HL Deb 16 February 1866 vol 181 cc592-5

rose to call the attention of the First Lord of the Treasury to the impediment to the beneficial working of the Public Loan Acts caused by the Treasury Minute of 1859, declining any future reduction of interest below 5 per cent. The noble Earl said that there were two kinds of loans to which the Treasury Minute of 1859 applied—one being loans to private individuals or companies, and the other to public bodies on the security of county and borough rates. Now, the Government might occasionally sustain losses from the want of sufficient security in the former case, and there was, perhaps, nothing unreasonable in their covering the risk which they incurred by charging as high an interest as 5 per cent; but there could be no danger of their not being repaid for the advances which they made on the security of public rates, and it appeared to him that they might in that instance reduce their terms to 3½ or 4 per cent, or the rate of interest paid on Exchequer Bills for the time being. When the new Poor Law was passed in England, it led to numerous loans for the purpose of building workhouses, in all of which the Treasury reduced the rate of interest below 5 per cent. In this way £5,000 was advanced to the parish of Paddington, and £50,000 to the City of London Union. In the case of Ireland, when the Poor Law was introduced the Treasury went farther, for they granted loans, to be repaid out of the poor rate, on which no interest was to be charged for the first ten years after the buildings were fit for the reception of inmates. That, however, was an exceptional case, and he did not wish them to do anything of the sort, but merely to go back to the old practice of making such a rate only as would secure them against loss. To show the extent to which the Exchequer Loan Commissioners had granted loans, he found that between the years 1817 and 1843 they amounted to £8,670,000, the entire loss upon which, from insufficient security, was £300,000. From 1843 to 1852 the sum of £4,000,000 was advanced in a similar manner. As regarded counties, these loans were obtained chiefly for the construction of bridges, which were now thrown on the county rate, and for the gaols and lunatic asylums. In parishes they were sought principally for the construction of workhouses, and in towns for providing burial grounds, the erection of baths and wash houses, waterworks, and various other works of local improvement. There was a note to the Return he had just quoted (which was a Return made to the House of Commons in 1854), which stated that the cost to the country of the loans so made averaged 3 per cent, and as the loans were made at 3½and 4 per cent, or Exchequer Bill interest, the Government had not incurred any loss. It further said that on the loans in Great Britain the profits were beyond the losses by bad debts. He was not asking for any eleemosynary grant. All public bodies would rather borrow money of the Public Loans Commissioners than from any private source, because they could repay it by instalments—an arrangement which was not liked by the private lender, who, when his money was returned in so fragmentary a manner, would have continually to be making new investments, and be put to new expenses. By the Treasury Minute of 1859, it was announced that no further advances could be made at a lower rate of interest than 5 per cent, and for this step various reasons were assigned, which in his opinion were wholly insufficient to justify the Government in making the change, and were rather those of an usurious money-lender than those of the Government of a great nation. Many burdens were now thrown by the Legislature upon the land, to the exclusion of any other kind of property, and they had, therefore, a right to every assistance the Government could give them without cost or risk to the country, and thus enable them to bear those burdens. What he complained of was that a practice which had been of such value to the country should be abrogated, not on any sound reason, or on account of any loss to the State, but because the Treasury thought fit to issue a Minute on the subject. He had not thought fit to make any Motion on the subject, but would be content to bring it under the notice of the noble Earl at the head of the Government, who, he trusted, would cause the Minute of 1859 to be reconsidered.


said, there could be no doubt but that the advances made by the Public Loans Commissioners was a great advantage to the borrowers; but the noble Earl (the Earl of Powis) found fault with the change made in the rate of interest by the Treasury Minute of 1859. By a recent Act of Parliament the Treasury were empowered to lay down in their discretion rules under which loans were to be made. In 1856 they made a rule that the rate of interest should vary with the common rate of interest in the market; but it was obvious that if there was justice in this arrangement there was uncertainty and inconvenience. The Loan Commissioners were not in the position of ordinary moneylenders, and if persons could obtain money at a cheaper rate they would not go to the Commissioners. What the Treasury decided in 1859 was that the rate of interest should be fixed at 5 per cent, which was neither very high nor very low, and fair to all parties. Certain exceptions had, however, been made under the Act of Parliament. In laying down that rule the Treasury had acted wisely, and he was not disposed to make any alteration.


said, that these loans, though nominally loans of money, are in reality advances of the capital of the country; and what the Government did was to interpose its character and credit under the authority of an Act of Parliament. By this operation the capital was withdrawn from its natural and therefore legitimate channels of useful employment, and grave doubts may be fairly entertained whether the Government was justified in interposing in this way. With regard to the rate of interest, he thought that that should be fixed rather above than below the market rate. The noble Earl who introduced this subject complained that in 1859 a regulation was made prohibiting the advance of public money at a lower rate of interest than 5 per cent. It was remarkable that since that period there had been a constant tendency in the rate of interest to rise, and he was surprised that the present moment should be taken to recommend the loan of Government money at a lower rate. It was well known that in consequence of recent legislation speculation had been greatly stimulated, a result which he had from the first anticipated, and the country was committed to undertakings which involved a far larger amount of capital than it could command, and the rate of interest in the City had been for some months 3 per cent higher than the continental markets. This country used to supply capital to all the markets in the world: but the case is now reversed, and this country is now compelled to seek capital from other countries by the high rate of 8 per cent interest; yet this was the moment taken to urge the Government to interpose its credit to divert the capital from all private concerns to support those public works. If the Government was called upon to find capital for the construction of public works, surely justice, reason, and policy pointed out that they should not lend it at a lower rate than the market value.