CONVERSION OF THE WAR LOAN. (Hansard, 30 June 1932)

§ VISCOUNT HAILSHAM

My Lords, I apologise for intervening in this debate, but I think when you hear the statement which I have to make your Lordships will realise that it is proper that it should be made at the earliest moment. At this moment the Chancellor of the Exchequer is making a statement in another place in the terms which I propose to reproduce in the exact language which I understand he is to use. Mr. Chamberlain is saying to the House of Commons:

"I offer my apologies for interrupting the normal business of the House, but I have no option. The House has the right to be the first to hear an announcement of this character, and the hour in the evening at which such an announcement must be made is precisely determined for me by a consideration on the one hand of the hours of business in America and on the other hand of the minimum time which must be at the disposal of the Press to enable them to make the scheme known and understood in the country upon the following day.

Talk of conversion has been in the air a long time, and naturally so, for it has been growing increasingly obvious that the War Loan at 5 per cent. was out of relation with the yield of other Government securities and, moreover, that the maintenance of that old war-time rate, attaching to so vast a body of stock, and hanging like a cloud over the capital market, was a source of depression and a hindrance to the expansion of trade. Nevertheless, the choice of the proper moment at which to launch so vast an undertaking is one 450 which demands most careful and anxious consideration and the final decision to make this announcement to-night was only arrived at after a number of alternatives had been examined and rejected.

I may perhaps give the House some of the reasons which have convinced me of the necessity for prompt action. In the first place, economy is an urgent matter, and this scheme affecting so great a reduction in our interest charge is an essential element in any economy proposals. In the second place, I anticipate that from a general reduction in the level of interest charges great benefits should flow to industry, which will be enabled more easily to obtain such capital as it needs, and to secure that capital on better terms. There is a great consensus of opinion that the continued existence of a vast body of British Government stock yielding a 5 per cent. return is an artificial obstacle to a fall in interest rates to a lower level at which they would otherwise naturally stand. Thirdly, we are in the fortunate position that the relative merits of British Government securities by comparison with all other investments, British and foreign, have never been more amply recognised by the world at large than at this moment. That, as the House will realise, is a vital factor in the success of such an operation. Fourthly, while we are in a position to secure such important results as I have indicated immediately, I do not consider that further delay would be justified either by the prospect of small additional savings or by any hope that the operation would become any easier with the lapse of time.

The final and the strongest argument for immediate action is to be found in the spirit of the country. After a, long period of depression we have recovered our freedom in monetary matters. We have balanced our Budget in the face of the most formidable difficulties, and we have shown the strongest resistance of any country to the general troubles affecting world trade. I am convinced that the country is in the mood for great enterprises and is both able and determined to carry them through to a successful conclusion.

451 Before I come to the particulars of the scheme there is one personal matter to which I should like to make reference. It is well known that my predecessor, Lord Snowden, had hoped to undertake this operation last year had conditions been favourable, and in the Finance Bill introduced by the first National Government in September last he embodied a series of clauses preparing the way. Lord Snowden was deprived of the satisfaction of carrying his plans into effect, but I propose to avail myself in every detail of the procedure provided in the Finance Act of last year, which has rendered my task easier and introduced conditions more favourable than would otherwise have been possible.

In a few moments' time a special edition of the London Gazette will be published. It will contain a notice intimating that the Government intend to repay the War Loan in cash on the 1st December next to those holders who decide to apply for repayment within three months from this date. But the notice will also intimate that holders of the Loan are invited to continue in the Loan on altered conditions, and it is my confident hope that the great mass of the holders will respond to this invitation. I am arranging for copies of documents to be available to hon. members in the Vote Office immediately on the conclusion of my statement, and, for this reason, I shall for the moment omit minor alterations, and shall confine myself to a statement of the principal changes in the terms of the continued Loan. The dividend of the 1st December next must be paid at the rate of 5 per cent. per annum, the rate payable under the original prospectus, until the notice to repay becomes effective. Thereafter, beginning with the dividend payable on the 1st June, 1933, the rate of interest will be 3½ percent. per annum. Up to the 1st December, 1952, five years later than the latest date for repayment of the loan under the original prospectus, the Government forego all right to redeem the Loan. After that date the Government reserve to themselves the right to repay the Loan, at any time, either in a single operation or by instalments. The existing arrangement under which the interest is paid with- 452 out deduction of Income Tax at the source—a special privilege which has proved itself a great convenience to an enormous number of small holders—will continue unchanged.

I am bound by the terms of the prospectus of the 5 per cent. War Loan to give at least three months' notice to redeem, but in an operation of this immense magnitude it is very desirable that we should know as quickly as possible where we stand, and that we should have ample time to concert such remaining measures as may be necessary. For this reason, but also because we recognise that the inevitable reduction in the rate of interest may, when it first comes, be seriously felt in a number of cases, we offer a cash bonus at the rate of £1 for every £100 of stock to all those holders who, not later than the 31st July, assent to the offer to continue in the Loan; this cash bonus, which in the case of the ordinary investor will not be liable to Income Tax, will be paid to each holder within 14 days from the date of receipt of his effective assent. The saving in interest charge at which we aim by this conversion scheme is in the region of £30 millions per annum. In the nature of things none of the saving can be realised in this financial year, the current expenditure of which will be unaffected by this operation. But the whole of the saving will be realised in the year 1933. It must, however, be remembered that the reduction of interest carries with it a reduction in the yield of Income Tax and Surtax and, taking this into account, the net budgetary saving may be put at about £23 millions per annum.

There are nearly 3,000,000 people who hold War Loan. Many of these have, I expect, but little experience in construing a complicated prospectus, and they will, therefore, be glad to receive a simple statement of the aims and policy which underlie this operation. For these reasons I have thought it right to arrange that, when the prospectus and other relative documents are sent, as they will be, to every holder, a letter over my signature should also be enclosed, explaining the nature of the scheme and the purpose behind it. I am making copies of this letter available to hon. members in the Vote Office as soon as my statement is con- 453 cluded. The letter will go, as I have said, to all holders, great and small. Large investors, to whom a conversion operation is a familiar process, may well find in parts of it phrases more simple and less technical than is customary on these occasions. I feel sure that, remembering the immensely wide circulation the message will have, they will appreciate my object and will not regard the letter as superfluous.

I am sure that anyone who may be contemplating the issue of new capital in the market in the early future will forbear from coming forward for a few weeks while this great operation is proceeding, and that the authorities in the City of London will co-operate in this necessary object. I should add that the sale of Savings Certificates will be temporarily suspended as from this evening, but as we have, of course, no intention of abandoning that valuable method of borrowing, a new certificate, details of which will appear in the Press to-morrow, will be placed on sale after a short interval.

I will mention one other matter which may be of some interest. My preparations have been proceeding for many weeks, but the essential need for secrecy in preparation has prevented me from printing any of the many millions of forms which I require. With the willing co-operation and assistance of the Bank of England, the Government propose to attempt the gigantic task of printing fifteen million forms and despatching them by post in nearly three million envelopes within a space of twenty-four hours from now. These letters will not, of course, reach all the holders to whom they are addressed on Saturday morning, for the holders live in all parts of the country—and indeed of the world—but they will all be on their way by to-morrow night. In this way we shall cover all the holdings at the Bank of England and the Post Office. In addition, upwards of half a million letters containing supplementary notices in special cases will, we hope, be posted early on Saturday. I do not undertake that we can completely fulfil this almost superhuman programme, but we shall spare no effort, and I am sure that our endeavour to present our scheme with the least delay and in the most intelligible form will be appreciated.

454 For the response we must trust, and I am certain we shall not trust in vain, to the good sense and patriotism of the three million holders to whom we shall appeal."

Your Lordships will not desire, of course, to debate that statement. I do not think that there is likely to be any debate in another place. I feel sure your Lordships will forgive me for intruding, perhaps a little irregularly, into our present discussions, because I felt it was only right that in this House, where matters of economy have been discussed and have bulked very largely in the last few days, the same announcement should be made and at the same time as that, made by the Chancellor of the Exchequer in the House of Commons.