form of currency, which the Financial Secretary was good enough to make quite clear was the really important form of currency, namely, the bank deposits, which circulate money from one account to another by cheque, had gone up by 3½ per cent. in the period since Her Majesty's Government had been in office.
That is a very considerable increase, having regard also to the fact that the note issue now in circulation to the public—I am not talking now about the fiduciary issue—has gone up by 12½ per cent. since the party opposite came into office. I am certain that if my party had been on the benches opposite and my right hon. Friend the Member for Battersea, North had been introducing this Bill, there would have been a furious onslaught on us, with the allegation of inflation.
I do not deny that there is inflation. Itis the Socialist creed that one cannot work a capitalist system without inflation. There has been inflation in America ever since 1945, with the exception of a brief interval in 1949 when the Americans tried to cut down their national debt and they had four million unemployed, and the late Sir Stafford Cripps was forced by economic repercussions to devalue the £. The present Financial Secretary talks about inflation light-heartedly in office, but he used it as a battering ram against his opponents when he was in opposition.
This inflation is a serious thing, and it is a serious thing to have to increase 1331 the fiduciary issue. If there is more money in circulation then, unless production goes up proportionately, obviously prices must rise. It makes nonsense of the Welfare State, the essence of which is to provide fixed monetary benefits in times of stress. When one has inflation and the value of the monetary benefit become less, the Welfare State is prejudiced. It is our case that under the existing financial system, which the Financial Secretary upholds and in which he heartily believes, we are bound to have inflation. I can foresee the day when, if I live long enough, I shall see another Bill brought in to provide for a much larger issue of fiduciary bank notes.
This Bill does not stand up. It is a very bad Bill from start to finish. Even its Title is not a good Title. "Currency and Bank Notes Bill"—the Title is tautological, and nonsense. The hon. Member for Edinburgh, South (Sir W. Darling), who is in his place, is very particular about the use of the English language and he will appreciate that to say "currency and bank notes" is tautological. If I were back in my old business in Fleet Street and I proposed to issue a magazine to circulate among dog lovers, how ridiculous it would be if I proposed to call it "Dogs and Dalmatians" or, if I proposed to issue a magazine dealing with my wife's hobby of gardening, I called it "Flowers and Carnations." People might well think that there was something wrong with me, and surely there is something the matter with people who perpetrate this Title "Currency and Bank Notes Bill."
The currency which we use is mostly of another character altogether than bank notes. There are, of course, bank notes and coins, but most of the currency consists of bank deposits which circulate by cheque from one account to another. So far as I can see it, it is the settled policy of Her Majesty's Government and the hidden purpose of this Bill to enable those deposits to increase without inflation. That accounts for Clause 1 (5) of the Bill.
If anybody wants to understand how important bank notes are in the whole scheme of things, I would draw the attention of the House to the dimensions of the tripartite currency which we have in 1332 this country. There are £169 million of coins according to the "Monthly Digest," and that is not very much. There are now circulated among the public some £1,400 million or £1,500 million of bank notes, and there are some £6,000 million deposits. I estimate the deposits to be 16s. in the £ of our currency; I estimate the bank notes to be about 3s. 8d., and the coins the remaining 4d.
This Bill is concerned with the comparatively unimportant aspect of our currency—the bank notes. It has profound repercussions, as I hope to show, upon the banking deposits, which are the most important part of the currency. I am sure that the House cannot but agree with me that this Title is tautological and ought to be amended in Committee. I hope that someone will think of a better Title. Why not simply "Bank Notes Bill"?
I should like the Financial Secretary to give us an explanation on another point. I wonder how it is that since February of last year, when the first Currency and Bank Notes Bill was before us, which was not debated and so was not passed by this House, there has been a remarkable change. There was a lengthy Explanatory Memorandum on the front page of that Bill; it was 4½ inches long. As soon as I picked up the present Bill, the 1953 edition, or vintage, I found that the Explanatory Memorandum had been shortened to 2½ inches, a pretty substantial cut of 45 per cent. One wonders why.
Having studied the two versions rather carefully, I came to the conclusion that the 1952 Explanatory Memorandum gave too much away. It made it clear, even to dull persons like myself, that the purpose of Clause 1 was to provide for the calling in and demonetisation of the overwhelming part of the note issue, namely, the£1 and 10s. notes, which are no less than 82½ per cent. of the total note issue. We cannot demonetise them until the Bill is passed—if it is passed, which I rather doubt. The Explanatory Memorandum to the old Bill made that very cleareven to people like myself, and the present one does not make it clear at all. It merely says that Clause 1 deals with the issue and calling-in of all bank notes. This is very much more comprehensive and very much less likely to arouse the suspicions of people like 1333 myself who expect—after all, it is 47 years since I was a Tory—that there is a catch in anything that the Conservative Party does.
Then I noted—the Financial Secretary did not refer to this point—that what used to be Clause 1 (6) has been dropped. It has disappeared. It is sunk without trace. It does not appear at all in the new version of the Bill. I would remind the House of what it was 18 months ago:Notwithstanding anything in the Truck Acts 1831–1940, payment of wages in bank notes of any denomination which are for the time being legal tender shall be valid.That subsection has been dropped, and I do not know why. I rather wonder whether the Government have any tricks up their sleeve with regard to the payment of wages by cheque. I usually find a cheque very useful.
That reminds me that I had a letter the other day from a young constituent who is a miner. He came to this House a few years ago as a boy leaving school, and asked my advice as to his career. He wanted to go into the mines. I said, "Go into the mines, but take jolly good care that at the same time you study the technical side and go to evening classes." He has taken my advice and he has got a much better job, in consequence of which he is now told by the National Coal Board that he must have a banking account. He asked me whether I would sponsor him, and of course I gladly did. I cannot help thinking that there may be something underhand in this omission. As it eludes even my vigilance I shall not pursue that point any further.
I turn to Clause 1 (4) which really must have something added to it. It says:The holder of bank notes of any denominations shall be entitled…to do certain things. He can go to the Bank of England and receive in exchange for his bank notesbank notes of such lower denominations, being bank notes which for the time being are legal tender.That is all very fine. I suppose it means that if I have a bank note for £1 and go to the Bank of England, it undertakes to give me two 10s. notes for it. After all, there are a lot of 10s. notes. They amount altogether to £89 million, which means that there are nearly 200 million 10s. notes. The subsection does not say 1334 what you have to do with a 10s. note. That should be explained.
The next subsection is where the Bill really is not laughable, and where it begins to give a rough idea of what we get for our 10s. note. It is the real and operative subsection. Here we come up to the potentialities of mischief which are inherent in the Bill. The subsection gives us some sort of idea how to get rid of our 10s. note. It introduces something new. Remember that we are dealing with 82½ per cent. of the note issue, which is a pretty large proportion. Here is something new, something significant, indeed portentous, of what could happen. These notes can be called in and cease to be legal tender. They cannot be called in merely by a wave of the hand. The Bank of England has to go through a certain ritual, and has to give consideration for the bank notes that it calls in. The consideration is payment of the face value of the note.
That becomes very interesting. This is where I begin to sniff and to come on the trail of the real intentions behind the Bill. Let me refer to the 1928 Act, and to the corresponding Clause in that Measure. I did not take part in the Second Reading of that Bill, but I listened to it, though not from these benches. I listened from the Press Gallery. That Clause simply said that the Bank of England could exchange one lot of notes for the other. Here is a change. Now the Bank of England is to get hold of the notes and pay their face value. Thereafter, it can destroy the notes.
It is a neat little conspiracy, having regard to the relationship between the Conservative Party and the City of London—one of the neatest little conspiracies I have come across for quite a long time. [An Hon. Member: "Why?"] The Bank of England undertakes to pay the face value of these notes. There is only one method for it. If it pays the face value of the notes which it calls in, including the 10s. notes, it will have to give a consideration. Suppose it is to the Midland Bank. The Bank of England will have to give to the Midland Bank a draft on its own banking department. When notes from the issue department of the Bank of England come in, Government securities to the same amount go out of the issue department to the banking department, where the Bank of England uses 1335 them as cover for its draft to the Midland Bank to pay for the notes. So far, there is no change.
The Midland Bank, having parted with these notes and having got in place of them a Bank of England draft, which is quite simply, from the point of view of the Midland Bank, cash at the Bank of England, finds its ratio is unaffected according to the formula used now. This is a different formula from the one used in these matters 20 years ago, immediately after the First World War. In those days, immediately notes were called in, the Midland Bank would have to tighten up on its advances. The formula was a simple one: total deposits were a straight forward function of the cash it had, which was interpreted to include cash at the Bank of England as well as notes or coin.
I am certain that the Conservative Party do not bring in a Bill like this to achieve the status quo. I am certain that when the Bank of England has called in these notes it will proceed to sell Government securities from its banking department and call in the draft from the Midland Bank. It must do that, or nothing happens. Then the Midland Bank will be in the very happy position of having got rid of some of its cash, represented by notes and/or a draft at the Bank of England—it does not matter which—and then it will be able to increase lucratively its money market assets.
The formula for the stability of these commercial banks is that the proportion of their total deposits represented by cash—which is interpreted to mean coins and notes, plus balances at the Bank of England, plus money market assets—shall not fall below a certain figure, which is of the order of 30 per cent. I can only suppose that this Clause has been designed deliberately to enable the commercial banks, the clearing banks, to hold less in the way of either bank notes or Bank of England drafts and more in the way of money market assets.
It is the deliberate policy of the Conservative Party to encourage that peculiar form of activity known as the London Money Market, which always seems to me to be parasitical in its nature. It may play some useful part in connection with foreign bills, but it does not need the clearing banks to take any part in 1336 that. This Bill, which enables the clearing banks to increase business which is profitable to them, at the same time decreases the amount of bank-notes circulating which could be, if the Government liked, profitable to the Government. But I notice this. There is no intention whatever of the Bank of England competing with the commercial banks in ordinary banking business, because the Bank of England Act, 1946, provided in Section 1 (4) that a certain amount of money—I think £873,000 odd—should be handed out of its profits to the Treasury twice a year.
The business of bank-notes can be so profitable that, as my hon. and learned Friend the Member for Kettering (Mr. Mitchison) said when he raised a point of Privilege earlier this afternoon, under the Bank of England Act, 1946, the Bank of England has got to pay £873,000-odd every half year into the Treasury. But if the note issue were greater, the Bank of England would presumably have more profits on the note issue. There must be some profit in the note issue because the Currency and Bank Notes Act, 1928, provides in Section 6 that the profits of the note issue should accrue to the Treasury and not to the Bank of England.
This Bill is going to make certain that the nationalised bank, which belongs to the public, shall not do too much lucrative business in bank-notes. It says: "Thus far shalt though go, by £870,000-odd twice a year, and no further." I notice even in the latest return of the Bank of England, which was issued this year, covering the period ending February, 1953, that that payment of £873,180 was made twice during the period under review. So we evidently have a state of affairs in which the nationalised Bank of England is not to indulge in any profit making. If there is to be any profit making, then it has got to be done by the clearing banks which are still privately owned.
The operation of Clause 1 (5) of this Bill will help the clearing banks by decreasing their holding of either bank notes or bank cash which, if profitable at all, is profitable to the nationalised institutions, and will enable them to preserve the numerator of their fraction intact and not alter the original denominator of their fraction by increasing their money market assets, and to go still more 1337 deeply into what I regard as the questionable business of lending somebody else's money on short-term in the City of London.
Obviously, in that market nobody is going to lend his own money, unless it is money which he has created out of nothing, in which case he is in a privileged position. That is the sinister purpose which is achieved by the Tory Party. It reminds me of a poem entitled "Plain Language from Truthful James" of which I used to be fond when I was a boy at school but which I have not seen for many years. Looking at the Financial Secretary, I see that this poem is certainly applicable to him. It starts off in this way:Which I wish to remark,And my language is plain,That for ways that are dark,And for tricks that are vain,The heathen Chinee is peculiar,Which the same I would rise to explain.If we delete the heathen Chinee and substitute the Conservative Government, we get an exact description of the Conservative Government.
There are some more lines which are an exact description of the Financial Secretary, who sometimes laughs and often grins, and when he smiles it is a singularly childlike and bland smile. These lines are:But he smiled as he sat by the table, With the smile that was childlike and bland.It goes on to say:And the same with intent to deceive.But I shall not pursue that.
The real purpose of this Bill—and if anybody wants evidence, I can give several substantial pieces of evidence—is to carry out the deliberate policy of the Conservative Government to encourage the banks to develop their money market assets. There is, first of all, the growth in the banks' bill business. It has been tremendous. In the years 1936–38 their bill business was of the order of 12 per cent. to 14 per cent. of their total deposits. By 1950 it had risen considerably to 21.6 per cent., and now it is 21.8 per cent., which is an all-time record. It has been somewhat interrupted by the Serial Funding Loan, but it is none the less an all-time record.
While that has been going on the Floating Debt, which is the thing over which the Bank of England has the day- 1338 to-day control if it wants to—and it would want to, if the Treasury said it ought to—in the 12 months covered by this report shows an increase of £121 million in respect of Treasury bills, but Ways and Means Advances by the Bank of England have gone down by £65 million. All this is going on behind the scenes—the lending of non-existent, or rather intangible, money, which is so profitable.
But this sort of business on the part of the nationalised bank, which is our property, is discouraged, and down it goes by £65 million in the last year. On the other hand, if it is to be the Treasury bills which are profitable to private bankers in the City of London, then it is encouraged. It has been up by £121 million in the period covered by the report. Here, I submit, is corroborative evidence that the whole purpose of this Bill is to help the Conservative Party's friends in the City of London at the expense of the nationalised bank.
That brings me to something comparatively unimportant. There is no provision whatever in this Bill for the design of bank-notes. I do not propose to say much about it because I had the privilege of raising it on the Adjournment a few months ago. I wanted a picture of Her Majesty to appear on our bank-notes, as the picture of the reigning Sovereign appears on Canadian, Australian and many colonial bank-notes, and as reigning Sovereigns of other countries appear on those countries' bank-notes. The Financial Secretary pooh-poohed the whole idea. He was not going to interfere, neither was it the policy of the Government to interfere, with the day-to day policy of the Bank of England. They could issue directions under the 1946 Act if they liked, but they will not issue directions, and they will not even lift the telephone and say to the Governor of the Bank "Look, Governor, the people of England would be delighted if the picture of Her Majesty were on these notes."
The reason they will not do it is this. When the Tory party were in opposition they accused us of being doctrinaire. Actually, nobody could be more doctrinaire than they are. The reason they will not do what I want in respect of the design of the notes is simply that it would bring home to everybody in the country that the Bank of England is our bank and 1339 not the Tory Party's bank any longer. They will not do it. I hope that in Committee a move will be made to get that done. If it be not done, I hope that better reasons will be given than those which were given on the Adjournment a few months ago.
I want to refer briefly to what would be my idea of the sort of Currency and Bank Notes Bill that a Labour Government would introduce. It would have to be a Currency and Bank Notes Bill for the very good reason that it would be a very different Bill from this. I suggest to this House, and particularly to my right hon. and hon. Friends, that there is such a thing as a Socialist currency banknote policy which would bring very much benefit to the people of this country. It is based on the principle that the function of the Government is to issue currency and not to borrow it.
Nearly all the circulating currency in the country today is issued by banks and borrowed by Governments. So true is that, that during the last war the Government actually allowed themselves to finance the war very largely by borrowing from the banks money which the banks had not got, but which they obligingly created. They allowed the Government to draw cheques and in return they received Government securities which will bring in interest to the banks for all time.
What the Government ought to have done was to print their own notes with the picture of the then reigning Monarch, His late Majesty King George VI on them, and perhaps a picture of soldiers and sailors and airmen as well. They would have been war-time British notes. The Government could have issued these notes and used them for the same purpose as they used the bank drafts which they borrowed. The banks had not the money, but they let the Government draw cheques which were paid to munition workers and others, and got round the population, and which eventually found their way back to the banks to provide deposits. The real cost to the bankers was initially nothing, but the final cost was the liability of the banks in respect of those deposits which found their way back.
Exactly the same production of munitions would have happened, with neither more nor less inflation—I do not say 1340 that there would have been no inflation—if, instead of giving the interest-bearing paper to the banks, the Government had said, "If you will advance money which does not exist and let us draw cheques on the rows of figures in your books, we will give you Government bank-notes which will cover your deposit liabilities but convey no interest to you in perpetuity." If the Government had issued their own Treasury notes, something like the Treasury notes of 1914, and had put them into circulation, then at the end of the day nothing would have been different except that the country would not now be in debt to the same extent that it is.
It really is fantastic that a country waging war and fighting for its life should pay bankers to create the credit of the nation, because it is the credit of the nation and not that of a few bankers. The financing of the war was fantastically unfair and wrong—unfair to posterity and wrong in ethics. Unfortunately it cannot be entirely put right, the omelette cannot be completely unscrambled. That process resulted in all sorts of little people having their bit of War Loan.
The first item of my financial policy would be to examine the figures to see how much were the Treasury bills in the period, say, from 1938 to 1948. I do not say I would take those years, but they are the years for which Ican get the easiest figures from the Monthly Digest. Treasury Bills increased from £280 million to £744 million. Banking investments increased from £637 million to £1,479 million. Very well, I would give the banks £1,300 million of Treasury notes, because that is the growth during the war of Treasury bills plus bank investments, and I would say to the banks, "Here are £1,300 million Treasury notes to cover your deposits; but from now we just cancel out a sum equal to the increase of interest-bearing paper, Treasury bills and bank investments, during the war." That would not be robbing anybody. It would be restoring some of the position, most of which, unhappily, cannot be restored.
I would begin by allowing currency and bank-note legislation to provide another £1,306 million of bank-notes to be given to the banks, and cancel out the same sum of Treasury bills and bank holdings of Government investment. There is nothing unfair about that. Nobody's 1341 deposits would be in danger. They would be covered by legal tender, non-interest-bearing paper, instead of interest-bearing paper, and there is nothing wrong with that. It would be a sensible piece of Socialist financial policy.
The second item in my Socialist currency and bank-note policy would be more important to posterity than to the present generation. The Financial Secretary referred to inflation. Inflation is essentially inherent in the capitalist system. There is bound to be more inflation in the future than now. It follows automatically that when you have a country whose population is increasing and whose productivity and output increase from year to year, due to the operations of technology, inevitably you must have more money to finance that expanding technological economy. If you do not have more money, inevitably your economy will run into an unending series of depressions, because it stands to reason that you cannot finance increasing output with a fixed quantity of money, never mind whether the money be bank-notes, or deposits, or even coins.
If you are to finance an increasing and expanding economy with the same quantity of money obviously prices will be forced down, and any forcing down of prices will put an end to expanding output and bring depression. It is certain, therefore, that in the years ahead, not only in response to increasing calls by basic industries and services but also to cope with the situation arising from the application of atomic science to industry, inevitably there has to be a large increase in bank deposits, unless we are to have a perpetual depression.
Therefore, a sensible Socialist policy would alter this currency and bank notes legislation in such a way as to say to the commercial banks, "Whatever your deposits are in total, on the day when this Bill becomes law, that total shall be your ceiling. We will allow a small variation of 1 per cent. up or down for the necessary elasticity, but for any increase in deposits which you want to make, over and above that, you must go to the Treasury for publicly-created money. You must go to the Treasury for Government bank notes to cover the increase in deposits which you propose to make to your business customers or your nationalised boards."
1342 That would put an end to the process which has been going on for more than 100 years. Ever since the passing of the Bank Charter Act of 1844, science and invention have almost continuously been expanding the industrial output of the country, and the corresponding bank money necessary to carry it has been forthcoming from the banks. The banks and the people to whom they have lent have in that way become possessed of purchasing power which is no less adventitious than the purchasing power put into circulation by a forger or a coiner.
Every forger or coiner knows that it is a highly profitable business if you can create new purchasing power and put it into circulation for the first time. The banks have been doing this ever since the Peel Act of 1844. A sensible Socialist policy would be to stabilize bank deposits at what they are today, minus the £1,300 million to which I referred just now. It would stabilise bank deposits and it would empower the Bank of England to issue to the clearing banks notes to cover all the necessary additional deposits for their commercial borrowers pound for pound.
In that way we should socialise to a considerable extent the increase in the national wealth over the next few decades arising from the application of science to industry; an increase which is in no way due to private enterprise and will be less and less due to it as the years go on, because the effect of technology is to expand the size of industry and to put it beyond the reach of personal investment.
I wish to say in conclusion that this will have to be done because, if it is not, the capitalist system just will not work. The capitalist system will not work for reasons connected with the monetary circulation. The system is trying to do something which is impossible. It is trying to say that the consumer who pays the final price for the retail article shall pay, not only for the cost of making the retail article, not only for the depreciation of the machines used in making it, but also, through undistributed reserves, for the new machinery which has to be introduced to keep pace with technological changes. The system will not work at all unless currency and bank-notes—currency in the widest sense and 1343 all bank-notes—are socialised in the way I suggest. I hope that the Bill will be fought in this House and in Committee.
§ 4.51 p.m.
§ Mr. F. J. Erroll (Altrincham and Sale)
We have all enjoyed the sincere and at times amusing speech of the hon. Member for Nottingham, South (Mr. Norman Smith). In some of the more expansive of his arguments he was indulging in a good deal of shadow-boxing. He was setting up guys which he enjoyed knocking down but which existed only in the realm of his own imagination. I hope that he will forgive me if I do not follow him in the whole range and scope of his argument, especially that dealing with the field of Socialist monetary policy.
I completely disagree with his concluding remarks, as I think that his proposals would lead to a substantial measure of inflation. The capitalist system is not very wrong, for it is working well in this country today and it is indeed improving our financial standing throughout the world.
In studying the Bill, and in considering the interesting remarks of the Financial Secretary, I was somewhat concerned about Clause 2 (2), which says that the fiduciary note issue shall be £1,575 million. The Financial Secretary said that that sum had already been passed by not less than £50 million, and he attributed that largely to the increased note circulation which precedes the Christmas holiday. That may account for part of the increase, but it is fair to say that, disregarding the seasonal fluctuations, the note issue increases fairly steadily year by year at the rate of about £100 million per annum.
I should have thought that it was a mistake to fix the figure at £1,575 million. It is unlikely that we shall ever come back to that figure. We shall be embarking straight away on Statutory Instruments of one kind or another as enumerated in the various subsections. I was glad to hear that my hon. Friend was prepared to reconsider the figure. Perhaps a more satisfactory one can be introduced during the Committee stage.
I was also glad to hear from the Financial Secretary his extraordinarily lucid description of the changed concept of the importance of the amount of money in circulation. I need hardly say that I 1344 am in full agreement with his exposition, since payment by cheque has been so widely adopted in the last quarter of a century. One might almost say that the note issue merely supplements the method of payment by cheque and that were any attempt made to reduce the number of notes in circulation it would simply lead to the signing of more cheques to overcome the physical shortage of money. Whatever might have been said in the past for the theory that one could restrict inflationary tendencies by restricting the note issue, that can no longer apply.
We should consider most carefully those subsections which contain power to make orders, to see what might happen if an annulment of such an order were made in either House. I shall not attempt to discuss the somewhat spurious point of Privilege raised by the hon. and learned Member for Kettering (Mr. Mitchison), because I do not think that it would matter which House annulled an order. But the consequences might be serious. I understand that everything done under an order after it has been laid is legal even though the order may be annulled subsequently. The question of what is legal after the order has been annulled is another and most serious matter. It might well appear that the notes still circulating as a result of an annulled order would no longer be legal tender. Perhaps, to be absolutely right, we should make sure that we do not leave the way open for the House to make nonsense of £200 million or £300 million of note issue.
I used the words, "legal tender." That takes me back to Clause 1 (5) which deals with power to recall notes. It says that on the expiration of a notice notes shall cease to be legal tender. That is obviously a sensible provision, but I hope that it does not mean that notes can no longer be handed in after the expiry date. It is one matter for notes no longer to be legal tender, and therefore no longer to be used in trading or other transactions; but it is another if an executor to an estate discovers an envelope full of notes which might have been left in a desk for 20 years, and finds that they cannot be paid into the Bank of England merely because they are out of date. I hope that the Financial Secretary did not intend to make illegal such small hoards. I should like to have an assurance about that.
1345 I wish to follow the hon. Member for Nottingham, South concerning the bank-notes themselves. I would not care to go as far as he did in suggesting that the profile of the reigning monarch should appear on our notes, because there is sufficient indication of the national character on existing notes. There is a picture of Britannia surmounted by a crown. That emblem is one which is quite worthy of our notes and our national sympathies.
There is one detail about our notes which I was surprised the hon. Gentleman did not mention. It is a matter which has puzzled me for a number of years and it will continue to do so unless an explanation is accorded to me. I hold in my hand a £1 note with the signature of a certain Mr. Beale who is apparently Chief Cashier at the Bank of England. He promises:…to pay the Bearer on Demand the sum of One Pound.I wonder exactly what that means. I wantto know what would happen if I went to the Bank of England, asked to see Mr. Beale, handed him the note and asked him to give me £1. What would he do? Presumably he would give me another note—and so on we should go, backwards and forwards, until closing time, and then we might go on after that.
It has surely become something of a fiction to promise to pay the bearer on demand the sum of £1 when the note which I hold is itself the sum of £1. In any revision, I think that consideration might be given to this formula which, although interesting from an historical point of view, is now somewhat archaic. It may be that Mr. Beale could explain to me, if I went to see him, exactly what it does mean.
It is important to have economy in this field of bank-note production as in every other field of Government expenditure, and not to print a fresh issue of notes unnecessarily. On the other hand, the quality and cleanliness of our notes is a most important aspect of our national affairs, and can play quite a substantial part in maintaining the morale of our country. Those who go abroad invariably comment on the dirty and sometimes disgusting state of the notes in other countries, and I hope we shall not only maintain but improve the standard of 1346 cleanliness of our own notes by more frequent issues of fresh notes.
I have referred to a clean note which I have in my hand, but I have another which has suffered severely and ought to be called in. It is one that the bank had to give me today, because it was the best that it had got. Although this note is probably all right for Mr. Beale, I think we ought as far as possible to have as many fresh and clean notes available not only from the banks but also from the post offices.
I am told that in the counting of bank-notes it does not matter a great deal whether they are clean and fresh or whether they are used and dirty, but I suggest that it is quite an important factor to our own population and in the minds of visitors who come to these shores.
There has been an interesting correspondence in "The Times" recently regarding the advisability of issuing notes of other denominations, such as £2, £3 or even £2 10s. notes, and I hope the Parliamentary Secretary will not be led too quickly into providing alternative additional denominations. Again, familiarity is a most important aspect in this whole matter. Confidence in our currency is engendered at all levels by a complete and utter familiarity with the notes that are in issue, and the 10s. and £1 notes are, in my opinion, the right denominations for general use. I have just one criticism to make of the £5 notes.
§ Mr. Erroll
I agree. On the rare occasion when I earn and receive a £5 note I always think it would be better if it were of a smaller size and more in keeping with the other notes. It could then be stuffed more conveniently into one's case, and used more readily and more easily. If there were a bigger issue of £5 notes of a more convenient size, they would be more readily used.
I notice that the Bill, although we might imagine, judging by our debate so far that it deals with paper money, does, of course, refer to coins and bullion. In this connection I should have thought it worth while including a Clause in the classic form starting, "For the avoidance of doubt.…" I suggest that for the avoidance of doubt it would be 1347 advisable to insert a Clause to the effect that sovereigns are still legal tender, because I see from reports in the papers recently that we lost quite an important court case in Italy or Trieste over sovereigns which are being made in some country in Europe to the advantage of the coiner.
The court where the case was tried held that as sovereigns were no longer legal tender in the United Kingdom it could not matter if exact reproductions of sovereigns were made in other countries for whatever purpose the manufacturers had in mind. If for the avoidance of doubt such a Clause as I suggest had been in existence, it would have strengthened our case in that court and preserved the integrity of our currency both at home and overseas.
I have mentioned coins, and I do not want to delay the House more than a moment or two, but I should like to use the opportunity to put in a plea for better, simpler and more pleasing coins in this country. Our copper coins for the most part are dirty, cumbersome, and heavy, and I feel that the time has come when we might have the penny in a smaller and more convenient form and more in line with the coinage of other countries where, for the same purchasing power, their coins are smaller and undoubtedly better produced.
There is some case, too, for the improvement of our silver coinage, which is almost invariably dirty because of the composition of nickel and copper with which it is made. If we could only get a really good, modern nickel coinage, especially as pure silver is out of the question, I think then we would have coinage which would be a fitting parallel to the excellent notes that we have. I always feel it is a shame that our coins should lag so far behind our notes in appearance and in serviceability.
These are the few remarks I wanted to make on this Bill. I do not share the doubts and apprehensions of the hon. Member for Nottingham, South as to the hidden things which are in this Bill, and which were not referred to by the Financial Secretary. I regard this Bill simply as what it is, namely, a straightforward Bill to regularise the issue of currency and bank-notes.
§ 5.6 p.m.
§ Mr. J. Grimond (Orkney and Shetland)
I, too, came here this afternoon hoping that the Financial Secretary would tell us what a £ was, but he was silent on that. I can, however, help the hon. Member for Altrincham and Sale (Mr. Erroll) to some extent, because I went so far as to call at the Bank of England not long ago. I said that I wanted to change a note. There was some discussion amongst the various officials, and then I was told the Bank was shut. It may be that that was the normal closing time, but I am afraid that if the hon. Member were to visit Mr. Beale for the purpose of changing a note, he might be told that Mr. Beale was out. I think it is a curious provision in Clause 1 (4), and I hope we shall have some answer to the question which has been put about the 10s. note—what do you get for it?
We all enjoyed the speech of the hon. Member for Nottingham, South (Mr. Norman Smith). There is a good deal of amusement now about "the gloomy science." Some of our funniest men are economists. He mentioned that he would like a Socialist Bank Note Bill, and he also spoke about the design of notes. I hope the hon. Member, when he comes to design notes, will have some, not with the Queen's head on them, but with the head of the right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton) as a dreadful reminder of Socialist finance.
§ Mr. Grimond
I am afraid that I cannot agree with the hon. Member that inflation is a vice confined to one sort of Government. It attacks all Governments, and, I understand, is particularly prevalent behind the Iron Curtain. I do not think it is entirely fair to blame the capitalist system for the evil.
Turning to the second Clause of the Bill, I hope we shall have some explanation as to why the fiduciary note issue should be £1,575 million. I hope also that something may be said about the policy of the Bank of England and of the Exchange Equalisation Account in holding gold. There is a small amount of gold held in the Bank totalling some £400,000 or £500,000. Why is that there? Is it intended to allow it to 1349 increase, or is it there merely as a reminder of bygone days?
I do not take such a gloomy view of the character of the Financial Secretary as does the hon. Member for Nottingham, South. I do not think that his bland face so entirely belies his character. There may be hidden motives in the Bill, but I believe he is right in saying that today the important thing to watch is the trend in bank deposits, and that the increase or decrease in the fiduciary issue is rather a symptom of something that has happened than itself a significant economic fact. Nevertheless, it is important that any change inthe issue which reflects a change in the volume of credit, ending with either inflation or deflation taking place, should be brought into the public light at once, and should, if possible, be brought before this House. It may be locking the stable door after the horse has bolted, but we are at least entitled to know that the stable door is open and to hear it flapping.
In Clause 2 of the Bill, the provisions for doing that are not very adequate. There is no reason under this Bill why we should debate the matter as a matter of course. It is quite true that a Treasury Minute must be laid, and it is also true that, if an Order is made, it can be prayed against, but, in a matter of such great importance—because I think that what is happening to our credit and currency system is of great importance—it should be obligatory that the matter should come before the House and be discussed as soon as practicable. It is important because inflation is the classic and the chronic vice of all Governments. They are always taking another swig at the bottle.
In bygone days, we used to tie our currency and credit systems to some commodity like gold, hoping that we might have been able to keep the Government out of the wine cupboard, but that proved unsatisfactory. There have been proposals that we might have a system based on some other commodity or group of commodities, but, on the whole, I do not think that is a practicable possibility at the moment. Therefore, in fact, the Government take responsibility for our credit policy, but, nevertheless, we go on operating this policy with a very makeshift machine. Some part of the machinery dates from the days of the gold standard, some of it was 1350 brought in to meet war-time conditions and some in a conscious effort to manage the currency. We maintain to some extent the view that the central bank should be independent of the Government; that was the view put forward by the Macmillan Commission. Nevertheless, the Bank of England has been nationalised, and it depends very largely on directions given by the Chancellor.
I notice that in Clause 2 (3) the Treasury can only move after representations by the Bank of England, and that, apparently, is again a relic of bygone days, when the Bank of England was a genuinely independant institution. Nominally, the Treasury must receive a request from the Bank of England before it can move to alter the fiduciary issue.
On the question of deposits, which it is generally agreed is much more important, it seems to me that no machinery is set up for telling the House what is happening or enabling it to express any opinion, and I should have thought that today, when we are all committed to some form of management of the currency, that is a grave gap. After all, if we are going to try to run a mixed economy, and that is certainly what is happening for the time being, one of the most essential things in that economy is to try to hold the balance between too deflationary a policy, with the danger of unemployment, and too inflationary a policy, which would ultimately destroy confidence and gravely weaken all the advantages of the Welfare State. I do not think that we have considered how that can be done with anything like enough care.
I wonder very much whether the time has not arrived for a new Macmillan Committee to look into the matter, and particularly into the relation between the banks, the nationalised industries, free enterprise industry and the Government, and to review again the whole situation, as it has been altered by world conditions. I think it is a good moment to do that, because it looks to me as though we are—I may be unwise and rash in saying this—entering upon a period in which, as far as financial policy is concerned, we are settling down into some form of compromise, which may last for some time. A great many industries have been nationalised, and I do not think it is the intention of the Government to de- 1351 nationalise any more. Nor do I think it is the intention of the Labour Party to go forward with a very big programme of nationalisation in the near future. No doubt, we shall gradually and slowly inflate, but I do not think that, if the Government exercise reasonable restraint, we shall be faced with any galloping inflation in the near future.
I would ask the Financial Secretary, therefore, to consider whether it is not time for the appointment of another Committee on the lines of the Macmillan Committee, because I feel that, unless we can hold inflation, unless we can supply industry with the right amount of credit, and unless we can guarantee to the people of this country that the £ will continue to be the most stable currency in the world, which it always has been, we are going to face very grave economic and political poblems.
It is one of the great problems of democracy to try to reconcile the great pressure always being made by different sections always to increase their own share of the cake, and the easiest way to do that and to please everybody is to inflate. We must look at all methods by which that can be avoided, and, in addition to our situation at home, we have to remember the immense importance to this country of the standing of its currency abroad. I hope the suggestion may be considered.
§ 5.17 p.m.
§ Mr. Cyril Bence (Dunbartonshire, East)
In entering this debate, I want to give an assurance, which I can give more emphatically now than before, about my own position. I have no knowledge at all, or very little, of finance, and I have less now than when I started. Many years before the war, in South Wales, I attended classes on economics and finance, and, at the end of those six years, I recalled the statement of Omar Khayyam about always coming out by the same door. Honestly, after listening to orthodox economists and lecturers on finance, I seemed to come out through hundreds of doors, and, at the end of that course lasting six years and covering economics and finance, these people seemed to me to know less than I did—and I knew nothing—because they could never agree with each other.
1352 When I saw this Bill dealing with the fiduciary issue, I remembered that a lecturer told me many years ago that the word fiduciary comes from the Latin fiducia, which means faith, and, when I read this Bill, I wondered if we were being assured of the faith of the financiers in the people of this country or of the faith of the people of this country in the financiers. As far as I am concerned, if the fiduciary issue was based upon the faith of the people in the financiers, they had better withdraw, because if there is one section of the community in which the people of the country have no faith at all it is that very fraternity.
§ Mr. Bence
I am afraid that historically that is not quite true. In the early part of the 19th Century and in the 18th Century financiers were very suspect indeed. I remember as a boy reading Benjamin Disraeli's "Endymion," in which Disraeli says that anyone living in that period would have shuddered to think what frightful people these financiers were. In the Cromwellian period financiers in the City of London were lending to Charles and to Oliver. I am afraid that financiers have played very complicated parts in international affairs. I believe it is true that, after the French Revolution, French banks shipped from France gold that Napoleon had taken from the Italians and sent it from Paris to London. The London financiers immediately sent it to Blücher to be used against Napoleon, the very chap who had got the money from the Italians. It is not true that financiers have always been highly respected.
I do not think it is true to say, as the hon. Member for Orkney and Shetland (Mr. Grimond) said, that Governments have always indulged in inflation. I think it true that bankers, long before the amalgamations took place, indulged in note printing and in that way debasing the currency of the country. It was due to that inflationary work by the independent, profit-seeking, bankers who ruined millions of pepole in this country and all over the world that Governments had to step in and take some control of 1353 the printing of notes and of credit creation. That is why Governments are increasingly taking an active part in the control of the currency, not only of this country but of other countries.
The hon. Member for Altrincham and Sale (Mr. Erroll) talked about the pound-note and the words "I promise to pay." I have no doubt he knows very well that it dates from the days when the note was just a receipt for gold which had been deposited. He may have got a note in payment for some gold deposited, but if he did not deposit any gold he could not expect to have any gold in exchange for the note. We have all accepted notes and I cannot expect anything back if I have not put a commodity in. I have never supposed that I am entitled to gold or any money in exchange for the pound-note, because it is money itself.
I cannot agree with my hon. Friend the Member for Nottingham, South (Mr. Norman Smith) about the design of the pound note. It is just beyond my comprehension why Paterson, a Scotsman, came here and founded the Bank of England, which showed itself to be an excellent institution, and that after all these years we get such frightful notes from the Bank of England while we can get such beautiful notes from the banks of Scotland. It is really time the House of Commons and the Bank of England had a good look at Scottish notes and tried to emulate their design. I do not know whether John McCormack would like his head put on them, but they are better notes and the paper is of better texture than that of Bank of England notes.
§ Mr. Grimond
Perhaps, as the Scottish notes are so much better than the English, they might give us 30s. for them.
§ Mr. Bence
I think the value of the note might go up especially if we had it down here instead of only in use in Scotland.
I am concerned about subsection (8) of Clause 2 of the Bill, which says:The power to make an order under the last preceding subsection shall be exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.The regulating of the note issue of the Bank of England is a very important matter. I am not prepared to accept the 1354 dictum of the Financial Secretary that the fiduciary issue, or note issue, is of very small importance in the credit structure of this country. I still think it very important. Obviously, the quantity of notes must have a bearing on the credit structure because the notes are the instrument by which people can cash cheques within the credit structure. I can quite see a situation in which this House, or the Treasury, might decide to allow an Order affecting the fiduciary issue one way or the other which might have very important repercussions on the economy of the country. Then the House of Lords, under this Clause, it appears, has powers to annul that Order. I always thought we were determined to prevent the House of Lords, as an institution, having power over monetary matters emanating from this House. But it seems that by that subsection the House of Lords will be given power over a very important element in our economy.
I do not say it is the most important element, because I think the most important elements are engineering, coal mining, transport and agriculture, not financing. The monetary system should be a barometer of what is done in industry. Unfortunately, during my lifetime it has been the other way about. Between wars we never had enough money. When circumstances changed we were waiting for labour and raw materials. It has always been the cart wagging the horse.
I ask the Financial Secretary to give an assurance on what the Clause means. I have not been in the House very long and do not quite follow a lot of these things, but, in the hope of learning something, I should like him to explain. Does it mean that the House of Lords could annul an Order to which this House had agreed?
§ 5.28 p.m.
§ Sir Edward Boyle (Birmingham, Handsworth)
The hon. Member for Dunbartonshire, East (Mr. Bence), in what I thought was a very agreeable speech, had some slightly unkind remarks to make about financiers. I certainly would not want to defend everything done by financiers in this country in the last 200 years, but I would put this point to him. I think financiers have played a larger part in our industrial growth than that for which they have been given credit. To give one example, which has 1355 nothing to do with the Bill, but which I hope I shall be allowed to mention, I would instance the rapid industrial progress made in this country after 1760, during the first period of the Industrial Revolution, which, there is no doubt, benefited this country very much in the long run. It would have been impossible but for the wisdom of financiers of that time who realised that the rate of interest had been too high. One can find examples in history where financiers have not been given full credit for the work they did in enabling industrial progress to go on at a greater pace.
I return to the hon. Member for Nottingham, South (Mr. Norman Smith), who quoted poetry to describe my hon. Friend. Whenever I hear the hon. Member on this subject in one of his fluent speeches, I am reminded of the lines of Tennyson's poem, "The Brook":For men may come and men may go But I go on for ever.I wish I could express myself as fluently and easily on financial topics as does the hon. Member. I was interested to hear him say that what he wanted to see was a Socialist currency policy. I would point out to him that we have had a mixed economy in this country for a very long time, and that we are likely to have one for a great deal longer. In fact, I do not think that in my lifetime we shall see any change in that regard, and our financial policy should take that into account.
I thought that the hon. Gentleman laid slightly too much stress on the inflationary effect of a rise in bank deposits. I know this is a controversial matter, but I must say that his remarks reminded me of the Chairman of Lloyds Bank's Annual Statements, or the speeches he makes in another place. I think one can over stress the inflationary effect of a rise in bank deposits when one remembers that the ratio between liquid assets and deposits is by no means a constant one.
I think it possible for bank deposits to rise considerably without the inflationary pressure rising by any considerable amount. I think that happened in this country last year. Bank deposits grew considerably, but it cannot be said, if we look at the level of industrial savings last year, that inflation was 1356 mounting during that period. On the contrary, for the first time since the war we got out of a tendency to inflation.
This is an interesting Bill for the very reason that it strikes most of us as so apparently unimportant. Years ago people would have said that the size of the fiduciary issue was of the first importance. For example, to take quite a recent case, in his autobiography Lord Pethick-Lawrence described the Bill of 1928 and said that the provision that the fiduciary issue should be strictly limited to a definite amount above the gold cover was very deflationary, and undoubtedly accentuated the 1929–32 depression in this country.
I do not think that many of us today would go as far as that. Most of us, I think, would agree—as my hon. Friend said when introducing this Bill—that the size of the fiduciary issue is not really a tremendously important factor from the point of view of inflation or deflation. What I think is true—and I very much agree with what was said by the hon. Member for Orkney and Shetland (Mr. Grimond) on this point—is that whereas inflation cannot be caused by a slight increase in the fiduciary issue, none the less the size of the increase is one possible test of whether or not we are getting into an inflationary situation. It is not an infallible test, because there may be some seasonal or temporary reason why it is desirable that the fiduciary issue should be increased.
If one finds that it has increased, then, obviously, one asks whether that is a sign that our economy is getting into a more inflationary state. I think that important for this reason. Ever since the war we have had a tendency to repressed inflation in this country. As I see it, the likelihood in the years to come is that that tendency—for demand to get just ahead of supply and towards repressed inflation—is likely to be a persistent one.
I am not very frightened of a runaway inflation. It is true that we nearly had one in 1951, but one of the reasons why I am not frightened of it is because I think it will always be associated with a violent shift in terms of trade against us, and that, after all, is a danger signal which our island economy cannot ignore. We must always take steps to meet it whether we want to or not.
1357 Neither am I afraid of a runaway deflation, because there are quite sufficient political pressures to prevent that.
§ Mr. Roy Jenkins (Birmingham, Stetchford)
As this debate is now becoming very academic, does the hon. Gentleman regard the shift of the balance of trade against us as inflationary or deflationary?
§ Sir E. Boyle
As soon as there is a shift in the balance of trade against us, then, of course, we get rising prices and rising wages. I think that the Minister of Works once said that our 1949 devaluation put a time limit on the wage freeze. A large increase in import costs must in a short time have the effect of putting up wages.
As I see it, the choice before the country in the years ahead will be either of keeping the economy on an even keel or of allowing a tendency for repressed inflation to return, and that is why I agree with the hon. Memberfor Orkney and Shetland that the size of the fiduciary issue is something which we should never forget or neglect.
There is only one other point to which I wish to refer, and that is the question of Clause 2 (8), to which reference has already been made. I thought that my hon. Friend the Member for Altrincham and Sale (Mr. Erroll) was on a good point when he asked what would happen legally if by any chance an order proposing a fiduciary issue was annulled. That is not such a purely hypothetical question, because one can never be sure upon what strategy the hon. Member for Dudley (Mr. Wigg) might suddenly embark.
§ Sir E. Boyle
It would be slightly awkward if for some unexpected reason we were to find that there was a threat of the whole note issue, beyond a certain point, not being legal tender after all. That is something which deserves consideration.
I am not terribly impressed by the point about the other place, for this reason. The hon. Member for Dunbartonshire, East said quite fairly that, after all, it is the physical aspect of our national economy which matters most. Nobody, so far as I know, objected on a point of 1358 privilege when the other place tried to limit the operation of the Capital Issues Committee to five years. I am thinking of the occasion when the Borrowing (Controls and Guarantees) Bill was amended in another place so that it could only operate for five years instead of in perpetuity. I cannot think that this subsection is really more important than the question whether we should have a Capital Issues Committee for more than five years. I feel that the hon. Gentleman's point about the greater relative importance of the physical side of our economic life is in effect an answer to this point.
In conclusion, I think that our grandparents would have been surprised had they seen such a thin House of Commons discussing and deciding this subject. It is a sign of how our thinking about economic points has changed inthe last 20 or 30 years. I am sure that that change has been for the better, and it is right that we are ready to attribute less importance to this subject. But do not let us lose interest altogether in the soundness of our currency, because the size of the fiduciary issue may possibly be an important symptom of our economic health. After all, we are an island economy dependent on foreign trade, and we must attach importance, not only to the soundness of our economy of our currency, but also to what our competitors abroad and those with whom we trade think about the position and prospects of the £ sterling.
§ 5.39 p.m.
§ Mr. Frederick Mulley (Sheffield, Park)
We have had an agreeable and thoughtful speech from the hon. Member for Handsworth (Sir E. Boyle). While it is tempting to point out the errors into which people fall when they talk about inflation in general, it is perhaps better that I should join issue with the hon. Gentleman on the more serious point he raised about the position of the House of Lords in regard to this Bill.
I think it wrong to draw the analogy that because the House of Lords was allowed to amend a certain Bill, it is on all fours with the position here. The House of Lords can only substantially amend a Bill if we agree with their Amendment. As I understand the Bill as drafted, it would be in order for the House of Lords to annul the authority 1359 given for an increase in the fiduciary issue.
While I am quite prepared to say that currency and bank-note issues today are of very secondary importance, quite clearly a most serious constitutional issue would arise if the House of Lords stopped the legal authority for such a fiduciary issue. For instance, at Christmas, when there is a very great extra demand for notes, people would be told at the banks: "We cannot honour your cheque because the Government have not authorised the issue of a sufficient number of notes." It would be the old cry about the failure of the bank. For an unrepresentative House to have such a power, whether they used it or not, of interfering with the Government of the day, which is responsible to the House and to the electorate, would be a step back towards 1832 which this House should not let pass without demanding a substantial explanation from the Government.
Regarding the main subject matter of the Bill, a great deal has been made out of very little. My first opinion on reading the Bill was that it would not be in order to have a debate on the general economic policy of the Government arising from this Bill, although that is, apparently, what has ensued. I do not wish to go very far in that direction, but I should say that, today, it is really the budgetary policy of the Government which decides whether or not there shall be inflation. It is not the actual size of the note issue.
It has been too little realised by some of the right hon. and hon. Gentlemen on both sides of the House that there are other non-economic factors which influence the note issue after a given time. The Financial Secretary mentioned the customary seasonal demand at Christmas, and, again, during the war there was an abnormally large issue because families, which normally were together, were divided, with the husband in the Forces perhaps, and the family elsewhere. Therefore, instead of there being a small family reserve held for two or three people, each had to have a separate account. Then, at holiday times, when people are going away from the banks, a greater number 1360 of notes are needed in circulation because they are held by individuals against contingencies. I do not think it is true today to say that the size of the fiduciary issue is really of any importance in determining the Government's economic policy.
We have had some surprising speeches which, from my point of view, certainly do not represent the majority opinion of hon. Members on these benches. They suggested that some kind of Socialist banking policy might emerge, of a character which I am afraid I cannot really determine without a very careful study of tomorrow's copy of the Official Report. It is news to me that this represents a Socialist point of view. The only distinctive point which I could discern from the contributions was that we might have a different design on the notes, which I do not think is necessarily Socialist in outlook.
§ Mr. Mulley
I think my right hon. Friend will agree that the design was not meant in that direction.
There has been talk of gold and of what happened when a note was presented at the Bank of England, but it must be remembered that it would have been quite impossible to have had the commercial expansion of the 19th Century unless there had been a corresponding increase in the use of cheques in the banking system. We were then, of course, on the gold standard and there was a very rigid fiduciary issue and a very substantial gold reserve in the Issue Department of the Bank.
I think I am right in saying that the Issue Department's holding of gold, bullion and coin today is £2.9 million. In 1939, just before the war, £263 million were taken by the Treasury from the Issue Department, so to suggest that there should be something like the old days, When the in and out flow of gold determined the issue, is impracticable as well as being bad economics. I do not think any one who has recollections of what happened between the wars, and knowing we are no longer the main creditor country, would venture to suggest we should again have a gold standard in this country.
1361 This Bill is very modest and reasonable. Indeed, it has been suggested that the figure of £1,575 million is probably too low. There may be some substance in that argument. Among the reasons why there is an increased demand for notes is that people are nowa little better off and may have more money actually in their pockets. The demand for more notes is often a sign of a better level of prosperity among poorer people. With the trend of events under the present Government I am not sure that there is any reason to suppose that that level of prosperity will continue. Consequently the demand for notes may well decline, and perhaps that is why the Government have come forward with a Bill providing for substantally below the present issue of notes.
If the average working man has some money left on Thursday night, the day before his pay, a larger note circulation is needed than if he is substantially spent up by Monday. As the present economic situation develops he is gradually moving back from Thursday, as it was when we were in office, to Tuesday, and before the Financial Secretary leaves office the working man will be completely "broke" before the weekend. That is an argument counter to those put forward by the hon. Member for Altrincham and Sale (Mr. Erroll), and perhaps explains why the Government have put such a low figure in the Bill. It may be that they foresee this development.
What have the Government in mind in connection with Clause 1 (4)? They appear to have used a new form of words to explain what will happen when a person goes to the Bank of England and demands payment for a note. As my hon. Friend the Member for Nottingham, South (Mr. Norman Smith) said "If you take back a £ note it is easy, you get two ten-shilling notes; but if you present them with a ten-shilling note they will not know what to do." It is purely faith in the stability of the currency that enables the notes to circulate, and it was only a similar kind of faith, no more rational, in gold, that permitted gold coins to circulate. The value of gold was derived almost entirely from its use as money; its secondary uses—gold teeth, for example—would not have been sufficient to have maintained its price, so there is no difference in principle between putting one's faith in a piece of paper or in a gold coin.
1362 I think it may well be time for the rather silly "I promise to pay the Bearer on Demand One Pound" to be removed from the notes. I do not think it would make any difference at all except to the printers. The notes have the legal backing of an Act of Parliament which should be sufficient and this rather stupid promise might very well be taken from the note. I notice that we are having this debate early in the month—perhaps that is why the debate was so arranged. Had it been held a few days earlier there might not have been so many pound notes displayed. There is the question of Bank of England notes being legal tender. As I understand from Section 1 (6), £5 notes and those of higher denominations will become legal tender in England and Wales, but not in Scotland and Northern Ireland, whereas at the present time only £1 and 10s. notes constitute legal tender. I wonder if that is the intention of the Government, and if the Financial Secretary will give the reasons for this decision.
It may be very unwise to allow notes of large denominations to be compulsory legal tender, because even with a £5 note there is considerable suspicion in people's minds. I have not often been the proud owner of a £5 note, but on the few occasions I have had one, although I have not exactly found it difficult to change, I have certainly been looked at rather suspiciously by the person concerned before he accepted the note. I wonder if there is a special reason for making all Bank of England notes legal tender, whether it could be confined to the £5 note, or whether there is even a case for those.
We have had some discussion about dirty and defaced notes. Perhaps the Financial Secretary will tell us—as this Bill is a kind of consolidation Measure—why Section 12 of the 1928 Act, which imposes a penalty for defacing bank notes, has not been brought up to date. The penalty prescribed by that Act is a maximum fine of £1. In view of the expressions we have heard on the desirability of keeping bank-notes clean, it might be desirable for that £1 of 1928 to be brought up to its corresponding purchasing power today. The Financial Secretary may be able to tell us why this provision of the law was overlooked.
1363 My next point is one of principle rather than detail. The Financial Secretary drew attention to the fact that in Clause 1 (1):The Bank of England may issue bank-notes of such denominations as the Treasury may approve.…That is a change of the position. While the Financial Secretary was speaking, I thought again of the point of view that Mr. Harrod—the very distinguished Oxford economist—expressed at the time when the Bank of England was nationalised. He was against it being nationalised, not from the usual doctrinaire point of view—because at that time he happened to be a member of the Liberal Party—but because he was afraid that if it were nationalised, instead of the Treasury running the Bank of England, the Bank of England would run the Treasury.
The Financial Secretary is no doubt familiar with the literature about the nationalisation of the Bank of England, because he played same part in the debates in this House on all these topics, but there is some substance in Mr. Harrod's argument. I am not sure that the other considerations do not outweigh that objection, but there is probably some substance in the view that a financial expert of the Bank of England might easily come to the Treasury on all this kind of matter and have an influence which he would not exert if the Bank of England were an entirely separate institution.
We should be told by the Financial Secretary whether this change of position—with regard to the Treasury having to approve the Bank of England demands in the matter of the issue of notes and denominations—is introduced by this Bill in order to defend the Treasury against the unfair influence of the Bank of England. It would be interesting to have his assurance that Mr. Harrod's fears, six years after the event, have proved unfounded, and that the Treasury runs not only the internal financial arrangements of the country but also has control over the Bank of England, and in that way determines financial policy. We shall look forward to the Financial Secretary's reply and, generally speaking, I think he will find that in this matter of clearing up and consolidating the law he has the 1364 support of the majority of Members on this side of the House.
§ 5.55 p.m.
§ Mr. Raymond Gower (Barry)
I am sure that we are encouraged by the speech of the hon. Member for Sheffield, Park (Mr. Mulley) because, prior to his speech, we had heard some rather remarkable contributions from his side of the House. It is pleasant to realise that all hon. Members opposite are not captivated by the idea of some strange and new currency to supplement some of their ideas of a different economic system.
Many of us sympathise with the hon. Member for Dunbartonshire, East (Mr. Bence) who described how, in former years, he found it impossible to understand the classical economists because they all tended to differ. Hon. Members on this side of the House have found it just as difficult to follow the Socialist economists in different parts of the world because, just as surely, they also tend to differ.
The real opposition to this Bill—and it was an opposition which was expressed quite forcibly—came from the hon. Member for Nottingham, South (Mr. Norman Smith). He asked the House to reject the Bill because he saw in it a sinister conspiracy to give wealth to the money market. I think that that was his somewhat vivid and highly-coloured description. To him the money market was obviously something extremely involved and strange, something about which had built up a fantastic impression. He reminded us that in earlier years he had had some association with the House as a Lobby correspondent and earlier with Fleet Street. I can well imagine how, in his early days in Fleet Street, seeing the City of London in close proximity, he may have obtained a false impression. Possibly he saw a large car leaving the City and thereby derived the impression of great wealth. It would be just as unjust of me to form such an impression of a great nationalised industryby seeing a large car leaving one of its establishments.
§ Mr. Mulley
If the hon. Member has any curiosity about the nationalised industries and the salaries paid to their officials, I would remind him that they are public knowledge. That is not the case with the City.
§ Mr. Gower
I shall not develop that point. The hon. Member for Nottingham, South had a most peculiar impression not only of what he described as the money market but of the joint stock banks. I am one of the few Members of this House whoat an early stage in my life was, for a time, a very humble and obscure member of the staff of one of those banks. I admit that this does not entitle me to speak with authority on matters of banking; but I can say, from my own experience, that I am convinced that those joint stock banks have played a most valuable part and function in the growth of our industry and trade; and they have done much in the past by taking really tremendous risks. I am sure that many of those small people who built up small trades and businesses, particularly in the last century, did so with the help of the small branch banks of Barclay's and the Midland Bank, and so on, with one of which I had some association.
The hon. Member for Nottingham, South was not dealing with that category of banking, however, but with the category which he describes as the money market. Many of us are satisfied that there is no such conspiracy in this Bill. As the Financial Secretary told us, it is merely a straightforward Measure. The hon. Member forSheffield, Park agreed with that view. It is not designed in any peculiar way to add great wealth to any section of the community. Indeed, the powers given by it are limited.
In view of all that has been said, however, I should like the Financial Secretary to say whether he is really satisfied about the amount permitted under the fiduciary issue. Even in describing the fiduciary issue, the hon. Members for Nottingham, South and Dunbartonshire, East were of opinion that that itself was proof of some capitalist conspiracy, as, I think, it was described by one of them. I think the hon. Member for Dunbartonshire, East put his finger on the real meaning of the term when he described how he took a course in economics and found out that the word "fiduciary" had the root meaning of "faith." Indeed, our banking system has been built up on faith.
§ Mr. Hale
I am obliged to the hon. Gentleman. Throughout his speech I have had one doubt. He began by saying he did not understand Socialist economics at all. When he said that he used the pronoun "we." He said. "We on this side of the House are unable to understand." There were only two hon. Members of the party opposite in the House, and the hon. Member himself and the Financial Secretary to the Treasury. In the first place, it seems to me that, as far as the hon. Gentleman is himself concerned, if he does not understand it he should not talk about it. In the second place, if the Financial Secretary does not understand, I think we ought to move the Adjournment of the House until we can have someone in the Government present who does.
§ Mr. Gower
I was glad I gave way to the hon. Gentleman, because we all enjoy his interventions of that kind.
I would ask my hon. Friend the Financial Secretary whether he is satisfied about the amount mentioned in Clause 2 (2). The hon. Member for Sheffield, Park pointed out that the increase in the requirements at this time of the year might necessitate a very early use of the powers which are contained in the following subsections. Following on that, I should like to say something about the criticism of subsection (8) of that Clause. I am sure my hon. Friend will deal with this point, but I think I am correct in saying that the constitutional limitations on the powers of another place are extremely limited. They are connected, surely, strictly and clearly with taxation and the raising of taxation, and I think it would be a constitutional innovation to say that they are so curtailed as to render it impossible for another place to take any part in any Measure or any aspect of a Measure that could be described as pecuniary in a general sense. Surely the constitutional limitations are exactly limited to questions of taxation.
In Clause 3 there is a certain number of remarks about bank notes. I agree with my hon. Friend the Member for Altrincham and Sale (Mr. Erroll) that the present note does seem to be outmoded. I agree that the definition in Clause 3 refers to a note in the present form, and 1367 if there is any possibility of the notes being amended, then the description in Clause 3 will of necessity need to be amended.
§ Mr. Emrys Hughes (South Ayrshire)
The hon. Gentleman touched upon the speech of my hon. Friend the Member for Dunbartonshire, East (Mr. Bence) and he has also referred to bank-notes. I should like to know whether he is in favour of having Welsh bank-notes printed in Welsh.
§ Mr. Gower
That would be an interesting subject for a separate debate, and if the hon. Gentleman attends one of our debates on Welsh matters in particular, he may have an opportunity to intervene. I would ask the Financial Secretary whether he does not think that instead of the wordsBank of England Promise to pay the Bearer on Demand the sum of One Poundit would be better to have a simple declaration that it is legal tender for £1. The thing is becoming perfectly ridiculous.
§ Mr. W. R. Williams (Droylsden)
On a point of order. Is it not usual to lay on the Table any document from which one quotes?
§ Mr. Gower
I am sure you will agree, Mr. Deputy-Speaker, that it would be a very expensive proceeding for us to pursue. After all, I am using an exhibit which could be in the possession of hon. Members, and should be. As my hon. Friend the Member for Altrincham and Sale pointed out, it is becoming absurd. I go into the Bank of England to see Mr. Beale.
§ Mr. Gower
Presumably I should need to ask leave to see Mr. Beale, and, as has been pointed out, that would be quite difficult.
1368 Can my hon. Friend say what is the intention in regard to those documents which have ceased to appear and which are known as "tenners"? I know that we on this side of the House are popularly described as having our pockets dripping with "fivers" and dripping with "tenners"; but there was a £10 note, and that, for no reason I can recall, suddenly disappeared. Is it intended that the "tenner,"the £10 note, shall reappear in the future? If so, this definition in the Clause will presumably be altered to cover it.
With regard to coin, which is the third item we find in the Clause, there have been attempts to popularise the idea of a metric system of coinage in this country. I suggest a simple expedient in that connection would be to have 10 pennies to the shilling. We should then have a simple measure as the basis for a metric coinage, 10d. to the shilling and 20s. to the £.
With those few remarks I would say that we should give this Bill a Second Reading. I appreciate that many of these points—
§ Notice taken that 40 Members were not present;
§ House counted, and, 40 Members being present—
§ Mr. William Shepherd (Cheadle)
On a point of order. Is it in order for an hon. Gentleman to call a count and then deliberately to walk out, with several other hon. Members?
§ 6.8 p.m.
§ Mr. James MacColl (Widnes)
I want to depart from this rather complicated discussion we have been having on the theory of money and come down to the more practical question of money, and develop a point that was raised by the hon. Gentleman the Member for Altrincham and Sale (Mr. Erroll) on the quality of the £1 and 10s. notes that are in circulation.
If we are to make permanent by this Bill the Bank of England issue. I think 1369 we ought to get some undertaking or some grounds for believing that we are not going to have as dirty notes as are at present to be found in circulation. I am not in the position that the hon. Gentleman was to take out a note and brandish it before the House. I should not like to do that in the presence of the Financial Secretary; but, as it so happens, I am in the position of many hon. Members of not having a sufficient supply of those articles to be able to produce one.
It is not at all difficult to find in circulation some absolutely deplorable pieces of paper. I thought my hon. Friend the Member for Nottingham, South (Mr. Norman Smith), when he talked so movingly on the subject of the design of £1 notes, was pitying the plumage and forgetting the dying bird, because the important thing is not, it seems to me, what design there is on the note when it is produced but in what condition it is while in circulation and while people are being expected to use it.
It is a little difficult to pinpoint the responsibility for the great deterioration in the state of currency notes, but there was an article in "The Times" on 21st February, which presumably knew what it was talking about, in which it was stated that the joint stock banks, by arrangement with the Bank of England, are increasing the life of £5, £1 and 10s. notes. According to the article, up to the outbreak of the last war the average life of the 10s. note was four months and of the £1 note six months. During the war notes were kept in circulation for longer periods, and by 1944 the life of the 10s. note had risen to 10 months and of the £1 note to 19½ months. Apparently notes are now being kept in circulation for even longer periods than during the war, if I correctly understood the article in "The Times."
It seems to me that even for the poorest, even for the Member of Parliament, who in the ordinary course of events does not have much opportunity of handling currency notes in large numbers, 10s. and £1 notes have to be used at some time. Of all the articles in common circulation, I should have thought that if any were to be reasonably hygienic and presentable it would be the £1 note and the 10s. note. It seems to me absurd to save what cannot be a tremendous amount of money at the expense of the convenience, the com- 1370 fort and even the health of the people. We hear a great deal of talk about the cleaner food campaign, about the importance of washing one's hands after having performed certain very important functions. But we are reaching the stage where one cannot have a meal at a cafeteria and pay for it in advance without retiring to wash one's hands before eating. In those circumstances it is difficult to take the cleaner food campaign seriously.
Nothing could be more deplorable from the point of view of visitors to this country than having the state of our notes as dirty as it is. If it is the ambition of the Financial Secretary, as I imagine it is, that sterling should look the dollar in the face, I think it important that he should first take good care that sterling's face is washed, because the £1 will never have the reputation which it should have if it appears in the debased state of so many notes.
I do not pretend to understand the Bill at all, but I gather from Clause 1 (5) dealing with the calling in of notes that the Bank of England is given power of control in this respect. It is therefore relevant to ask the Financial Secretary to give some undertaking in connection with the policy which, according to "The Times," has been carried out—the quite conscientious and deliberate policy—of extending the life of notes and putting pressure on the joint stock banks to re-issue them instead of leaving the dirty notes to go for pulping and issuing clean notes.
Before we give a Second Reading to the Bill, the Financial Secretary should give some undertaking that the Bank of England will exercise that power in a way which will be consonant with the dignity of our currency, with the convenience of ordinary people who have to use it and also with the preservation of public health. After all, it is a little difficult for people to talk of the importance of cleanliness in other fields when the article which people use most frequently is allowed to get into this disgusting state by the conscientious and deliberate policy carried out, if my information is correct, by the Bank of England. I hope the hon. Gentleman will give some assurance on that point before we give the Bill its Second Reading.
§ 6.16 p.m.
§ Mr. Eric Fletcher (Islington, East)
Before he left his place, leaving the Government Benches even more deserted than they were before, the hon. Member for Barry (Mr. Gower) made some remarks which showed that he has not understood the constitutional position of this Bill. I venture to state it again, because I am convinced that we must have a full explanation from the Financial Secretary of why Clause 2 (8) has been introduced in this way.
The real objection on these benches to this startling innovation is that it gives the House of Lords a power over these matters which it has never had before, and we want to know the reason for that drastic change. Is it part of a concerted policy of the Government to strengthen the powers of the House of Lords over such important matters as the fiduciary issue? The Financial Secretary pointed out that whereas the Treasury had the power from time to time to make temporary increases in the fiduciary issue, which we all concede as reasonable, because they are required for seasonal purposes, under the 1928 Act the Treasury had no power at all to make any permanent increase for a period of more than two years, except with Parliamentary sanction. It is fairly obvious, I think, that that meant by an Act of Parliament, because it is difficult to see what alternative explanation can possibly be given of the words "unless Parliament otherwise determines."
As will be appreciated, under the Parliament Act the powers of the House of Lords are circumscribed. Our objection here does not merely depend on the argument that in respect of Money Bills the House of Lords has no power at all, for the suspensory powers of the House of Lords are very seriously limited as a result of the operation of the Parliament Act.
It was thought preferable in 1928 to restrict the powers of the Treasury in the way I have described. We all recognise that it is very desirable that the Government should take this opportunity of putting an end to the Defence Regulations and making permanent provisions in statutory form for this very important matter of the fiduciary issue, but the Government have departed from the provisions of the 1928 Act and are proposing 1372 that any orders made by the Treasury extending the fiduciary issue for more than two years—that is, whether it is increased or reduced; if it is changed from the statutory figure for a period of more than two years—can be annulled by the House of Lords.
I should like to know what is the purpose of that provision. After the Treasury have made an order varying the statutory limit of the fiduciary issue for a period of more than two years, is it intended that the House of Lords should have the power, by a mere Resolution, to put an end to that change in the fiduciary issue? The consequences of any such Resolution would obviously be very serious for the whole economy of the country and for our monetary arrangements. Such a Resolution might lead to almost catastrophic consequences. Either it is intended seriously to give the House of Lords that power or it is not. If it is intended to give the House of Lords that power, the Government should tell us so and should justify it; whereas if it is not intended to give the House of Lords that power, the Government should not insert a Clause to that effect in the Bill.
You, Mr. Speaker, will appreciate this, because this is the first time that the Government have sought to strengthen the powers of the other place by provisions of this kind. I do not know whether there is any subtle or sinister motive behind it or not, but we are all aware that it very rarely happens that the other place exercise their theoretical powers of praying against Statutory Instruments. I have often wondered what would happen if they did so. It is a power rarely or ever used, in my experience, and, I think, wisely, because it would produce very startling constitutional results if the other place were to begin passing Prayers contrary to the wishes of this House to set aside Statutory Instruments which had the approval of this House.
Therefore, I feel that this is a matter which quite justifiably gives us very considerable anxiety and alarm when we find it introduced in this Bill in this place. I feel, as many of my hon. Friends feel, that we ought not to give a Second Reading to the Bill without a full explanation from the Financial Secretary about this particular Clause.
§ 6.22 p.m.
§ Mr. Douglas Jay (Battersea, North)
My hon. Friend the Member for Nottingham, South (Mr. Norman Smith) is a man who thinks for himself. He has done so to very good purpose this afternoon. I do not myself believe that—although the Financial Secretary may have evil designs—his cunning is quite as deep as my hon. Friend suggested or, indeed, that his knowledge of these matters is so profound as that of my hon. Friend.
Nevertheless, I agree with my hon. Friend the Member for Islington, East (Mr. E. Fletcher), as well as with the hon. Member for Nottingham, South, that the Financial Secretary really has to explain why his power to maintain an increase in the fiduciary issue beyond two years should be, in the words of Clause 2 (8) which has been quoted,subject to annulment in pursuance of a resolution of either House of Parliament.That, as I understand it, would clearly enable the House of Lords to veto such an increase in the fiduciary issue, even though the House of Commons had approved it. It would indeed be even more serious than the hon. Member for Altrincham and Sale (Mr. Erroll) suggested. It would mean, in principle anyway, that if there were in the House of Lords a majority hostile to the Government of the day, then that House could in fact take over control of financial and economic policy and frustrate the whole economic policy of the Government.
It has been said quite truly today that inflation of the note issue does not nowadays initiate inflation, but that it is expansion of bank credit that matters. But it remains true that expansion begun by the way of bank credit could not continue unless sufficient bank-notes were made available. One could imagine a situation in which it would become impossible to pay wages because there were not sufficient notes available to the banks. What this Bill does in substanceis to give the Treasury and the Bank power to issue £1,575 million of notes uncovered by gold, and a larger amount beyond that for two years with the approval of the Treasury and more than two years subject to this negative Resolution in either House of Parliament.
The issue of bank-notes uncovered by gold has always been thought important, first, because it is one of the things which 1374 can lead to inflation, and secondly, because it gives to the issuer of the notes a fortuitous profit. Therefore, for more than a century this power has been made subject to Parliamentary control. The profit on the fiduciary issue has always accrued to the Treasury. Perhaps the Financial Secretary would confirm that that is still the case, and that that profit appears in the Miscellaneous Revenue in the Budget each year.
It was as long ago as the Bank of England Act, 1844, that the fiduciary issue was first regulated by Parliament. That Act, strangely enough, fixed the fiduciary issue at only £14 million; andit is certainly a reflection of changes since then that £14 million in 1844 has grown to £1,575 million which we are considering today. At that time, I understand that there was no way of altering that £14 million unless a letter was written by both the Prime Minister and the Chancellor of the Exchequer to the Bank of England authorising it to go beyond the £14 million, and promising Parliamentary sanction.
The extraordinary thing about that figure of £14 million was that it lasted from 1844 right up to 1914 without necessity for any legal change. Indeed, it was not until the 1928 Act, which we have been discussing, that the fiduciary issue was raised to £260 million. As I understand the 1928 Act it was possible togo beyond that figure up to two years with the approval of the Treasury; but it was not possible to go beyond two years unless additional fresh legislation was introduced into this House.
I think that the Financial Secretary ought to tell us before we go much further with this Bill, even if he cannot tell us today, just what the significance is of the wordsunless Parliament otherwise determinesin the 1928 Act. Otherwise we do not really know what substantial change we are making in the actual law under this Bill.
Since 1938 we have had the Macmillan Report, the last authoritative independent report on this matter; and that Report forcibly made the point which everybody has made today, that it is of course the control of bank credit more than the control of the note issue which is the prime mover in, at any rate, a large area of our economic affairs.
1375 We cannot, of course, in this Bill establish the same Parliamentary control over bank credit as we have over the note issue. But I cannot help thinking that the whole question of the control of bank credit is one which Parliament may have to examine in the future. It is indeed rather anomalous that the profit due to the expansion of the notes accrues to the Exchequer, whereas the profits accruing on a vastly greater expansion of bank deposits simply accrue to the shareholders of private banks.
The Financial Secretary did not seem to realise that, in emphasising the importance of an expansion of bank credit rather than of note issue, he was advancing an argument which some people have thought established some case for the public ownership of the joint stock banks. I will not develop that argument today, but I do think the facts establish a case for keeping the interest rates which the Government pay to the Bank very low indeed, and not raising them to extravagant heights as the present Government have done.
Despite all these changes the Macmillan Committee did in fact recommend that there should be a fixed limit on the fiduciary issue, and it should be subject to Parliamentary control. But, of course, we have had other changes since then, not all of which have been mentioned today. I think, first, that we all recognise that the chief regulator of our economy now is neither the note issue nor the volume of credit, themselves, but the whole flow of incomes and expenditure as determined by the Budget and the decisions of the Chancellor in the Budget. Indeed, it is Parliamentary control over that which, I think, must be the most important control over economic policy in the future.
The next big change which has been less mentioned is the nationalisation of the Bank of England. That made a very sweeping alteration in the whole situation. That means, incidentally, that the whole profits of the Bank, and not just of the note issue, accrue eventually to the Exchequer, and the whole policy of the Bank is subject to the Chancellor in this House. I imagine—perhaps the Financial Secretary will assure us—that the Government have no plans for setting up a rival Bank of England under private enterprise 1376 to stimulate the Bank to greater efficiency by healthy competition, and perhaps to finance its operations by advertisement rather than by charging interest to its borrowers? I hope that we shall have such an assurance, for one never knows what this Government will do.
There is a fourth and last important change which has been mentioned, and that is the creation of the Exchange Equalisation Account, which now holds virtually all the gold in the possession of Her Majesty's Government. The House ought to notice how relevant this is to the decisions which we are taking on this Bill. Perhaps the Financial Secretary will confirm that I am right in thinking that the Government could quite legally and quietly, without the sanction of this House, transfer hundreds of millions of gold from the Exchange Equalisation Account to the Issue Department of the Bank, and thereby increase the note issue by many hundreds of millions. At the moment the Government have £900 million of gold and dollars—I am not sure how much is gold—in their hands; which is a good deal less than when the Labour Government went out of office, as I often have to remind the Financial Secretary.
For all those reasons, I think we must agree that the control of the note issue is not in itself so vital as it was in earlier times, nevertheless it should be subject to Parliamentary control, if only in order to bring the operations of the Chancellor before this House so that they may be examined and debated. Do not let us forget that though an inflation of the currency in the future, if there were one, might not be initiated by the printing of notes, it remains true that it could not go beyond a certain point unless the notes were available. I fit becomes impossible for wages to be paid because of a great increase in money incomes, and a shortage of notes of that kind arises, we should have a crisis in the whole economy of the country. That is why I think we ought to look very carefully at this power, which is in effect being given to another place as well as to this House under this Bill.
I do not quarrel with the figure of £1,575 million which the Financial Secretary has derived from the existing size of the note issue; and I agree that the House of Commons should retain this power to 1377 control increases in the maximum beyond a certain period of time. But it does seem to us exceedingly doubtful whether the other place should be given what really amounts to a veto after the event, which would produce a crisis, on the financial and economic policy of a Government which has a majority in the House of Commons.
§ 6.34 p.m.
§ Mr. Boyd-Carpenter
With the leave of the House, I should like to reply to some of the points which have been put in the course of this extremely interesting debate which was, if I may say so, very much enlivened by the hon. Member for Nottingham, South (Mr. Norman Smith). I am bound to say that I thought he was showing the suspicious side of his character in considerable degree as he looked at the innocent and blameless Clauses of a Bill which very largely re-enacts existing provisions, in order to discover the fell and sinister purpose which he suggested existed behind what he was good enough to call my bland smile. I should like to follow up one or two of his suggestions.
First of all, the hon. Gentleman got the effect of the provisions with respect to demonetisation the wrong way round. He said "Why do you want to take power to call in and demonetise the £1 and 10s. notes?" That power has existed since the Act of 1928. There is nothing new about it. But he seemed to see even more sinister possibilities of mischief in the provision by which demonetisation is brought into this Bill in Clause 1 (5). All that subsection does is to take the 1928 Act provisions in respect of the £1 and 10s. notes and put on the same basis the same powers which exist in the Defence Regulation in respect of the £5 note or any notes which might subsequently be issued for higher amounts, and put them both together in this one Clause. That is all the operation does. That is surely an act of legislative tidiness which, whether consistent or not with a Socialist currency policy, I should have thought was a highly convenient step to take.
The hon. Gentleman then asked why we should want to call in these notes. There can be many reasons. A certain issue might be subjected, as I understand in the later stage of the war some of our notes were, to some organised campaign 1378 of forgery. Another good reason for calling in the higher values of notes was that it enabled some check to be kept on transactions of one sort or another, which was, I understand, the reason the late Government called in the higher valued notes in 1945 and 1946. In answer to one of my hon. Friends who asked what had happened to the £10 notes, the answer is that they were called in in the course of that operation.
Those are both very good reasons, apart from the need to call in so as to re-issue a cleaner note, why this power is needed. The power, which is at present based partly on the old statute and partly on the Defence Regulation, is not a new power; it is a very necessary power in the management of a note issue.
My hon. Friend the Member for Altrincham and Sale (Mr. Erroll) raised the question whether the figure we had put into the Bill of £1,575 million was high enough, and the same point was raised by the hon. Members for Orkney and Shetland (Mr. Grimond), Sheffield, Park (Mr. Mulley) and my hon. Friend the Member for Barry (Mr. Gower). The reason we have selected this figure is, frankly, that it was the figure which represented the current level of issue at the time that the Bill was introduced. As I said in my earlier speech, this is not a matter on which one would wish to be obdurate, and if when we come to the Committee stage the level is higher and the Committee thinks fit, I would not wish to be dogmatic as to whether we should not take the then figure. Perhaps we can discuss that when we come to that point.
I would remind the House, however, that the lower we put the figure, the stronger we leave the degree of Parliamentary control, because the lower we put the figure the more likely will be the need to take the steps set out in Clause 2, under which Parliamentary authority is required for maintaining the note issue for more than two years above a basic figure. While I would not wish to be at all dogmatic about what precisely is the sound base figure to take for this purpose, I would ask the House to remember that the lower we place it the greater degree of control we leave in the hands of the House. However, that is a matter which we can debate in Committee.
1379 I agree very much with my hon. Friend the Member for Altrincham and Sale that the consequences of the annulment of a Treasury order raising the level of the note issue could be very serious. It is, of course, clear that if we were to allow such a thing to happen it might cause quite a considerable dislocation of business. That is undoubtedly a matter which would have to be considered at that time if it ever arose, but it has never been thought wrong in this country to give powers to Parliament which, if used, might do considerable harm. If the Committee of Ways and Means were to reject a Budget Resolution, the consequences would be highly inconvenient, but it has never been suggested that for that reason the Budget Resolutions should not be subject to the Ways and Means Committee.
§ Mr. Boyd-Carpenter
The right hon. Gentleman must have thought me very ingenuous if he believed that I was not going to deal with that issue, but at the moment I am dealing with the figure. That was an issue which was raised by several hon. Members, and it would be very discourteous to the House if I were not to answer it. I think we shall proceed more speedily if we take the speeches as they were made, and come to that issue whenI get to the speeches where that was argued.
My hon. Friend also raised the question, as did several other hon. Members, of the design of the notes. I agree with much of what was said by several of my hon. Friends that the design and the cleanliness of the bank-notes are of considerable importance not only from the practical consideration of hygiene—which the hon. Member for Widnes (Mr. MacColl) referred to—but equally from the point of view of prestige. We are very concerned that both the design and the cleanliness should be of the highest possible standard. It is a fact that in recent years, in view of the strong need for economy, notes have been kept in circulation for longer than used to be the case, but the matter will certainly be looked at in the light of the comments made in this House and, for that matter, outside it.
1380 May I also deal with a small point which, strictly speaking, I do not think arises on this Bill, but which was also raised by my hon. Friend the Member for Altrincham and Sale? He was concerned with the legal tender status of the gold sovereign. My hon. Friend referred to a case in the Italian courts, which appeared to lead to the view that those courts did not regard the English sovereign as legal tender. My hon. Friend may be reassured by the fact that, although the lower court appeared to adopt that view, on appeal a higher court took, from our point of view, a much more helpful view.
The hon. Member for Dunbartonshire, East (Mr. Bence) raised the question of what the fiduciary issue was. I thought his scholarly analysis of the derivation of the word was very good, and, of course, it has to do with faith. It originated when some notes were issued against gold as against others which were based on faith or confidence. The fiduciary issue is in a sense an issue which depends upon faith in the stability and probity of the British people and of the British currency.
A number of hon. Members, including the hon. Member for Sheffield, Park, the hon. Member for Islington, East (Mr. E. Fletcher) and the right hon. Gentleman the Member for Battersea, North (Mr. Jay), referred to Clause 2 (8) which states that a Statutory Instrument could be laid after two years to raise the level of the note issue and would be subject to annulment not only in this House, but in another place. Indeed, the hon. Member for Islington, East, with a vehemence which one does not associate with members of the legal profession, at any rate not members of the junior branch of the legal profession, referred to a startling innovation in powers which were given to another place and which they never had before.
I should like to analyse that proposition in the particular context of the control and the size of the note issue. The basis of that analysis must begin with the Currency and Bank Notes Act, 1928. As has already been pointed out to the House, under that Act the Chancellor of the day was entitled to authorise the raising of the fiduciary issue for a period of up to two years. The increase might not continue beyond two years unless Parliament otherwise determined.
1381 As the right hon. Member for Battersea, North has pointed out and as I mentioned in moving the Second Reading of this Bill, these words are not a model of the draftsman's clarity, but probably they refer to the need for legislation, although other interpretations are possible. However, it does not affect this issue in view of the fact that one word is quite clear and that is "Parliament," which includes this House and another place. Under the Act of 1928, the power to raise the level for more than two years could not be exercised unless another place and this House were in agreement on the necessary Resolution or legislation. In either case, the consent of another place is required, and without that consent, as I see it, it would not be possible to continue the note issue for more than two years.
§ Mr. Jay
Is it not true that the operations of the other place under the 1928 Act would have been subject to the Parliament Act?
§ Mr. Boyd-Carpenter
Certainly, and if Mr. Speaker, in his wisdom, sees fit to certify the Bill as a Money Bill in the sense of the 1911 Act, then, of course, the hold-up will be restricted to a period of one month. But it is not for me to speculate on whether Mr. Speaker will issue a certificate in respect of the Bill. On the precedents, however, it does not seem to be in the class of Bills which have received certificates.
As the right hon. Gentleman should know, it is a fact that not all Finance Bills in recent years have received that certificate, and where we are concerned with a Bill such as this, which is not perhaps of excessive economic importance and which has only a very indirect effect on the national Exchequer, I would myself hazard the view that, judging by the few precedents which there are, Mr. Speaker would not think it necessary to issue a certificate. That is a subject which perhaps should not be discussed very fully now, since it is dependent on the judgment of the Speaker of the day.
But the point remains that unless Mr. Speaker issued a certificate that this was a Money Bill, under the Parliament Act another place would have just the same powers as the hon. Member for Islington, East has described as a startling innovation and powers which they never had before.
§ Mr. Jay
Is that entirely accurate? After all, there is a time-limit for the power of the other place under the Parliament Act for Bills other than Money Bills.
§ Mr. Boyd-Carpenter
Yes, one year, but the right hon. Gentleman is not seriously suggesting that he would meet the inconvenience if another place rejected the raising of the note issue for one year by saying that it could be passed one year later under the Parliament Bill. Surely during the interval the trouble would arise.
§ Mr. Boyd-Carpenter
But the right hon. Gentleman's whole point is that he fears the disruption of the financial policy of the Government.
That, then, is the position in relation to another place as far as the 1928 Act is concerned. Now let us take the position under the Defence Regulations which we are proposing to revoke. These Regulations depend on the supplies and services legislation which is subject to annual renewal, for which the full consent of another place is required. Therefore, once again, in the ultimate analysis, another place had on this issue under the Defence Regulation procedure the same share in the control of this matter as it would have under these proposals.
Therefore, although I shall be happy in Committee to discuss these proposals on their merits, it is not fair to suggest that there is anything in these proposals which alters the constitutional position in this respect between this House and another place. It may well be that hon. and right hon. Gentlemen opposite would like to see a diminution of the authority of another place. That is a public issue on which it is legitimate to hold one opinion or another. I doubt whether it is a particularly convenient way of discussing or handling it to try to nibble away one piece of an existing power because one Bill happens to be before this House but that can be discussed at another time. All I am inclined to argue now is that it is quite untrue to say, as the hon. Member for Islington, East suggested, that there is here any elaborate scheme for aggrandising the authority of another place.
1383 The hon. Member for Sheffield, Park, who was good enough to indicate to me that a pressing engagement prevented him from hearing my reply to his interesting speech, said a number of things with which I would be far from disagreeing. I agree freely with his assessment, which I thought was fair and balanced, of the relative importance of the fiduciary issue. The hon. Gentleman asked why there was any gold left in the Issue Department. A small sum has been left, largely perhaps for historical reasons, largely also because the fiduciary issue by definition represents that issue over and above that which is backed by gold. If there were none backed by gold, the theoretical basis of the fiduciary issue would look a trifle odd.
The hon. Gentleman raised also the question of legal tender and asked why it is provided that notes above £5 should be legal tender. The reason for that broad division is that it is thought right, and it is part of the tidying-up operation of this Bill, that all Bank of England notes should have the same status. The point is largely academic because the only notes in issue are the £5, £1 and 10s., and at the moment, therefore, though it is undoubtedly the fact that were such an issue to be made it would have legal tender status, no practical difficulty arises.
Finally, the hon. Gentleman raised the point of the penalty under Section 12 of the 1928 Act and asked why it had not been increased. That is a broad issue which has been discussed in this House many times on penalty Clauses. There is an argument that the change in the value of money makes it desirable to step up penalties, but if that were a step to be taken, I should have thought it should be taken more generally than in the rather narrow connotation of a Currency and Bank Notes Bill.
I have dealt with the point raised by my hon. Friend the Member for Barry with regard to the absence of £10 notes. I agree with much of what was said by the hon. Member for Widnes about the desirability of the notes being in a clean condition. I have already dealt to some extent with what he said on that, and I will only add that I am not sure of his reason for saying why he would not like to produce a £1 note in my presence. If 1384 I were as suspicious as the hon. Member for Nottingham, South I should read a singularly sinister connotation into what was I am sure a basically harmless observation.
I have tried to deal with a wide variety of points which have been raised in the course of this debate. I hope that I have covered the ground and that the House will be prepared to give the Bill a Second Reading.
§ Question put, and agreed to.
§ Bill accordingly read a Second time.
§ Committed to a Committee of the whole House.—[Mr. R. Thompson.]
§ Committee Tomorrow.