§ House in Committee (according to Order).
§ LORD MONTEAGLE
My Lords, there are peculiar circumstances connected with the financial condition of the country, as well as with the provisions of the Bill now before the House, which induce, and I hope justify me in calling your 1181 Lordships' attention to the position in which we stand at the present moment. We are now in a state of transition from war to peace. After a period of tranquillity unexampled in its duration, we found ourselves compelled to enter into one of the most formidable contests in which England had ever been engaged. And at that very time, my noble Friend the Secretary of State for War, and the noble Duke who preceded him, were induced by the force of public opinion and by the judgment of Parliament to undertake a task which would have been difficult under all circumstances, but which, in the midst of an actual campaign, must to many have appeared rash, if not actually impracticable. I allude to the reconstruction of the War Department, and the consolidation of the Army and Ordnance Departments. That this great change should not have been successful in all its details casts no reflection on my noble Friend (Lord Panmure) or on his predecessor the Duke of Newcastle. It is only wonderful that the measure should have been even as successful as it has been, and my noble Friend may, without risk, allow me to call the attention of your Lordships to two cases arising in his department, in one of which his expectations have already been disappointed, and in the other I must be permitted to doubt his ultimate success. Both cases, however, relate to the civil and financial administration of the army, rather than to its military government. Even if I am right in the objections I am about to urge, that circumstance ought not to make us forgetful of the difficulty of the task undertaken by the Government, namely, that of reorganising our War Department whilst in a state of war. These difficulties entitle the Minister for War to the utmost consideration and forbearance. The first subject to which I shall direct your Lordships' attention is the new arrangement made between the War Department and the Treasury, carried into effect by the Minute of the 22nd December, 1854 (Sessional Papers, 1855, No. 10), by which the administration of the Commissariat, including its financial duties, was removed from the Treasury to the Secretary of State for War. This change was announced in the following words:—As the Commissariat chests will be under the charge of officers appointed by and acting under the direction of the Minister of War, the arrange- 1182 ments for providing, holding, and disbursing the funds required for all branches of the public service abroad, and the various remittances and transfers connected therewith, will hereafter be conducted on the responsibility of the War Department. My Lords do not doubt that this duty will receive the attention its great importance deservesThe whole of these miscellaneous duties connected with the Army, Navy, Ordnance, Commissariat, and Civil Services throughout our Colonies, the contracts for stores and victuals, the convict, and the liberated African services were at once transferred from the Treasury to the Minister for War, together with the multiplied payments of the Commissariat chest. By the Minute of the 22nd December, 1854, the Treasury direct that "the entire responsibility of superintending the war expenditure, and of seeing that it is properly accounted for, will hereafter rest on the Secretary for War, the direction of the Commissariat being transferred to him, and the correspondence addressed to the Under Secretary of State, and instructions being received through him." Such were the changes made in 1854. Your Lordships may perhaps do me the honour to recollect that on the 10th August of the same year I had taken the liberty of adverting in this House to the proposed change of system, and had pointed out the many dangers which I could not but anticipate as its inevitable consequence. I then described the financial duties of the Commissariat to consist in "providing funds for the public service, purchasing bullion, drawing and negotiating bills, and acting in all respects as bankers." "These," I urged, "were functions with which a Secretary of State for War had no necessary connection, possessing neither the means nor the knowledge for exercising a due control over their administration." I considered that such duties could only be performed by the Treasury as the supreme financial department of the State. My noble Friend (Lord Panmure) did not oppose my argument at that time, though he was not prepared to assent publicly to my conclusions. I had not alluded to the duties of the Commissariat in the field, but to its financial functions only, which I contended could never be safely separated from the Treasury, the supreme authority in finance. The experiment was, however, tried. I may now conclude that it has failed, as Sir Charles Trevelyan, in a Treasury memorandum, dated 13th October, 1855, now 1183 before the House, states that by this unfortunate change—The financial system of the country was dislocated at one blow, and the only function left to the Treasury was stated by the Chancellor of the Exchequer to be the task of providing the ways and means demanded by the departments.The Assistant Secretary of the Treasury stated also (30th November, 1855), that—By the change made the year before, the two principles which bad previously regulated these departments had been violated, the Commissariat continuing to be its own banker and paymaster, freed from the control of the Treasury, and an alarming tendency appearing towards a return on the part of each branch of the public service abroad to take its own measures to raise funds for the services entrusted to it.Such having been the first results of the change, it is with great satisfaction I now perceive from a Treasury letter of the 30th November, 1855, which I moved for in the present Session, that—Directions have been given by the Chancellor of the Exchequer to the Minister at War to make the necessary arrangements for replacing, under the immediate direction of the Treasury, the financial duties performed by the officers of the Commissariat.I can assure your Lordships that I do not refer to this coincidence between the resolutions adopted by the Government, March 30, 1855, and the opinions I had expressed in this House, from any absurd vanity of proving that I was then in the right. I do so solely because I may thereby obtain some additional weight in favour of recommendations of a similar kind, which I shall subsequently submit to your Lordships this evening, or that I may at least free myself from the imputation of presumption in now urging my opinions on your notice. Pending the war, I abstained from raising a discussion on many of these questions; but such reserve is no longer required, more particularly when the papers I have moved for show the important and satisfactory improvements which have already taken place, by retracing our false step.
In the first instance, however, I ask permission to notice the Estimates of the present year, which on their first presentation struck me as being, as well in form as in substance, open to very serious objections. The combination of the Army and Ordnance Estimates, now for the first time united, presented to Parliament no less an amount than £34,998,000, entrusted to a single department, being the 1184 largest sum ever placed at the disposal of a Minister for War. The Army Vote was put under the almost unchecked control of my noble Friend (Lord Panmure); for, with the help of a Treasury warrant, sums voted for the army might have been applied to the erection of barracks in the Park, or of Ordnance works at Portsmouth, and vice versâ, the Votes might have been dealt with interchangeably. This most dangerous and unconstitutional power is now, I rejoice to see, corrected in the Appropriation Act before us. The Army Estimate having been reduced from £34,998,000 to £20,747,000, is separated into two distinct Votes; the first, a Vote of £8,789,000 for Works, Stores, Fuel, Forage, and materiel of war; and the second, a Vote of £11,680,000 for the charge of the land forces, including the personnel of the Army, Artillery, Engineers, and Militia. These two sums are now kept distinct not only as Votes, but in expenditure; they cannot be intermingled or interchanged by any authority of the Crown, the Treasury, or the War Department, nor even by the authority of these three Powers combined. They are kept as separate as the old Votes of the Army and Ordnance had been, or as the Army and the Navy still are by law. The Admiralty Estimates have also been reduced by no less a sum than £3,308,000; and thus the Government of their own accord, and without the exertion of any Parliamentary pressure, have made a saving of £17,559,000 in the two military Departments, giving to the people of England a sure pledge of the further economy that we may trust will be exhibited in the Estimates of the ensuing year. But much as I rejoice at the reduction of the Vote, I rejoice still more at the assertion of the strict principle of Parliamentary appropriation in the Act now on the table. Whilst the Ordnance and Army Departments were kept distinct before the late consolidation under the War Minister, there could not be, without a violation of the law of the land, an application of Army monies to Navy services, or of Navy money to the Army services. But when the Estimates for the two Departments became as it were fused into one Vote, sums might have been transferred, with the consent of the Crown and of the Treasury, from the one to the other of these services without restraint. It would have been highly unconstitutional and a very great abuse to have done so, it is 1185 true, and by a most judicious amendment, which I rejoice to see the Government have introduced into the present Appropriation Act, the danger is averted. This strict principle cannot be too steadily enforced, though I much fear that during the late pressure of circumstances it has been brought into jeopardy, as Sir Charles Trevelyan admits "the recent events have blown all calculation to the winds." The difficulties necessarily incidental to war on a great scale, in which an excess of expenditure of £53,000,000 is shown in the year 1855–56, as compared with 1852–53, and in which the total expenditure for the two years of war has exceeded £155,000,000, would not but be most formidable, and these difficulties were inevitably increased by the consolidation of the two Departments of Army and Ordnance. It was probably from a wise anticipation of such difficulties that the late and the present Chancellor of the Exchequer obtained from Parliament during the last two years and the present, two Votes of £3,000,000, and one of £2,000,000 with a further credit of £2,000,000, freed from all appropriation except that the whole should be applied to the exigencies of war. I take upon myself to say, and I do not think the noble Lord at the head of the War Department will contradict me, that but for these Votes of Credit for extraordinary expenses, it would have been found utterly impossible to carry on the late war efficiently. But this enormous amount of money thus confided to Her Majesty's Government has rendered it of the utmost importance that a strict and efficient system of audit should be applied to the expenditure in the Crimea. Never before was such a check more indispensably requisite. No delay should be allowed to intervene in the execution of these controlling duties. Never were the duties of the auditors so important. And here I must be allowed to say, that I observe with dismay and regret, the removal of the army accounts from the control of the constitutional Board of Auditors at Somerset House, to the control of my noble Friend the War Minister (Lord Panmure); I consider this change to be indefensible in principle, and dangerous in practice. I consider this alteration to be one of the same nature as that to which I have already adverted in the transfer of the Commissariat functions from the Treasury, and I apprehend its result will be the same also. This latter attempt, as I have already shown, has failed, and has been abandoned. 1186 In this second instance also, I am Confident the Government will have yet to retrace their steps. The opinion of Parliament has not yet been pronounced on the subject; but I affirm, unhesitatingly, that any audit to be effectual, and to deserve public confidence should be independent and wholly disconnected from the department whose expenditure is to be controlled. In any other form an audit is but a delusion, which cannot possess public confidence, or serve any useful purpose. It is not in this House that I feel called upon to waste time in proving this proposition. During three successive years this House did me the honour of supporting measures introduced by me to enforce an independent audit of railway accounts. It was not our fault that so salutary a principle was not applied to all the railways in the empire. The measure was defeated elsewhere. But, surely, it is still more requisite, that an independent audit should be applied to the complicated and difficult transactions carried on in foreign countries, for the multiplied services of Army and Navy in the Baltic and the Black Sea. I may, perhaps, be told, that the Parliamentary audit, as introduced by Sir James Graham in the Navy, will still subsist and will be enforced. True, but the object of that special audit was only to compare the expenditure with the Vote of Parliament, and the full efficiency of that special audit in time of war, with Votes of Credit amounting to £8,000,000 or £9,000,000 sterling, is yet to be ascertained not having been as yet fully tested. Sir Charles Trevelyan does not seem very confident on this subject. He observes:—Useful as this Audit has been, it may be made still more so. The Auditors should have the power of commenting on this account as they do on accounts rendered from their own office. They should also point out irregular or objectionable transactions, and call for information before the result on the vote, or on the aggregate of votes, is arrived at, for the great object is to prevent expenditure, not to certify to the fact that it is gone. But the truth is, the Audit Board has not sufficient weight; for I well know from experience how crushing the feeling is that you have to contend with departments that are too strong for you.Such are the significant words of Sir Charles Trevelyan. The remedy for what he describes would seem to be the strengthening the powers of the Auditors; the course adopted seems to be, to dispense with their services altogether. The reason assigned for the step taken, appears to me as extraordinary as the act itself. I am 1187 told that, because the Minister of War issues the order, he is the best person to examine into its fulfilment, and into the consequent expenditure. With the utmost respect for my noble Friend, I am inclined to believe that the order of the Secretary of State may require examination as well as the act of his subordinate officer. The general audit has been removed from the judicial tribunal at Somerset House to the War Department, and I cannot help expressing my opinion that this abandonment of an independent audit, must be destructive of what ought to be the best security for the just distribution of the public money, and for the making due provision for the public service. I appeal on this subject to the authority of my noble Friend below me (the Marquess of Lansdowne). It was to him that the country owes the establishment of the Auditors acting judicially, and made independent by holding office for life. He knows well the condition in which he found the public accounts, and the motives which induced him, as Chancellor of the Exchequer, to recommend this great measure of financial reform. Why then was the Audit Office, so established, so confided in, and so commended, to be relieved from the army accounts? Why should those accounts be placed under the control of the very department which had incurred the expenditure, thus establishing the absurd principle of allowing the War Department to audit its own war accounts. This is a point to which I entreat my noble Friend to turn his intention before Parliament meets again, for I can assure him that the present time is that of all others when it is most dangerous to depart from the just and reasonable principle of enforcing an independent audit applicable to all branches of our public accounts, and more especially to those relating to the military expenditure incurred in the late war. I refer him to the authority of official papers on the table, to the authority of Mr. Romilly, Chairman of the Board of Audit, to the authority of Sir C. Trevelyan, and of others. I do not now press my noble Friend to give me any distinct pledge on this subject, but I entreat him to consider the question attentively before we meet again.
I shall now proceed to observe on the prospects of our future income and expenditure, which are somewhat peculiar. We have just closed an honourable but most costly war, and we are, as I have already said, in a transition state, passing from a 1188 lavish expenditure to a more economical system. This change is one not very easy to accomplish. It is dangerous to do too much; it is fatal to do too little. A wise economy steadily enforced, adopted by the Government itself, is what is safest and most effectual: it will be found the best protection against that false economy that, under the pretext of saving, would break down our national establishments, rendering them unequal to our wants, and to their destined services. This will always be found, in the long run, the most false of all economies, because it compels us to larger expenditure hereafter. I accept with acknowledgment and with praise the large reductions made by the Government since the peace. I rejoice, also, to observe that the subject has been taken up in another place, and been enforced in powerful arguments, and not in a rash and heedless spirit—not by loose inquirers without skill and knowledge, but by wise and prudent men who have brought high abilities and mature official experience to bear upon the subject. This cannot fail to lead to a wise review of our financial condition, of our income and expenditure, of the receipt, issue, and custody of our public moneys. I have already stated that the excess of two years war expenditure has been no less than £53,088,711, being the difference between £155,121,307 and £102,032,596, to which should be added an excess of £24,500,000 for the present year, making in all £77,588,000 applied to the expenses of the war. This, I think, has been wisely met by the Chancellor of the Exchequer. The increase of taxation has been estimated, as I perceive, by the best authority, at £17,182,522, and the increase of funded and unfunded debt at £33,604,263. But these figures will not fully exhibit the peculiarity of our present position. During the war, loans have been made, and oppressive taxes have been imposed on a pledge solemnly given, that at a fixed and definite time these taxes should decrease, and should be finally withdrawn. The income tax continues at its present rate, Is. 4d. in the pound, till 6th April, 1858. By a happy fatality for the Treasury, connected with the date of the Treaty of Peace, the Chancellor of the Exchequer preserves this war tax for nearly two years beyond the close of the war, or till 6th April, 1858. This cannot bring into the treasury less than £24,000,000; and from April, 1858, to April, 1860, the property tax is further continued at the reduced rate 1189 of 5d. in the pound. In 1860 it expires. The tea duties, the duties on coffee and sugar, decrease gradually till they fall to their former amount as peace taxes in 1857 and 1858. The war malt tax has already ceased, on 1st July, 1856, not only withdrawing revenue, but encumbering us with a payment of £1,000,000 in drawback. Thus our income will be in a gradual state of reduction for the next four years. But the engagements we have entered into for the repayment of our loans will come into operation during this time. £2,000,000 a year for successive years is to be applied for the redemption of Exchequer Bonds; we pay so much for an unfortunate and unsuccessful experiment; an annual million for a sinking found is also provided to meet the loans contracted in 3 per cents;—these form inevitable obligations, which we cannot postpone or evade—the pledge was given by the late and the present Cabinet, and he would indeed be a bold Minister who would dare to propose to violate so solemn an engagement. To the public creditor we have promised to redeem our bonds, and to extinguish our loan. To the people of England we have likewise promised a relief from oppressive taxation, willingly submitted to by them to meet our war expenses. This double contract is ratified by Parliament. Good faith must be kept with the people who, by their readiness to submit to heavy burdens without complaint or murmur, have shown an enduring patience and fortitude not unworthy of the bravery of their countrymen at the Alma and Inkerman. The Chancellor of the Exchequer has exercised a wise discretion in not relying exclusively on one mode of raising the ways and means for the war. He has partly resorted to war taxes, and partly to borrowing. In this he has clone right. But he must adhere to his engagements, if he seek to deserve our entire confidence. I have no doubt he will do so. We shall then only have cause to regret his adherence to the mistaken system of endeavouring to raise money on long dated bills, payable at a fixed time—an error which I regret to see continued and extended by an alternative power of issuing Exchequer bonds as well as Exchequer bills, unfortunately granted in the present Session.
There is another question which it would be inexcusable to pass over. It is a question daily increasing in importance, and one to which I have repeatedly called your Lordships' attention. I allude to the 1190 transactions between the Government and the savings banks, transactions which have now become daily and habitual. In objecting to the course which has been resorted to so largely, I must guard against two inferences which might possibly, through mistake, be deduced from my remarks. I am far from attributing to the Government any violation of the law in what they have done. They have authority for their acts, I admit, but I seek vainly for any sufficient justification. In disclaiming any attack on the Government, I am still less willing to be considered as raising any argument which can by possibility affect the credit of the savings' banks or the security of the depositors. They are safe under all circumstances, and have the faith of the country pledged for the repayment of the principal and interest due to them. But the system acted upon by the Government is one which demands a searching Parliamentary inquiry which I trust it may receive here or elsewhere in the ensuing Session of Parliament. I feel convinced that the powers now exercised by the Treasury over the stock of the savings' banks cannot be used without danger to the public credit. The extent to which these practices have been resorted to is hardly known or understood. It is not of an occasional act, during a time of exigency, that I complain. The practice which I denounce is not only resorted to year by year, but month by month, week by week, and day by day. The Treasury do this without a shadow of pretence; it cannot be suggested that the millions of stock which they sell are disposed of in consequence of any demands on the savings' banks by the depositors; this is done solely to facilitate and promote the financial operations of Downing Street. These powers of selling stock were not originally given to the Chancellor of the Exchequer for such purposes. The practice now is, that the Chancellor of the Exchequer, if he finds that his Exchequer bonds or bills are low and unsaleable (which during the greater part of the last year has unluckily been the case), sells out savings' banks stock, invests the proceeds in the depreciated bills and bonds, thus making the whole transaction subservient to his own views as a Minister. These are operations which, as habitual practices, appear to me unjustifiable. Observe the consequences. The holders and dealers in stock and Exchequer bills may and must meet the competition of 1191 their rivals in the market. They may calculate likewise on their means of information and their authority in making stock bargains; but of the motives and objects of the Chancellor of the Exchequer they know nothing. He may seek to keep up the value of his own securities when they are rejected by the public. He buys, and thus gives these securities an unnatural and artificial value. He ceases to buy, and the same securities suffer an artificial depression. He alone is aware of his own intentions and plans. He therefore buys and sells to an advantage. The holders of stock have not the same control over the Chancellor of the Exchequer which they possess over their rivals in business, who are bound by the ordinary ties of self-interest. The Chancellor of the Exchequer, as proprietor and director of the savings' bank stock, has the power of wielding a capital exceeding £34,000,000. The trustees are stated on the face of the public accounts to be at the present time holders of £5,000,000 or £6,000,000 of Exchequer Bills. It is hardly possible to calculate what might be the effect of buying and selling on this enormous scale by the Government, that is by parties who are not bound by the ordinary laws of mercantile profit. The power of funding Exchequer bills so held by savings' banks, without passing them through the market, aggravates this danger. In the year 1855, the stock sold for savings' banks amounted to £3,260,000—the balance between purchases and sales of Exchequer bills was £3,063,000. These operations had been of late carried on to an extent which I believe is without example. There has been a continued action on the part of the Chancellor of the Exchequer on the Stock and Exchequer bill market, and such action cannot take place without producing an actual effect on the price of public securities. The public creditor has no protection against these operations; I earnestly hope, that as the exigencies of war can no longer be urged as an excuse for all this official connection between the Treasury and the Stock Exchange, that the practice may be discontinued. I now conclude, having performed the duty I undertook, and I must apologise to your Lordships for having detained you by arguing on a subject which doubtless you will consider uninviting. But your Lordships will remember that it may be important for this House to weigh and consider well these questions; 1192 for though we are restrained from voting taxes, we have our full share of responsibility in passing legislative measures which affect the finances of the United Kingdom and the interests of all classes of our fellow countrymen.
§ LORD PANMURE
said, that into the general subject so ably entered into by his noble Friend he should not attempt to enter; but there were one or two points in connection with military finance to which reference had been made upon which he wished to make a few observations. In the first place, his noble Friend had touched upon the retransfer to the Treasury of the financial branch of the Commissariat. Now, both his noble Friend at the head of the Government and himself had certainly been of opinion from the commencement that the financial arrangements connected with the Commissariat ought not to be vested in the Secretary of State, but should return to the Treasury, who had the control of those arrangements, both with regard to the army and ordnance. The transfer of that department was now going on. It was not quite so easy to separate the two branches of finance and supply as was at first imagined, but the separation would take place in a short time. With reference to the audit of the public accounts, he thought his noble Friend must be mistaken in some of his impressions on this subject. In the War Office, as it was formerly constituted, and in the Secretary of State's Office as it now existed, the detailed audit of the expenditure took place under the eye, formerly of the Secretary at War, and now of the Secretary of State for War. It was transacted in the departments, and it would be utterly impossible to conduct that audit upon a proper system if it were conducted in the Audit Office, as his noble Friend suggested. What was done with regard to the navy? The whole expenditure of the navy was audited under the authority of the Admiralty; it was only the appropriation audit which passed through the Board of Audit. It was the same in the Ordnance. When the Ordnance was a separate Board the whole detailed expenditure was audited under the supervision of the Master General and the Board. In fact, if the audit of the detailed expenditure of either army, navy, or ordnance were put upon the Audit Board, that Board would find themselves utterly at sea with regard to 99 out of 100 of the items which would come before them, and would 1193 have to give up the whole matter. With regard to the appropriation audit, that was properly performed by the Audit Board. In the same way with regard to the Commissariat, the audit of the accounts for the supply of that department was formerly performed in the Treasury; but it was found inconvenient to conduct that audit by Treasury clerks under the Treasury roof, and it was consequently undertaken by clerks in the Audit Office, specially employed upon that work. After the Commissariat was transferred to the Secretary of State's Office the detailed audit was transferred with it, which was only following out the system adopted with regard to the audit of the general expenditure of the country. He felt assured that to act on the suggestion of his noble Friend, and have the audit conducted under an individual and an independent Board, ignorant of the details, would be to establish a system which would utterly break down.
§ Bill reported, without Amendment, and to be read 3a on Friday next.