HL Deb 18 May 1933 vol 87 cc957-71

Order of the Day for the Second Reading read.


My Lords, this is a short Bill of only one operative clause and its object is to increase the Ex-change Equalisation Account from £150,000,000 to £350,00,000. The object of the Exchange Equalisation Account, as I think your Lordships know, is to smooth out the day to day and hour to hour fluctuations in exchange rates. It makes no attempt to alter the long-term trend of exchange, nor could it succeed in doing so inasmuch as the exchange, as I think your Lordships will agree, must inevitably depend in the long run on the result of the balance in international economic relations. For many years past there has been, of course, a seasonal fluctuation in the exchange. It is high in the pound's favour in the spring and it drops in the autumn. That is due to the importation of very large quantities of goods during the autumn months. That is intensified by speculative transactions. When the pound is low speculation is inclined to drive it lower, and, when it rises, to push it up.

As I think your Lordships will again agree, these variations in the exchange render it extremely difficult for manufacturers here to conduct foreign trade because it makes it very difficult for them to know what sums they should receive on foreign account. Last year when the Fund was started it was not known how much money would be required in order to carry out this object. The Chancellor of the Exchequer said that until a year had elapsed it would be extremely difficult to say how the Account would work. So far as one can tell—we have not been let into the secrets of the way in which this Account has been worked—the exchange has been kept at a fairly general level and there have not been small jumps op and down, making trade so difficult. As the result of the year's experience it has been found that the Account was not big enough and recently it has been found that the Account requires a very considerable increase—indeed that it should be more than doubled.

What has happened? Having balanced our trade, or made our trade more balanced than it was, because we still have an adverse balance, though a much smaller one, and having balanced our Budget, we have in effect produced such confidence in the credit of this country that a large amount of capital has poured in from all parts of the world. This has been described in another place as refugee capital, and Sir Herbert Samuel said that the result of having a stable system of commerce and a reliable system of finance is that you attract money to this country. In fact, the amount that has come has been very considerable. My right honourable friend was asked if he could give any estimates of that amount. His reply was that it was impossible to do so, and that, even if it were not, he would be very unwilling to give such an estimate because that is one of the many figures speculators would like to have in their possession. But difficulty arises front the fact that capital is brought in sometimes for speculation, sometimes for safety and sometimes for business, and to make a division into those three categories is impossible.

Something was said in another place as to why the amount of £350,000,000 was decided upon and my right honourable friend the Chancellor of the Exchequer stated that he had at first thought of taking quite a small amount, but afterwards thought that that was unwise from every point of view, including that of the Parliamentary time which would be taken up in having to come again to Parliament if he found the amount inadequate. Again at one moment he thought of asking the House to increase the amount to £400,000,000 instead of £350,000,000, but he thought that that was excessive. Eventually he came down on the side of £350,000,000, and he thinks that that will be ample. Conditions in international exchange and in currency generally throughout the world at this time are so chaotic that he could give no pledge that the amount might not be found too large or possibly somewhat too little. My right honourable friend was asked whether the Account had made a profit or a loss. His reply was very much the same as one I had to give the other day in regard to trade facilities funds, which is that until the Account has been wound up it is really impossible to say whether it has made a profit or a loss because until all the assets are realised you do not know what amount to arrive at; but my right honourable friend had a valuation made shortly before presenting this Bill and on that valuation it was found that there had been a slight profit.

I do not know that I need say very much more, but perhaps your Lordships would like to know that trade transactions in this country alone may amount to as much as £2,000,000 in one day, and that in 1932 we had experience of foreign capital going out of or coming into this country up to a level of even more than £8,000,000 in one day. Your Lordships will agree that an Account such as this is very necessary and I hope you will approve of the Bill. There is one other point I ought to mention. In another place members expressed the feeling that a vast sum such as this ought really to be put under some definite public control. It is of course under the Auditor-General, but the suggestion was that figures should be given in another place or go before the Public Accounts Committee. The reply of the Chancellor of the Exchequer was that he was strongly in favour of that principle, but the difficulty was to make public to the Public Accounts Committee or any other body the figures or the methods on which this Account is worked without speculators also getting the information and so nullifying the whole value of the Account. My right honourable friend suggested that it might be possible to draw up a clause to be introduced into the Finance Bill giving effect to some such control as was suggested. but he had to intimate to the House of Commons that so far he had not been able to draw such a clause and that, although he would be very glad to talk it over with any members who wished to do so, he was not very hopeful of being able to get a clause which would give control without involving the evil effects to which he had referred. I think that is all I can tell your Lordships at this moment, but if any noble Lord has a question to ask I will endeavour to answer it. I beg to move that the Bill be now read a second time.

Moved, That the Bill be now read 2a.—(Earl Stanhope.)


My Lords, this Bill is a certified Bill and therefore its passage through this House is little more than formal. As a matter of fact, whether it was certified or not it would pass this House, because your Lordships would pass any Bill from another place which the so-called National Government wishes to pass. So far as noble Lords on the Labour Benches are concerned, following out the rule laid down by the noble Lord, Lord Ponsonby, we shall not vote against the Second Reading of any Bill that comes here from another place, as we hold that Bills passed by the elected representatives of the people should not be rejected by this House—irrespective of how the majority in another place was obtained, and about that I say nothing at the moment. The function of your Lordships under the Parliament Act is merely one of discussion and of course we also have the opportunity of asking questions. The noble Earl who has just sat down invited us to do so and I propose to respond before I sit down.

Before I come to the Bill itself there are one or two things I should like to say in regard to the position shown by the Order Paper. I do not quite understand why, having regard to the fact that it is now three weeks since, the introduction of the Budget, this Bill is brought up in such tremendous hurry. If there was urgency presumably that was known some time ago and why should your Lordships not have had rather more notice? I am not objecting to the passage of the Bill in one day because that is customary with Finance Bills, but I think the matter has been a good deal hurried and, having regard to the magnitude of the measure and the risks involved, I make bold to say that if such procedure had been adopted by a Labour Government, instead of the placid docility which f, see to-day there would have been speechless indignation and most woeful lamentation.

On balance we in the Labour Party are opposed to the Bill because we hold, and hold strongly, that the case for it has been quite inadequately made out and that many questions regarding it which Parliament has a right to ask, and has asked, have not been answered and apparently are not going to be answered. We do not know in connection with this Fund what the objects really are, and nobody knows. One of the most respected Conservatives in another place who has a life-knowledge of exchanges, smashed to smithereens the Chancellor of the Exchequer's case for this Bill and riddled his arguments. He said in the first place that you could not control the exchanges; secondly, that it was ridiculous to say there was much speculation; and, thirdly, that it was absurd to suggest this secrecy because the City knew perfectly well what was going on. He proceeded to tell the Chancellor of the Exchequer what was going on hour by hour, and said it was impossible to tell whether there would be a profit or loss on the Fund. For reasons which I will show later on there may be a very heavy loss on the Fund before winding it up.

Before proceeding to the clause of the Bill I would like to raise a point about the title of the Bill. It is called The Exchange Equalisation Account Bill. Why is it called the "Equalisation" Account? What are you trying to equalise exchanges with? I listened to the noble Earl, and he said nothing which had any bearing upon that. I gather that the object of the Bill is really to try to stabilise and control the exchanges. Why then do you use the word "equalise"? I should have thought that the combined intellects of the Treasury, the Bank of England and the Government might have evolved some better word than that. I do not think very much of the brain power of the Government, but I should have thought that the combined brain power of the three might have evolved something more suitable and more intelligible. I suppose that some minor official of the Treasury adopted this title, that the higher officials did not bother, and that the Chancellor of the Exchequer was too busy to think about it, and so the name came into being. It really is a supremely ridiculous title and I ask the noble Earl to tell us what is meant by it. What is he trying to equalise with this Bill? Would it not be better to call it the Exchange Stabilisation Bill or the Exchange Control Account Bill? I do not profess to find a proper title; all I say is that "equalisation" is wrong, and that is one of the things that ought to be altered.

When I come to the Bill itself, the main objection of the Labour Party is that, no sufficient case has been made out for increasing this account by the enormous sum of £200,000,000, for it is an enormous sum. We have not been able to get enough information about the Fund, or the real object behind it, and it is with the intention of endeavouring to elucidate some of these matters that I propose to address my remarks, and to put certain questions to the noble Earl in charge of the Bill. Before I come to that, however, let me observe this: that it is really a very astonishing circumstance that this Bill should be received with such docility by the Conservative Party, because it is entirely opposed to the presumed tenets of the Conservative Party. They are supposed to be opposed altogether to State regulation and State management of things. Here we have a Bill for the purpose of enabling the Government to control foreign exchanges, and asking for £350,000,000 for that purpose. Whatever else that may be, it is not in accordance with the supposed principles of the Conservative Party. Under the present Government we have become accustomed to State control of nearly everything—in fact, there has been an almost indecent conversion of the Government to things which are entirely opposed to what has always been supposed to be one of their principles. Control by the State is undoubtedly opposed to the principles of the Conservative Party, but they are apparently ready to accept anything from this so-called National Government. If the Government really want a, Bill they will get it.

Under this Bill, as I have said, £350,000,000 is going to be set aside for the control, or attempted control, of foreign exchanges. That is more than half the National Debt before the War. It is an enormous sum. It is true that up to the present time, as the noble Earl has said, a valuation has been made, and on the lower scale of £150,000,000 it is estimated to-day that there has been no loss. That is merely a paper calculation. As he said—he had to protect himself to that extent—the assets have not been realised. It will be very interesting to see what happens when they come to be realised. One effect has been to force up the price of gold. Of course, you can force it up to anything you like if you buy all the gold that comes into the market, but what happens when you want to sell gold and not to buy it yourself? I say that there is a risk of a very heavy loss indeed on this Account. I do not say it will occur—it is possible there may be a profit—but there is risk of a very heavy loss. We may easily lose £50,000,000 or possibly more on the working of this Account, and if you are running a risk like that the strongest possible case ought to be made out for taking that risk.

The Chancellor of the Exchequer has told us again and again that the Bill was decided upon before America went off the gold standard. He has said it with almost wearisome reiteration, and he apparently thinks that having said that there is nothing more to be said about it. Nothing can be further from the fact. The fact of America having gone off the gold standard transforms gold values and tremendously increases our risks. There never has been any reply or defence to that, which is a very important point. The Chancellor of the Exchequer has stated how anxious he was to get the right amount. Finally, he decided that the amount of the increase should be £200,000,000, and gave his argument why it should not be £150,000,000. The Chancellor of the Exchequer seems almost to have had a nervous breakdown in deciding the proper amount, and that was decided, apparently, before America went off the gold standard. I would like to ask the noble Earl if that is so. If it is so then if it was the right amount before America went off the gold standard, it cannot be right now, and that changes the position altogether. Both cannot be right.

The official view of this Bill, as the noble Earl has said, is that it is being used for small day-to-day fluctuations in the exchanges, and also to deal with speculators. I have already referred to the latter. The highest authorities in another place have stated that there is very little speculation. However, we are told that it is being used to iron out small fluctuations. What is really being done? Is that the policy which is being carried out? I venture to suggest that as a, matter of fact that is not what is happening. I wonder if the Chancellor of the Exchequer really knows what is happening. There are three parties to the working of this Account or Fund—namely, the Government, the Treasury—and for this purpose they are one—and t he Bank of England. Of these the greatest is the Bank of England. I venture to think that when the history of this Fund comes to be known, and all its operations can be reviewed at a later date, it will be seen that the Bank of England, not for the first time, is really very largely at the back of the whole business. I say that there are grounds for thinking that the Bank of England is using this Fund, or having it used, to pave the way to a return of this country to gold, and I think that this £350,000,000 will, to a large extent, probably, be used in that direction as time goes on. Parliament is entitled, therefore, to have very much more information.

The question is: What are you trying to stabilise with this Equalisation Account or, as I prefer to call it, Stabilisation Account? Are you trying to stabilise the pound with the franc, which is still on gold, or with the dollar, which is now off gold? Are you trying to stabilise it even with the Japanese yen? What are you trying to do Before the United States went off gold you could, more or less, try to stabilise with countries on the gold standard, and both France and the United States were then on gold. But now that America is off gold and France remains on gold the currencies of these two countries are, so to say, diverging. Let me put it like this: you can only ride two horses round a circus if they are going in the same direction at the same time. You cannot ride two horses round a circus if they are going in divergent directions. Now that the franc and the dollar 'are diverging we want to know what is the object of the Government. Which horse is it that they are trying to back? I say that there is ground for believing that they are backing the French horse. They are trying to stabilise the pound with the franc, because for some time now there has not been very much variation between the pound and the franc, whereas the American dollar, naturally enough in the circumstances, has been going down in relation to the pound. So when we are told that the Exchange Equalisation Account is only being used for small fluctuations, I say that there are grace grounds for questioning whether that is what is being done. I say that there are many reasons to believe that this Account is really being used systematically to prevent the exchange value of the pound from rising. That is what has been going on, and that is what is going on now in regard to the pound and the franc. That is not an affair of small fluctuations.

I have already quoted the opinion of one of the greatest authorities in the country on exchanges, a very highly respected Conservative member in another place. He went this far—it is not a partisan view—he said the position now is that we do not know anything at all about the objects of the Bill. That was his last comment on the Bill almost when the clock was striking twelve on Monday night. In these circumstances I think that it is our duty to try to get to know a little more. In spite of all this, the Government go gaily on, they do not reply to questions. They try to bury the whole thing in mystery and mummification—" You must not ask: do not let the speculators know," and so on. We ought to have more information. I say there is every ground for supposing that the Government are backing the franc and that the Exchange Equalisation Account is, in effect, being used to stabilise the pound with gold. You are always trying to get back to gold. That is the point I am trying to make, because my further contention is that all this is part of the fixed, and unchanging, and unchangeable policy of the Bank of England. Their object is ultimately to get Great Britain, somehow or other, back on to gold. That is what I believe is at the back of this Bill. The Exchange Equalisation Account in the first year of its working has already increased the gold reserve of the country by £60,000,000. That in itself makes it easier to go back to gold.

I will ask the noble Earl two specific questions, very reasonable questions. The first one is this: Is it not a fact that the main operations of the Exchange Equalisation Account are now aimed at keeping the pound more or less steady with the franc, and that not much is being done by the Equalisation Account with regard to the dollar exchange or other exchanges which are not on gold? We are entitled to have an answer to that. The second question is this: Is it not a fact that in practice the Exchange Equalisation Account has been largely used to keep down the exchange value of the pound (I do not think that can be denied); and do not such operations go far beyond the stated official policy of ironing out small fluctuations in the exchanges? Those are very fair questions, and I have made them as clear as I can. If they are not clear I have got them here, and I will hand them over to the noble Earl. I shall be glad if he will be good enough to deal with them.

I repeat, there is reason to believe that what is going on behind this is a. paving of the way to a return to the gold standard, and we in the Labour Party are very apprehensive about that. We need to be apprehensive about it. We look back at the past few years and every time we have been right and noble Lords opposite have been wrong about the gold standard. I remember very well in 1925 protesting against the return to the gold standard then. I put the case as well as I could. I asked certain questions. Of course, they were not answered—questions are not answered as a rule in your Lordships' House on fiscal matters. The noble Lord who spoke for the Government got up and gave all the orthodox reasons why we should return to the gold standard—warmly cheered by the noble Marquess, Lord Salisbury, who was then leading the Government, and accompanied by a chorus of Conservative cheers. They are all proved to be wrong. Time has gone on and we are vindicated. Even Mr. Churchill himself in another place, who did this thing, stated, in effect: "I am sorry that the advice I received from my officials was wrong"; and the return to the gold standard in 1925, accompanied by the persistent policy of deflation which the Bank of England has been mainly responsible for, had a great deal to do with the poor trade of this country from 1925 onwards. Mr. Montagu Norman is. I hold, more responsible than any other single man in this country for the state of unemployment. I believe that will be the verdict of history.

We cannot forget what happened to the gold standard when the National Government came in. They were to keep us on the gold standard: everything would be lost if we did not stay on it. Mr. MacDonald made himself supremely ridiculous by saying that the Treasury notes would not be worth the paper they were printed on if we went off the gold standard. We went off the gold standard. Trade instantly revived, at any rate for a time. In a short time people were saying, including many members of the National Government: "What a good thing it was; we must be very careful not to go back again on the gold standard." That is our point. I do not wish to be in that position again. It does not give us much satisfaction to be able to say we were right and noble Lords opposite were wrong. We can do it so often. We can do it in regard to almost everything. We get tired of it. We are quite willing to give up the ghoulish satisfaction of being able to say that, if only in advance we can stop harm being done. It is in that spirit that I have put this question forward, and I repeat I am perfectly certain that if a Bill of this character had been brought up to this House by a Labour Government there would be a very different state of things in your Lordships' House from that which we see to-day.


My Lords, I quite agree with the noble Lord who has just sat down. If the Labour Government had brought up a Bill of this character there certainly would have been a turmoil in the country—


In this House, I said.


—and for this reason, that, although the noble Lord says he is always right, the effect of the control of the Labour Government over the finances of the country was that the whole confidence in the stability of this country was lost, and we were driven off the gold standard because of the things that had been done by the Labour Government. The sole reason why we succeeded in maintaining our credit after we had gone off the gold standard was that in the interval we succeeded in balancing the Budget, whereas the noble Lord and his Party were borrowing with both hands; they were not only spending largely out of revenue, but they were also drawing largely on capital by raising funds in every direction for ordinary expenditure on day to day business.

The noble Lord has asked me a series of questions. First of all he is very much exercised in his mind about the title of the Bill. It is rather late in the clay to raise the title of the Bill, because this is merely an extension of a Fund which was raised last year under an exactly similar title, and therefore if the noble Lord had such grave objection to it I am rather surprised that he did not raise the point twelve months ago.


I was not here.


No doubt the country suffered largely by that fact, but at any rate perhaps one of the noble Lord's friends—I admit that they are not a very large Party—might have raised it on his behalf. Then he asks: Why "equalisation"? I admit that "equalisation" may possibly not be the right word, but undoubtedly "control" is a far worse word, because, as I tried to point out, there is no question of trying to control the exchange by the operation of this Fund. All that is attempted is to level out the small inequalities, and therefore it is a balancing or levelling Fund, but we call it equalisation. Personally I think the word is a good one to explain to the public generally what is the meaning of this Fund. If we called it a "control fund" it would be totally misleading.


I did not suggest that.


No, the noble Lord was wise enough not to suggest anything.


I should call it the Exchange Operations Bill.


I find it often happens that the noble Lord fails to make a suggestion as to what should be done so that, should be proved right or wrong later on, his statements are very nebulous. He is very much upset because the Conservative Party as part of the National Government endeavours to control the exchange, as he calls it. As I have tried to point out, we are not controlling the exchange. Apart from that, one of the difficulties is that the noble Lord has never really understood the principles of the Conservative Party. If he had, he might possibly be sitting on this side of the House instead of in splendid isolation on that side. The Conservative Party has never pretended not to favour some control when it is in the interest of the country. One policy which the Conservative Party has bitterly opposed is the policy of laisser faire, which is the policy, I think, of the noble Lord. The Conservative Party has always taken the line that private property should have full freedom, but that the, State should have the right to impose obligations on pro9erty holders and, if necessity arose, to take some control in the interests of the country. That is in accordance with Conservative Party principles.

The noble Lord asked whether this amount was decided before the United States went off the gold standard. Yes, it was. The noble Lord seems puzzled as to whether we are trying to anchor sterling to the dollar or to the franc. We are not trying to anchor it to any coinage. What we are trying to do is to get some relative value between sterling and gold; that is to say, it should not keep on jumping up and down. We cannot in this country, whatever the size of the Fund, control the exchange of other countries, and once the United States went off gold it ceased to be possible to try to keep a level between the dollar and sterling. For that reason, as the franc is still on gold, it might perhaps be said we are trying to keep more analogy with the franc than with the dollar; but we are not by any means trying to anchor the pound sterling to the franc; we are merely trying to equalise the pound sterling with gold. I wondered why the noble Lord was so violent in his attack and I understood, of course, when his King Charles's head once more reappeared in the shape of Mr. Montagu Norman. I sometimes wonder whether the noble Lord is jealous of Mr. Montagu Norman and wants to be Governor of the Bank of England himself. He feels quite certain that the finances of the country would be in much better hands, but whether the City would think so as well I do not know.

He accused us of being quite determined to go back to gold at the first available moment. All I c-an say in regard to that is that the Chancellor of the Exchequer has over and over again said it is absolutely impossible at this moment to make any suggestion of that kind. The situation is far too chaotic throughout the world; and until the forthcoming international Conference has been held and nations have been enabled to get into some sort of relation with each other in regard to their currency, their exchange, and the innumerable monetary questions affecting the whole world at this moment, it is obviously utterly impossible for any one to suggest that we should go back to gold in the near future. The noble Lord says the whole object is to keep down the value of the pound. I have said quite definitely, though I am afraid the noble Lord does not believe me, and the Chancellor of the Exchequer whom I am endeavouring to represent has said, we have no long-term policy in this Fund. It is simply to iron out inequalities. At this moment we are probably endeavouring to keep down the pound, because at this time the pound always has a seasonal rise, just as probably in the autumn we should be trying to push it up.

I think I have answered most of the points the noble Lord asked me. I am afraid I shall never persuade him, because no one else is right except himself, but at any rate I hope I have endeavoured to show him that we have not got any deep ulterior motive at the back of our minds in putting this Bill before your Lordships. It is for the pur- pose I have endeavoured to explain of ironing out inequalities, and trying to let the trade of this country know where it is in taking or getting foreign orders more adequately than it could do if this Fund were not in existence.

On Question, Bill read 2a. Then (Standing Order No. XXXIX having been dispensed with) it was moved, That the Bill be committed to a Committee of the Whole House forthwith. Agreed to; House in Committee accordingly. Bill reported without amendment, and read 3a and passed.