NATIONAL LOANS BILL. (Hansard, 16 November 1939)

§ LORD TEMPLEMORE

My Lords, the main purpose of this Bill, which I ask your Lordships to put through all its stages to-day, is to give the Treasury extended powers of raising money for the prosecution of the present war. There may be some of your Lordships who remember the South African war of nearly forty years ago. A great many of your Lordships remember the last Great War, and will call to mind that similar Bills were passed in both those wars to enable the Treasury to obtain like powers. This Bill, like those that were passed between row and 1902 and between 1915 and 1919, is strictly limited in point of time. If the present war unfortunately goes on for any length of time similar Bills will be produced from time to time in order to enable the financing of the war to go on.

The borrowing powers at present possessed by the Treasury under which new money can be raised do not meet the requirements of a great war. Apart from powers to borrow for the specific purposes of certain Statutes—for instance, in order to finance the Local Loans Fund—there is the short-term power conferred annually by the Consolidated Fund Acts to borrow by way of Treasury Bills repayable in the same financial year, and power to borrow by way of savings certificates provided that the proceeds are devoted to reduction of debt. In addition to this network of limited and, broadly speaking, essentially peace-time powers, the Treasury has under the War Loan Act, 1919, a power to borrow in any form it desires in order to provide for the repayment of Treasury Bills and of Ways and Means advances. By the cumbrous process of piecing together these powers deriving from a series of Acts designed in times of peace or to finance the last war, it might be possible, at any rate for a while, to avoid fresh legislation. But my right honourable 1837 friend the Chancellor of the Exchequer has decided that it is preferable, and indeed necessary, to obtain from Parliament a direct and general authority for the new borrowing, including long-term borrowing, which will be necessary.

The National Loans Bill has accordingly been devised to give that authority in an up-to-date, withal traditional form. Your Lordships will see that under Clause 1 subsection (1), of the Bill the Treasury may borrow in such manner as they think Et up to the limit of the Supply in the present financial year, 1939–40, plus an additional sum not exceeding £250,000,000. The inclusion of this additional sum of £250,000,000 corresponds to the surplus amount authorised by the War Loan Acts of 1915–19, but it should not be interpreted as a signal that the Treasury necessarily intend this year to borrow up to that colossal upper limit. I should like to take the opportunity of saying that this Bill is merely concerned with the conferring of powers and with providing the Treasury with the necessary machinery for the exercise of these powers. How and when these powers will be exercised, which is unquestionably a matter of great national importance, must be reserved for determination by the Treasury. My right honourable friend, in the Third Reading debate on this Bill in another place, refused to go into details on this matter, and I cannot go further than that to-day. To resume: the object of subsection (1) of Clause 1 is to provide, in a manner which has proved serviceable in the past, against the contingency that the Treasury might wish to borrow between the end of the current financial year and the date in the next financial year at which a new Act was passed, and some borrowing is therefore required that is not tied to the Supply of the current year.

In general, the form of the Bill follows the form of the War Loans Acts. I would specially invite your Lordships' attention to subsection (4) of Clause 1 which enables money raised by the issue of National Savings Certificates to be "applied for any purpose for which money may be raised" under the Act. Under the existing law, which was passed in time of peace, the proceeds of the sales of savings certificates have to be used for the redemption of debt. My right honourable friend the Chancellor of the Exchequer 1838 considers that such a restriction has no useful application to the present state of affairs, and he has decided to remove it. As he stated in another place, he thought it was right that the citizen of small means—a very important part of the community—who makes his contribution through the medium of National Savings Certificates, should feel that by doing so he, no less than his richer fellow citizens, is securing that the contribution is going directly for the purpose of fighting and winning the war. The psychological effect on people's minds is considered very important, and my right honourable friend has inserted this subsection in order to meet that.

Clause 2 deals with the exchange of securities. The Government have at present unrestricted powers to convert any security issued under a War Loan Act, including that of 1919. Under Clause 2, subsection (1), a wider power is given, extending to the conversion of any Government securities whatever into any other Government security. The clause contains a number of other provisions such as the power given by the latter part of subsection (3) to make payments with the object of encouraging early application for a loan on the lines of the cash bonus offered in connection with the conversion of the 5 per cent. War Loan. Clause 3 is technical in character, explains itself, and contains no new principle. Clause 4 is an important clause. It relates to the powers of trustees, repeating certain provisions made during the last war in this connection. By these provisions, briefly stated, trustees were indemnified from loss arising from their subscribing to, or investing in, any Government loan raised for the purpose of the war, and were enabled to exercise their powers of subscription, investment, sale, or conversion, notwithstanding anything to the contrary in the instrument of trust and irrespective of any obligation to obtain the consent of any other person. Subsection (1) of Clause 4 provides a like indemnity in respect of any securities issued under this Bill.

Although there may not be very many cases in which investment in Government securities is forbidden by the terms of the trust, there may be a certain number of trustees who find it difficult to decide whether their duty to the beneficiaries and their duty to help the State are mutually 1839 cons[...]stent. Hence the Chancellor of the Exchequer has had this provision inserted which enables the trustee to obey his patriotic instinct, if he chooses, without fear of personal risk. Subsection (3) of this clause also has its precedent in the legislation of the last war, although it goes further in that there is no restriction of time, and it will be possible for a company to purchase securities issued under the Bill at any time. Clause 5 is merely the short title, construction, and repeals, and there are three Schedules to the Bill.

There is a very important question which was touched on a good deal in another place both on the Second Reading and the Third Reading, and that is as to the rate of interest to be offered on these loans. I say, in anticipation of anything that may be raised here, that, as my right honourable friend said in another place, the policy of His Majesty's Government is to borrow at the lowest rate they possibly can when the time comes to issue these loans, and they consider that an essential part of their war effort. I have explained as well as I can the principal features of the Bill, which I am bound to say I, personally, find extremely complicated and difficult to understand. I shall do my best to answer any questions which your Lordships may have to ask. In conclusion, I have to apologise to your Lordships for rather rushing such an important Bill. In normal times we should have desired more time for the Bill in order that it might be fully considered in all its implications, but my right honourable friend considers that the powers conferred by the Bill should be at his disposal at the earliest possible date, and this must be my excuse for the very rapid procedure in your Lordships' House. I beg to move that the Bill be now read a second time.

LORD STRABOLGI

My Lords, my noble friends have asked me to make a few remarks on this Bill explaining our attitude. Your Lordships who have studied the debate in another place and recent controversies will probably have noticed that this deals with a subject which may well be the first real cause of quarrel during this war between the Opposition and the Government. There 1840 is a clean cleavage of opinion as to the means of financing the war, and I only hope the Chancellor of the Exchequer will have been impressed by what was said in another place and will follow our proposals. The noble Lord, Lord Temple-more, said it was the Government's intention to raise money at as low a rate of interest as possible. Of course it is. Naturally they would not do otherwise. But we say it is the duty of the citizens to subscribe to these loans and they must not ask a high rate of interest. The people have never been so united in any war as they are united at the present time. The response to the calling up of the drafts of militiamen is just one example of how united they are. Surely the men and women who are too old to serve will be only too glad to lend their money at a very low rate of interest indeed.

The quarrel may be between us, however, not on the raising of loans from genuine savings of the people and reserves of companies, but the raising of loans by means of artificial creation of bank credits on which the citizens will have to pay interest in perpetuity. That was the fault made in the last war, and that is why we were saddled with the immense debt, which we have not yet paid off. It is on this proposal that the Labour Party take a very strong stand indeed. We are opposed to inflation, though it is obvious that there has already been some controlled inflation—I make a distinction between controlled and uncontrolled inflation—by means of short-term borrowing. That is unavoidable in war, but it must be kept controlled, and the inflation should be as little as possible. The Labour Party feel that it is always the wage-earners who suffer most in a period of this kind by inflation, except possibly those living on small fixed incomes. In Germany, on the other hand, they are already in the full flood of inflation, and the German public is only just beginning to suspect it. Indeed this inflation was in progress in Germany before the war began, and, as is made clear in the report of our Ambassador in Berlin, was probably one of the causes for the onslaught on Poland.

If loans cannot be raised in toto from genuine savings of the people, plus taxation—and obviously you cannot pay the whole cost of the war by taxation—then, if artificial credit has to be created, that is a form of inflation, but it can 1841 be controlled inflation if it balances your increase in production. But this artificial credit should not be created by banks, as was done in the years from 1915 to 1918, for the benefit of their shareholders, but should be created by the Government themselves. That is the Labour Party's policy. It means that, if we pay interest on it, in a way we are paying it back to ourselves. We see no reason why the banks, in this case acting only as bookkeeper, should be able to claim during a following period of years a comparatively high rate of interest on money which represents the genuine savings of their depositors. I do not want to go into details. I think mistakes were made in the means of financing the last war, and we are afraid a similar mistake is going to be repeated, and, if so, we shall have to offer our most strenuous opposition.

There have been various proposals before the country already. We may know we are really at war when Mr. Keynes gets busy. Your Lordships, I am sure, will have noticed his latest proposal—his idea of compulsory savings. My friends in another place and my noble friends here have not, I think, considered those proposals, but, speaking quite personally, I would say they would not be acceptable to the Labour Party. I do not believe that this idea of compulsory saving will be at all popular. It would be much better to tax and borrow by appealing to the citizens to do their duty to the State by lending from genuine savings from genuine economies. We do not think compulsion is necessary at the present time. And we have another objection to Mr. Keynes's proposals. Accompanying the idea of compulsory savings to be blocked in the Treasury is a plan that these savings shall be hypothecated, blocked, and then, after the war, at some unspecified time, de-frozen or unblocked and paid back to the citizens: this is to be a means of mitigating or preventing a post-war slump. We do not think that will work at all; at least I do not think so, and I do not believe my friends would think so. We think you can ward off a post-war slump—and this has a great bearing on the matter, as the noble Lord, Lord Templemore, is aware—by a great programme of public works, which you should have ready beforehand, plus what are known as open market operations. I 1842 would like to ask if there is any plan in contemplation by the Government, and if it is proposed to set up some Ministry of Construction or something of that kind to prevent a slump after the war.

I have done my best to explain what is our feared difference with the Government. I say "feared," because we do not want this difference to arise, but it may be very acute and very serious if the Government propose to use the powers under this Bill to do what they did in the last war. If so, we shall be very hostile. With regard to what I said just now about controlled inflation, which is not harmful if balanced by increased production, we are nowhere near the need for any form of inflation at the present time. That is obvious if we consider the fact that there are over 1,400,000 people unemployed, and a great many efficient plants up and down the country and manufacturing resources idle and unused. We have not nearly mobilised industry for this war, and we have, therefore, immense untouched reserves that have not yet been really drawn upon. Therefore, I think the Government should employ these men and plants before they consider any reckless financial expedient. On the other hand, to revert for a moment to Germany, Germany's whole uneconomic system was, even before the war, stretched almost to breaking point. Therefore, our position is much sounder and stronger, and with wise finance—I venture to stress that, and I speak with great diffidence in the presence of so many financial experts in your Lordships' House—we and the French can outpace and outlast our enemy; but we must not try to finance this war by the same methods as were adopted in the last war. My noble friends realise that this Bill is necessary at the present time and that it is also urgent. We will therefore facilitate its further passage into law.