CURRENCY AND BANK NOTES BILL. (Hansard, 6 August 1914)

*THE MARQUESS OF CREWE

My Lords, I am now in a position to make a statement to the House upon two distinct but kindred subjects connected with the finances of the country—first, the extension of the Moratorium, which we were entitled under the Postponement of Payments Act passed two days ago to extend by Proclamation; and the further point of this Currency and Bank Notes Bill which has just come up to us from another place, and which I shall ask your Lordships to pass through all its stages. As regards the extension of the Moratorium, the House will easily understand that for one particular class of persons adversely affected by the Moratorium relating to bills of exchange in the first Proclamation some relief becomes necessary. There are obviously persons who, if that Proclamation had not been issued, would have become entitled to funds which would have enabled them to meet other payments which they are equally obliged in their turn to make, and, their debtors being relieved by Proclamation from paying them, they also stand in equal need of relief.

But it is, as a matter of fact, found that we have to go a great deal further 444 than that. There is a large number of persons of all ranks who find that the sources from which in ordinary circumstances they would obtain funds to meet their obligations are now dried up, and they are therefore not in a position to pay. It is no easy matter to attempt to discriminate between the different kinds of liabilities, and it has therefore been decided to make this Moratorium general in its scope, but with certain far-reaching and important exceptions which I will explain to the House. First, as to the form of relief. It is this. It gives the right to all persons who come within its scope to delay for a month the payment of liabilities which fall to be paid before the 4th day of September next in respect of a contract made before the 4th day of August; but this right is subject to the necessity of paying interest at the Bank Rate on Friday—to-morrow's Bank Rate—on the debt which remains unpaid for the period for which the payment is delayed. The House will see that it is necessary to oblige this payment of interest in order to prevent persons taking advantage of the Moratorium who have no real need for doing so, and presumably if they can pay they will do so rather than pay interest. The hope is that this period of a month will give debtors whose affairs are so dislocated by these events the chance of looking round and making such arrangements as they best can.

Business is really in quite a sound condition, and therefore it may be hoped that a very large number of people who owe money will be able to make those arrangements. The House will also remember, if this period should not prove to be long enough, that there is a power to extend the Moratorium still further if it should be required. The bankers, as I stated yesterday, desire to carry on their ordinary business in their usual way; but there is one restriction which bankers find it necessary to place upon depositors, if there are such depositors—and, of course, there may be some—who desire to withdraw gold for the mere purpose of locking it up in their private safes, not for the needs of their business, but simply in order to hoard it up, and upon those the Government quite agree some restriction ought to be placed. The Proclamation has no effect on the Proclamation relating to bills of exchange. That stands just as it did. But the Proclamation now says that all 445 payments which become due and payable any day before the beginning of the 4th day of September in pursuance of any instrument which was drawn before the 4th day of August shall be deemed to be payable a month later.

Then comes the important point of the exceptions. The Proclamation does not apply to any payment in respect of wages or salaries. It does not apply to any small liability, the limit which we have fixed being £5. The particular matter which we had in mind in respect of the fixing of the sum at £5 was that of small rents which are paid weekly. It would be undesirable and no good to anybody if a man who is in employment and receiving his weekly wages, quite possibly undiminished by the crisis, should be excused for a month from payment of his weekly rent. It would be hardly fair to expect him to put by the money and to be required to pay the month's rent at the end. On that account, and in connection with other small payments of a similar kind due from people of small means, we have fixed a £5 limit. Then no Moratorium is given in respect of rates and taxes, or in respect of maritime freights. It is not given in respect of any debt to any person resident outside the British Isles, unless the debt is incurred by a person, firm, or company, or any kind of institution, which has a branch business in these islands. It also does not apply to dividends on trustee securities. That is an important consideration which the House will no doubt note. It does not apply to the liability of a bank on the issue of notes—those banks which are issuing banks. It does not apply to any payment made by His Majesty's Government, including old-age pensions; or to any payment made by any person or society in respect of the Insurance Act, or any payment under the Workmen's Compensation Act, or any payment in respect of the withdrawal of deposits by a depositor in a savings bank. Those are the exceptions, which, as I said, are fairly wide, and I hope that the House will agree that they are reasonable.

The Proclamation will be issued at once, and I think it cannot be doubted that it will afford a great deal of relief to a large number of persons who have found themselves, through no fault of their own, in some difficulty in meeting their obligations owing to the crisis. The House will 446 remember what I said yesterday with regard to the part taken by the banks, that the banks desire and intend that business conducted by cheques which pass through the Clearing House should go on precisely as usual; and I can once more repeat that they have done their best to assist us throughout this crisis. We have been continuing our discussions at the Treasury with representative bankers, including also bankers from Scotland and Ireland, whose particular position has, of course, added no little difficulty to the arrival of a satisfactory solution. I stated yesterday that it was decided to issue a large number of £1 and ten shilling Government bank notes. This will provide fairly small change for the payment of wages and for like purposes; and there is a tremendous demand at this moment for currency of a smaller denomination than five-pound notes which will be met in that way.

The issue of these notes is not, of course, an object in itself, and it does not in itself meet all the present needs of the financial situation. What it does is it enables the banks to do so. The House is well aware that the Bank Act limits the issue of notes to the amount of gold which the Bank holds, plus a certain proportion, a comparatively small amount, in securities. We sweep away for the time being that restriction, and it is fair to note that the Bank of England has always been far more in leading strings under the Bank Act than most of the foreign banks of a similar, though not identical, position in their issue of notes. The Bank of France, I understand, has an infinitely wider power in issuing notes than the Bank of England has unless the Bank Act is suspended. The same applies, I think, to most of the other great Continental countries. The proposition is now that the Bank of England, and also the banks of issue in Scotland and Ireland, which, as noble Lords know, are numerous, should have powers of the same kind as the great banks have on the Continent of Europe, subject to restrictions imposed by letter from the Treasury. That is to say, if the country desires an extended currency that currency can be obtained by application to the Treasury if the Treasury think it safe to grant it.

But I must again remind the House, as I did yesterday, that this extension of power of issue has nothing whatever to do with 447 suspension of cash payments. The paper that is issued will be for all purposes equivalent to, and in case of need can be exchanged for, gold at the Bank of England; and that, of course, draws a sharp dividing line between the two steps of suspending the Act and of announcing an infinitely more serious step, the suspension of cash payments. It is hoped, however, and I think it is a most reasonable request to make, that for the ordinary purposes of life people who in an ordinary way would ask for five or ten pounds in gold will for the time being take that money in paper. Nothing is lost by doing so. For a vast number of purposes these notes will be every whit as convenient as sovereigns and half-sovereigns, and we hope to find that the public will take kindly to them; so that all persons of any influence can do the State a service by pointing out the fact that for all purposes these notes are just as good, and that an excessive amount of gold in circulation has not the same strengthening effect on our credit as it has if it is at the Bank of England or obtainable by the Bank of England. Then, any bank notes issued by a bank of issue in Scotland or Ireland become legal tender, and such a bank of issue is only placed under the obligation to pay cash for its notes on demand at the head office of the bank. That provision is no real hardship on anybody, and it will be found to be a great convenience to those banks in Scotland and Ireland which have a great number of small country branches. I think those are all the points that I have to mention in relation to the Currency Bill. I move that the Bill be read a first time.