THIRD READING. SAVINGS BANKS. THE NATIONAL DEBT. (Hansard, 21 August 1857)

§ LORD MONTEAGLE

said, he wished to take this opportunity of calling their Lordships' attention to two or three points of some importance. He was sure their Lordships would be entirely agreed that, considering the troubles which unfortunately prevailed in different parts of the East, every possible effort ought to be made to support the authority of Great Britain, and that with such an object in view no niggardly feeling with regard to expenditure ought to be entertained. Although he hoped that a satisfactory and permanent European peace had been concluded, it was clearly impossible for this country to cease all expenditure for warlike purposes at the first close of the war. This country had made prodigious efforts during the war, and considering the results, we might look back to those efforts, even in a financial point of view, with great satisfaction. The people had borne, with a generous confidence unexampled in history, the heavy amount of taxation which it had been necessary to impose. So far were the commercial and manufacturing interests of the country from having suffered, they had proved, so far as the taxation was concerned, that they were never 1953 in a more satisfactory condition. He trusted, however, that the admiration they must all feel at the manner in which the people had borne their burdens would not be limited to vague expressions of grateful confidence only, but that Government would at all times strive to give practical effect to whatever measures might be conducive to the well-being of the people. He was led to make these observations by a consideration of the steps which were required to be taken for the reform of our Savings Banks. In the absence of any one more competent for the task, he had proposed to have himself called their Lordships' attention during the present Session to the subject. At an early period of the Session a Bill had been introduced to amend the law respecting Savings Banks, which was considered likely to come before their Lordships' House, long before the present time. He did not think it would have been respectful to trouble their Lordships with any observations relating to the matter, when probably by that Bill many of the objections he entertained to the present system might have been removed, or if not removed, when in the progress of the Bill he might have had an opportunity of introducing his Amendments. That Bill had, however, been withdrawn, and he now felt it his duty to call their Lordships' attention to the question—not as our Savings Banks were accustomed to be viewed, merely as charitable institutions, intended to improve the condition of the working classes and to give them new motives for industry and content, and with those new motives to establish a most important and useful link between the middle classes and the public credit of the country, teaching the former practically the great lesson that with respect to the prosperity of all classes there was no distinction between the high and the low, the rich and the poor, but that the public credit of England was an essential element in the prosperity of all its inhabitants, and that there was no one in the moneyed world, whether bearing the name of a Rothschild or a Baring, more deeply interested in the maintenance of credit, than the humblest classes—but as our system of Savings Banks was now unfortunately applied as the means of carrying out objects which were not originally connected with the institution of Savings Banks. Our Savings Banks were intended for the relief of the humble and industrious; they are now used in aid of the Exchequer. The institution of Savings Banks originated 1954 in this country, and had since been adopted by almost every nation of the civilized world. But at the time when the Savings Banks were originally founded by benevolent individuals the last thing that could then have been contemplated or desired, but which their Lordships were now compelled to contemplate, and as he thought were bound to condemn and to regret, was that the Savings Banks, institutions of charity and benevolence, had unfortunately been connected but too closely with the speculative financial interests of the State. If it had been suggested at the time of their foundation that the Savings Banks were ever likely to be converted into institutions to support public credit, to assist the Chancellor of the Exchequer in measures of finance, and give support to speculation on the Stock Exchange, the originators of the Savings Banks would have shuddered at such an idea. Indeed, it would not have been thought possible, for it could not have been anticipated that the accumulations invested in these institutions by the industrious classes would have reached so enormous a sum as £35,000,000. The Government were compelled reluctantly to become connected with the Savings Banks on their first establishment; but the interposition of the Government in their management was intended but for one purpose—namely, to give the depositors confidence in the safety of the investment, and to give to the institutions the advantage of Government countenance. The Savings Banks' securities of this country were nominally placed in the hands of a body of trustees composed of persons filling high official positions, and had thereby been made ex officio trustees; in reality the control of that vast sum was placed in the hands of the Chancellor of the Exchequer. Now, in this, as in other cases, Parliament had greatly erred in casting a great weight upon official persons, who had important direct duties of their own to discharge, in them most unwisely ex officio members of an unreasonable number of boards, the active duties of which their own primary duties render them unable to discharge. Of this the ex officio members of the Board of Control, the India Board, and the Council of Education, were sufficient examples. But independently of this objection the Savings Banks of this country had outgrown their original establishment, and their control ought to be placed in hands more directly before the world made responsible for the management. 1955 It was all in vain to think of sending round London to find a Secretary of State, a Governor of the Bank, or a Master of the Rolls, in order to make up a quorum of the Trustees of Savings Banks, who, when assembled, were perfectly useless for the purposes of deliberation or of action, the effective control being in the hands of the Finance Minister. But this was a small part of the matter, for he was about to show that the present system, though it might be administered with invariable purity, contained within itself a great liability to jobbing of the most dangerous character. It gave to the Government of the day, as represented by the Finance Minister, a power over public credit and the price of the public securities which it was improper to place in the hands of any one single person, however beyond reproach or suspicion. He rejoiced that whilst making these observations, a right hon. Friend of his own filled the office of Chancellor of the Exchequer, whose character and integrity rendered it utterly impossible for any one to suppose that his remarks, affecting an abstract question, could in the slightest degree apply to that able and eminent individual; but he availed himself of this advantage by discussing the question all the more freely, and endeavouring to show that the system which now existed by law was a system impossible to be defended, even when placed under the most unsuspected control. The whole amount of those £35,000,000 which he had described as the enormous capital of the Savings Banks might be sold, bought, exchanged, or invested in Exchequer bills, or in stock, at the will or pleasure of the Finance Minister; and consequently the Chancellor of the Exchequer was enabled, if he thought fit, to influence the money-market to an extent which no individual or combination of capitalists could possibly either equal or counteract. As far as this arose out of the necessary effect of buying and selling securities required for the purpose of the Savings Banks, he had no objections to make, but the Savings Bank securities were now employed for purposes going very far beyond the necessities of the Savings Banks. They were employed for purposes which directly affected the value of the public securities and were intended to influence the Stock Market. Suppose a Chancellor of the Exchequer knew that at a particular time he was about to alter the interest of Exchequer bills, or that he was about to fund, or to 1956 make a loan, if he went into the market to deal in such securities with a knowledge of such intention, of course he dealt in that market at an enormous advantage as compred with all other persons. It had been said, much to his surprise, that because government lost by the Savings Banks paying in interest to the depositors a larger sum than the sum deposited actually earned, the Chancellor of the Exchequer was at liberty to recoup the sum so overpaid by making profits in speculating upon the purchase and sale of the public securities in the way to which he had objected. That was altogether a new and formidable doctrine, and to illustrate its mischievous tendencies he would mention a circumstance which took place during the past year. At a particular time there occurred a considerable depression in the unfunded debt, and £2,000,000 was laid out in Exchequer bills, not by the investment of sums invested by depositors, but by the arbitrary sale of one description of security in order to apply the price received for the purpose of raising the credit of another. This case may be stated more clearly still. In June or July the time approached, when according to usage Exchequer bills would be exchangeable. It happened that at that time they were at a discount, and purchases were made by the Commissioners for the national debt, in order to raise that discount to a premium. Those operations were carried on until the time for exchanging came, and in the meantime parties finding a premium upon the bills created by the artificial means just described, which was sufficient to encourage them to hold, retained them until the time of the exchange was passed. Immediately after the exchange, however, the purchases of the Government ceased, the premium was necessarily converted into a discount, and those who had been induced to hold by the act of the Government became the sufferers. That ought not to be. There ought to be no such thing permitted as this buying and selling the public securities by the Queen's Minister, for the purpose of gaining on the speculation. It was no justification to say that the profit went to the public credit. The Chancellor of the Exchequer and the other trustees were trustees for the benefit of the Savings Banks only, and there could be no justification for such a proceeding though intended to make a profit for the Treasury. He did not say that this was contrary to any law, however contrary to principle. His objection was to the law itself, and he 1957 repeated that no such facilities ought to be given. The events of late years fully justified the anticipations which he had ventured to make on this subject some time since. He protested altogether against the new doctrine that it was justifiable to buy and sell in order to make a profit on the Stock Exchange for losses sustained in Downing Street, and thus to indemnify the country against losses winch the trustees sustained in the rate of interest paid. The consequence of these proceedings was, that no faith could be placed in the price of these public securities while the unfunded debt was dealt with in a manner so indefensible. A great State should jealously preserve its public credit; if that were diminished or lost the consequence would be the sacrifice of those resources in which such State had the greatest advantages over all other Powers; In order to preserve that public credit, it must never be tampered with or employed unjustly. What had been the result of the course he complained of? For two or three years, unexampled in the history of this country, the whole of the un-funded debt had been so frequently at a discount, and thereby so discredited in the market that if similar circumstances could have happened to any one merchant in London he must have been in the Gazette twenty times over. Many of those things, which he regarded as objectionable, might be justified by the acts of some of the predecessors of his right hon. Friend who now filled the office of Chancellor of the Exchequer. Some, though not involving the same principle, had even been done by himself. He wholly condemned the practice when carried to the extent of selling, and therefore lowering one public security with the view of buying and then raising the value of another. There was another point to which he wished to direct their Lordships' attention. Although the law did not forbid it in terms, Parliamentary usage, and the privileges claimed by the House of Commons did not allow their Lordships to deal unreservedly with the taxation of the country—that was to say, they could not impose a tax—and, perhaps, that was the last privilege which ought to be entrusted to them, or their Lordships would wish to possess. But as Legislators they were continually brought into contact with the finances of the country; indeed, the statute law required the annual financial accounts to be brought under their consideration. 1958 Those accounts were annually presented and their Lordships were bound to exercise their judgment upon every Bill, of whatever nature, that came before them. In connection with this subject he wished to call attention to an alteration in the form of that important quarterly account, known as the Public Income and Expenditure Balance sheet—an alteration which, in his opinion, ought never to have been made, and certainly not made without notice and Parliamentary authority. One of the duties of Parliament was to apply any surplus of income over expenditure to pay off a portion of the debt; many expedients had been adopted for this end at different times, but they had all proved fallacious, till the enactment of the present law by which a bona-fide Sinking Fund was established, and the Government were compelled by Act of Parliament to apply the redemption of debt quarterly to one-fourth of the surplus of income received in the year preceding. He held in his hand the last of three quarterly accounts, of which he thought the public and Parliament were entitled to complain as fallacious if not deceptive. This account consisted of two parts, one showing the Income and Expenditure, and the other showing the amount of Balances and of the Public debt. Now in the former of these accounts, under the head of Expenditure, there appeared for the first time an item of no less than £2,000,000 of the public money which had been applied to pay off Exchequer bonds. Payments of this description had hitherto uniformly been included in the second of these accounts, which showed the progress or diminution of the public debt. The result of the alteration, however, was to increase the Expenditure by £2,000,000, and thus to diminish in a proportionate degree the surplus applicable by law to the payment of the national debt. There was another point, and one of a very material character, to which he also desired permission to call attention. In the course of the last year there had been not only two Sessions, but two Parliaments, and consequently there had been two Appropriation Bills. Now, in the Act before their Lordships, of which the third reading was now proposed, a constitutional principle of the greatest possible importance had been departed from. He was willing to suppose that it had been violated through misapprehension or by mistake, but he thought the point was one which Parliament 1959 ought not wholly to pass over. The vital principle of this Bill had always been comprised in a clause of appropriation, limiting the public expenditure to the extent and distribution of the Votes of Parliament. From the time of William III. up to the present day there had been inserted in the Appropriation Bill a clause which was drawn up by no less an authority than Lord Somers, and which was to this effect:— The said aids and supplies provided as aforesaid shall not be issued or applied to any use, intent, or purpose whatsoever other than the uses, intents, and purposes before mentioned, or for the other payments, appropriation, or application directed to be made or satisfied thereout. In the Bill now on their Lordships' table, however, this clause was omitted, and something totally different was enacted. By Clause 27 it was provided:— So much of the 20th of Vict. c. 20, as limits or restricts the issue or application of the several sums granted to Her Majesty to the services voted in that Session of Parliament, shall be, and the same is, hereby repealed; and the sums granted by the said Act and those granted by this Act shall and may be issued and applied generally to any use, intent, or purpose mentioned in or to defray any payment directed to be satisfied by this Act. The difficulty intended to be remedied had arisen no doubt from the necessity of passing two Appropriation Bills in the one year and the object was to apply indiscrim inately each distinct Vote of the one Session to the similar and corresponding Vote in the other—to make the Army Votes taken on the two occasions applicable to the Army generally throughout the year; and so with the Navy, Ordnance, and all other Votes. But the Bill was framed as if it was meant to allow the whole of the money issued to be applied generally to any use whatever contained in either of these Acts, thereby not limiting the amount expended to the amount of each separate Vote, as the ordinary Appropriation Bill would have done. The words were such as might be construed so as to apply generally instead of uniting the two Votes of the same character. He was perfectly satisfied that it could never have been the intention of the Government to have made such a change. He believed the course taken to have been the result of an inadvertency, but he thought it most unfortunate that the Bill should have passed the other House in a way which their Lord ships could not rectify. In the observations which he had made he hoped it would not be supposed that he was casting any reflection upon his right hon. Friend who held the office of Chancellor of the Exchequer; 1960 but the points he had raised were, he believed, of importance in a constitutional view, and deserved the careful consideration both of the Government and the House. It was with this view that he had brought them under the special notice of the House.