§ Bill read 3a (according to Order).
§ Moved, That the Bill do now pass.
§ LORD MONTEAGLE
said, as he was fully sensible that this was a Bill which ought not to be delayed, he was reluctant to throw any obstacle in the way of the third reading. He knew there was a considerable sum of loan deposits lying unproductive in the Bank of England, whilst an increased charge was made against the public for money advanced on deficiency bills. He would, therefore, content himself with calling the attention of their Lordships to some peculiarities in this Bill, before they gave their sanction to it, as it involved a principle which admitted of considerable doubt. He did not mean that the principle on which this loan was contracted was one for which the public had the slightest ground of complaint, unless, perhaps, that the amount raised by terminable annuities had not been carried further. He thought the conditions laid down by the Chancellor of the Exchequer were wise and sound, and he also admitted, that he believed the terms of the contract were equitable to all parties, and at the same time advantageous to the public. He was the last person disposed or entitled to controvert this, for in 1835 a loan very similar in character was contracted by himself in Lord Melbourne's Government, for the purpose of compensating the owners of slaves in the Colonies. The circumstances of both loans were nearly identical. The bulk of the sum borrowed was in 3 per cents, the biddings were in an annuity; and the price of the funds in 1835 only differed from their present rate by 5s. per cent, and the terms of the contract of 1835 were but in a slight degree more favourable than the present. The terms of that loan were questioned in the House of Commons, by the late Mr. Hume. The Government agreed that the matter should be referred to the decision of the most eminent scientific men; that course was taken, and the judgment of Mr. Finlaison laid before Parliament, pronounced, absolutely, that the loan of 1835 was one of the most advantageous to the country ever contracted. It is, therefore, satisfactory to find that 96 the loan just effected by the Chancellor of the Exchequer bore favourable comparison with the loan of 1835. The circumstances of the two loans were, however, different in some important respects, fully sufficient in themselves to account for the slight difference in result. In 1835 we were at peace; we now were at war. We had then no income tax, which now told with such weight on the annuities in which the biddings were taken; we had now an income tax of a heavy amount. Then there was a discount allowed; now there was no discount sought for or granted. Therefore the Chancellor of the Exchequer of the present day was placed at certain disadvantages as compared with the Chancellor of the Exchequer of 1835; and yet, with all these disadvantages, the terms of the present loan were nearly as favourable to the public as were those of the loan of 1835, which Mr. Finlaison had so warmly eulogised. He (Lord Monteagle) considered that this loan reflected the greatest credit on the Chancellor of the Exchequer. He made his loan, and frankly avowed that he made it. It had been argued most ignorantly and most absurdly that the plan of contracting the loan partly in three per cent stock and partly in terminable annuities was objectionable as an innovation. Nothing could be more untrue. He would remind their Lordships that not only did the loan of 1835 afford a precedent, but twelve of the most memorable loans of Mr. Pitt had been contracted on the same principle; indeed, he (Lord Monteagle) considered that the introduction into the loan of the principle of terminable annuities was the only secure mode of establishing a sinking fund, and that was the course taken by himself in 1835, and now very wisely adopted by the present Chancellor of the Exchequer. But, while he approved the main conditions of the loan, he must reluctantly observe that this Bill contained one clause which was not a necessary part of the loan, and which formed no part of the contract made by the right hon. Gentleman. It was, therefore, open to discussion. That clause was intended to provide for a future extinction of the debt of 16,000,000l. now created, by pledging Parliament to an issue from the Consolidated Fund of 1,000,000l. sterling annually, the first instalment of which was to commence from the termination of the war with Russia, and which was to continue for sixteen years successively. This clause contained within itself almost every vicious 97 principle of the old sinking fund, against which every authority for the last thirty years protested, and it involved an error peculiar to itself, and which was much more objectionable in the old Sinking Fund Act. This prospective engagement assumed that there would either be a surplus revenue of 1,000,000l. a year, or that Parliament would be justified in adding 1,000,000l. a year to the taxation of the country, in order to provide 1,000,000l. annually to apply to the reduction of the debt just contracted. The only third alternative was that of a new loan, or in other words, the old folly of paying debt with borrowed money. All experience proved that these prospective engagements could not be relied on. The Government had only last year entered into an engagement to pay off the 1,750,000l. of Exchequer bills promised to be made good out of the revenue of the year; but before that year had elapsed the Government had been obliged to ask Parliament to depart from this engagement. But in the teeth of this our latest experience we are called on to assume that at the conclusion of the war there would be 1,000,000l. a year available for the repayment of this loan: this is an hypothesis, not only improbable, but almost incredible. It should be remembered that war was not only a very expensive operation in itself, but that when it was brought to a close there were always heavy bills to pay, ships to be paid off, retired allowances to provide, and thus, in short, that the close of war was even more expensive than the war itself. Suppose, then, that no surplus existed, and that Parliament were unwilling to increase taxation, if money should have been borrowed in time of war, and that at its termination money should have to be borrowed for the purpose of paying off the debt, that would be recurring to one of the most exploded blunders in finance—that of paying off debt with borrowed money. But this is not all. We should remember that our income tax, our malt tax, are only temporary, and will cease or diminish with a return of peace. Therefore, we are putting an additional burden of 1,000,000l. annually on a lessening revenue. It may be further asked, who will place confidence in sinking funds? What had been their past experience? Were the statesmen of the present day to be more depended on than the statesmen of fifty years ago? The fact was that the sinking fund had never been preserved 98 inviolate a sufficient time to produce the good results that had been expected. It was first established in 1716; but Sir Robert Walpole detected the folly of a process of paying off debt when carried on contemporaneously with a borrowing, and he wisely put an end to it. So it rested till 1786, when Dr. Price, a man of science, in communication with Mr. Pitt, struck out the notion of paying the debt with borrowed money, and calculated that by the aid of compound interest the debt would be cleared off in some inconceivably short time. The world was dazzled by Dr. Price and his golden globes, as well as by the eloquence of Mr. Pitt. The system continued until 1825, when it was found that even the diminished payment of 5,000,000l. per annum by the sinking fund produced no adequate public good. Parliament then applied 3.000,000l. as a sinking fund, but this was dealt with in precisely the same manner as the 5,000,000l. had previously been. It broke down, and was considered to be absurd, unless where it was based on a real surplus. In 1828 a Committee fully considered this question, and the principle adopted appeared reasonable, which was that the sinking fund to be applied in redemption of the debt was to be arrived at by a calculation of the excess of the revenue over the expenditure, which excess was to be applied as a sinking fund to extinguish debt. But there had been as many violations of the sinking fund after that enactment as there had been before. The course taken had been to contract a debt with the Bank for deficiency bills payable out of the current revenue, but under the general terms of the Sinking Fund Act, that fund had been applied not to the extinction of the permanent debt contracted, but to the discharge of these temporary advances. The result of this operation was simply to increase the Exchequer balances, and then to use the sinking fund, not in diminution of debt, but in providing Ways and Means for the services of the year. That might have been very wise, but it was inconsistent with the principles of the sinking fund. He had shown their Lordships that during a century and a half in no one instance was the sinking fund to be relied on; and he would refer them to a high authority on this subject, Lord Grenville, who, as the colleague and friend of Mr. Pitt during all his sinking fund operations, was not very likely to have lightly condemned the system which Mr. Pitt advocated 99 to the last day of his life; but the noble Lord had, in one of the most able and scientific essays in the language, avowed his departure from the principles which he himself had once advocated, and which had guided Mr. Pitt in his sinking fund operations. As he himself informs us, years had brought with them knowledge, and being convinced of his former error, he had no reluctance or hesitation in acknowledging it. It was with all this experience and these authorities before them that they were now called upon to adopt a principle which had, during the last twenty-five years, been repudiated by every authority that had dealt with this question. He had heard it said that there was nothing in the clause which was compulsory on Parliament with reference to the obligation of providing a sinking fund of 1,000,000l. annually. He did not so read the Act. He considered that the clause created the same obligation with respect to this Motion as there already existed in respect to the whole debt, except that the payment of the sinking fund of 1,000,000l. was made contingent on the close of the war. But was it wise or just that there should be nothing definite as to this point as it was argued? Did it add to the public credit of England? He thought otherwise; for if the question was brought before Parliament at the close of the war, and if this 1,000,000l. were not provided for he considered that the effect of it would be to injure the public credit of the country. He (Lord Monteagle) did not mean to propose any amendment, or to call on the House to leave out the clause, because it would endanger the Bill if any amendment were made, and he did not feel justified in running any such risk, however much he deplored the error into which he considered Parliament to have fallen; but he hoped he had shown to their Lordships that there were sufficient reasons for doubting the policy of the principle embodied in the clause. He believed that it would not really act as a security for the redemption of the loan, whilst it was likely to prejudice the public credit. When the time came, if there were a surplus income of 1,000,000l., it might be applied in reduction of the debt. This, indeed, must take place without this clause and under the general law. But should there not be a surplus, it would be a monstrous absurdity, such as Lord Grenville had exposed, to go on borrowing money in order to make up a sum to extinguish this loan. Before sitting down, he felt it 100 his duty to object to Clause 9, which had reference to a practice lately introduced to provide for the payment of the dividends of the National Debt. Till the April quarter in 1854, as much money was raised at the Bank of England by the deposit of deficiency bills as would suffice to pay the whole of the dividends, even if the whole were demanded when due in one single day. In April 1854, an innovation was introduced, wishing to inforce an antecedent practice, and one not very creditable in itself—namely, a system of feeding the public account from day to day, not with the account actually due and payable, but with so much only as it was calculated might be necessary to meet the demands likely to be made within the day. A more pitiful and trumpery remedy he could not well conceive, and he therefore regretted that Clause 9 was introduced into the present Bill.
THE DUKE OF ARGYLL
said, that in the absence of his noble Friend who represented the Government in that House, he rose to protest against the harsh observations of the noble Lord with regard to the course pursued by his right hon. Friend the late Chancellor of the Exchequer in reference to deficiency bills. So far from that course being a paltry one, or being unworthy, as the noble Lord had characterised it, it was, he thought, the course which his right hon. Friend was bound to take. His right hon. Friend found that the public were paying interest upon advances of a purely nominal character—advances which had reduced many Members of Parliament, and perhaps the noble Lord himself, to use on some occasions arguments as fallacious as the advances themselves. He believed that his noble Friend the President of the Council had on a previous occasion been asked whether the opinion of the law officers of the Crown had been taken as to the course pursued by the late Chancellor of the Exchequer, and the reply was that so far from their thinking that the clause bore the interpretation that the noble Lord had put upon it, their opinion was clear that the course adopted by his right hon. Friend was justifiable, and in strict accordance with the spirit and intention of the Act of Parliament.
THE EARL OF STRADBROKE
said, it was his misfortune to disapprove both of the manner in which this loan had been raised, and of the mode in which every loan had been raised for the service of the 101 State for the last half century. He believed that if a different mode had been adopted, the national debt, instead of being 800,000,000l., would not have been half that sum. He hoped, when future loans were raised, some different system would be adopted, and means would be taken to try if loans could not be raised on easier terms for the nation. On the day upon which the present loan was effected Consols were at 90; consequently every 100l. would realise 3l. 16s. 8d. per annum. By the bargain made the country would have to pay 3l. 14s. 6d. for thirty years—that is to say, for every 100l. there would be 3l. per annum, and 14s. 6d. would be guaranteed for thirty years. He did not doubt that if Ministers had proposed three and a half per cent stock the 16,000,000l. would have been raised in a week. There would have been ample and sufficient bonus to induce the public to subscribe, and the result would have been that in a few years the opportunity would have offered of reducing the stock to three per cent. Instead of that, however, we were bound to pay a premium of 14s. 6d. for thirty years. There was another objection to the proposed measure, that the interest was to count from the 5th January last; so that, although some of the money would not be advanced until July, and some not until December next, on the 5th January, 1856, a year's interest would be due. This was unnecessary and unjustifiable. A most unwise arrangement had been made, and he repeated that he hoped on future occasions an attempt would be made, by a better system, to obtain easier terms.
§ LORD STANLEY OF ALDERLEY
was glad to hear the opinion expressed by the noble Lord (Lord Monteagle) that the terms upon which the loan had been raised were exceedingly favourable, and he was also gratified to hear the opinion expressed that the best mode of raising money was by means of terminable annuities. It was felt, however, in deciding upon this loan, that it would not be possible to raise so large a sum as 16,000,000l. by terminable annuities. But between terminable annuities and the establishment of a sinking fund there was in effect little or no difference. In the case of the sinking fund the present generation was called upon to pay a larger sum each year in order to reduce the principal of the debt, and terminible annuities involved the action of precisely the same principle. In order to give effect as far as possible to the principle 102 of terminable annuities, it was decided, after mature and careful deliberation on the part of Her Majesty's Government, that the difference between 100l. money and 100l. stock should be compensated by a terminable annuity, and that the loan should be reduced by annual payments of 1,000,000l., commencing with the close of the present war. There could be no doubt whatever but that at the close of the war this sum of 1,000,000l. could be very easily raised, and if any season of reverse should occur it would be perfectly competent for Parliament to repeal this clause. He thought that this provision was entitled to the approbation of their Lordships, as it recognised the principle of the redemption of debt, and decided that the present generation ought not to burden posterity with an unlimited amount of debt.
§ EARL GREY
fully concurred in the opinion that an effort should be made to get rid in a limited period of a debt incurred in time of war, but while fully concurring in that opinion, he could not agree with the noble Lord in thinking that there were no objections to the clause which had been referred to by his noble Friend behind him (Lord Monteagle). His noble Friend had stated that the insertion of that clause was a retrograde step in the financial policy of this country, and he quite agreed with that opinion. They were going back exactly to their former situation under Acts of Parliament which required that sinking funds, first of 5,000,000l., and afterwards of 3,000,000l., should be established. The operation of this principle was most carefully considered by a Committee of the House of Commons in 1828, of which he (Earl Grey) was a Member; and that Committee, after a most careful consideration, agreed to an able report, prepared by the late Mr. Herries, which stated that in the opinion of the Committee the principle of setting apart a fixed sum every year as a sinking fund was a vicious one. The report showed clearly that the effect of the system was to incur the risk of having to borrow with one hand, while they were paying off with the other. If they made a provision binding the Chancellor of the Exchequer to pay off 1,000,000l. a year whether he had the money or not, they drove him to the course of paying the money, but at the same time borrowing from the Bank in the shape of deficiency bills; or, in other words, he would have to pay with one hand while he borrowed with the other. 103 By the clause as it stood there was nothing in the world, supposing the Chancellor of the Exchequer miscalculated as to the probable surplus of the country in bringing in his Budget, or as to the expenditure of income, to prevent him from issuing Exchequer bills for the purpose of carrying on the public service, and, indeed, he must of necessity do so. That principle was one which was opposed to common sense, and its absurdity having been exposed by the Committee of 1828, it was abandoned; and since that time the principle acted on was this: every quarter a calculation was made of the actual, not the anticipated, surplus of the revenue over the payments, and if they had a surplus, to apply it to the reduction of the debt, either unfunded or funded, as might be most convenient. It often happened that it was more advisable to reduce the unfunded than the funded debt, whereas by this clause they bound themselves to reduce the funded debt alone, departing, in short, entirely from the principle laid down in the report of the Committee of 1828. Now, what distinction, he asked, could they make between this 16,000,000l. of debt and any other? If the revenue were prosperous, they ought to pay off more than 1,000,000l., and he believed had done so in two or three years succeeding the Irish famine; but, whether it was prosperous or not, by this clause they bound themselves to purchase Consols at whatever rate they might be to the extent of 1,000,000l. annually. If the House really believed that by such a clause they could tie up the hands of another Parliament, they laboured under a complete delusion, for the arrangement might at any time be virtually set aside, even without the ceremony of an Act of Parliament. Undoubtedly the noble Lord (Lord Monteagle) was right when he termed this a provision for a sinking fund in another shape. The system of terminable annuities made it a little more, and only a little more, difficult to depart from the principle of paying off a debt in time of peace. Too much importance was attached to the system of terminable annuities, and he believed with the noble Earl opposite (the Earl of Stradbroke) that it would be preferable to give a higher nominal rate of interest, with a view to reduce it in time of prosperity. This system of terminable annuities seemed to imply that Parliament distrusted its own firmness, and was not very creditable to it, for surely it 104 ought to have firmness enough to do its duty and provide some moderate surplus for the discharge of the debt without binding itself by such a provision as this. He believed that it was sound policy always to take care in time of peace to have a surplus available for the gradual reduction of debt, and that policy he desired to see carried out.
§ THE EARL OF MALMESBURY
said, he agreed in every word which had fallen from the noble Earl. He could not understand the reason why the Government had imposed this measure upon Parliament, unless it were to enable Baron Rothschild to make a better bargain for his capital, for certainly Baron Rothschild would be the only person benefited by it. Something had very justly been said as to making future loans upon a new system, and he thought that in raising the loan the Government might have pursued the principle adopted by the French Government recently, in offering it to the public generally, whereby they had raised 20,000,000l. in a week, and he had heard that they could as easily have raised 80,000,000l., and he firmly believed that they might certainly have raised 60,000,000l. Now, doubtless, this country was not in the same situation, financially speaking, as France. No doubt in France, a great deal of money was hoarded, there being no savings' banks, and not such abundant means of investment as in this country. Still these considerations were insufficient to satisfy him that the same mode could not be resorted to successfully for the purpose of raising a loan in this country. However wide the difference might be between the habits of the French and the English as to money matters, he could not think there was such a difference that, looking to the enormous wealth of this country, if the French could raise 60,000,000l. in a week or two, we could not raise 16,000,000l. in the same way. He did not know if the Government had formed a decided opinion on the subject, and if so whether they could state the reasons on which it was founded.
§ LORD STANLEY OF ALDERLEY
said, the subject had been very much considered, and the noble Earl had alluded to that which constituted the reason for not adopting the means he had suggested—namely, the difference between the habits of the French and English people as to money. The habit of the French people was to hoard their money, not having the same means as the English people had of 105 disposing of it in trade or in savings' banks; and if the mode suggested had been resorted to, the result would have been that the money would have been withdrawn from savings' banks and other safe and good investments; and, after all, they would not, in all probability, have obtained the loan on more favourable terms than those on which it had been raised from the great capitalists of the country.
§ Motion agreed to; Bill passed accordingly.
§ House adjourned till To-morrow.