§ 2.5 p.m.
§ Order of the Day for the Second Reading read:
§ THE SECRETARY OF STATE FOR INDIA AND BURMA (LORD PETHICK-LAWRENCE)
My Lords, I rise to 949 move the Second Reading of the Bank of England Bill. The main purpose of the measure is well set out in its long title, and I would compress it by saying that the purpose is to bring under public ownership and control the Bank of England, and, ancillary thereto, to give force and statutory precision to the relations between the Treasury and the Bank of England, and the Bank of England and other banks. Those relationships, to which statutory precision is being proposed to be given in this have been hitherto dictated and regulated by custom and precedent.
If your Lordships will permit a personal note, I should like to say that it gives me the greatest satisfaction to be moving the Second Reading of this Bill to-day, and to be commending its provisions to your Lordships, as it is in line with the opinions that I have long held and to which I have given, throughout my life, considerable thought. I propose to state the reasons for this Bill presently, and to describe the grounds on which I think it is important now that this Bill should be enacted. But before come to that, I should like to say a few words with regard to the opposition which has been raised against this measure, both before the General Election and since, in another place, in certain organs, and in public speeches.
Those members of your Lordships' House who, at one time, like myself, were students at the Bar, will remember a classical story of the defence put forward by a lady who had borrowed a dress from a friend. According to the friend, this dress had a severe tear in it when it was returned. The lady who had borrowed the garment put forward three defences to the action brought against her. The first was that she had never borrowed the dress at all. The second was that the dress she borrowed had a hole in it when she borrowed it. The third was that the dress she returned had no hole in it, and had never had one before. I venture to suggest that the opposition that has been shown to this Rill is rather along those lines. In the first place, the Bill has been depicted as a revolutionary proposal, subversive of all the best British traditions, and giving to the Government of the day vast powers over the life and property of the citizens of the country. The second grounds of 950 opposition are that the Bill is otiose; that, in fact, it makes no change whatever in the practice, that it is of no importance at all, that it does not affect anybody concerned, and that it is a waste of Parliamentary time to bring it to the attention of the two Houses and to seek its enactment into law. The only possible ground for doing so, it is suggested, is that it is a political gesture to please the Parliamentary supporters of the Government in power. The third ground for opposition is an attempt to reconcile what to ordinary people would appear to be mutually contradictory views. It is said that it is a revolutionary proposal to attempt to codify and define verbally customs and understandings which are best left to the unwritten law and constitutional practice of the country.
Now I will attempt, to the best of my ability, to deal with those three lines of opposition. I think it will be clear to your Lordships that the first two lines are mutually destructive. If it be true that the practice up to now has been along the lines laid down in this Bill, it can hardly be called a revolutionary proposal to put them into statutory form. If it be so revolutionary a thing that we should attempt to control by the Treasury and the Chancellor of the Exchequer the activities of the Bank of England, and, to some extent, of the other banks of the country, then surely the practice that has been going on for some years past must be of a very peculiar kind.
But I come now to the, perhaps, more solid case presented by the third argument: that however good these customs and precedents may be, in practice it is unwise to codify them and make them as definitive as this Bill proposes. That, I think, is a case which has some reasonable grounds, but I shall endeavour in the course of my remarks to say why I disagree with it and why your Lordships should find the Bill a satisfactory and proper proposal. I said at the beginning of my speech that I had long held views which pointed to the enactment of this Bill and I should like to explain exactly what I mean by that. They deal with the functions of the Chancellor of the Exchequer. There was for a considerable time a school of thought which regarded the functions of the Chancellor of the Exchequer and of the Treasury in the realm of pure finance as almost exclusively devoted to the revenue of the 951 State and to the spending power of the various Departments. That is to say, that it was the duty of the Chancellor of the Exchequer to concentrate his attention upon the expenditure of the State and how the revenue had to be extracted from the public to meet the various items and the grand total of expenditure. The Budget in consequence was the consummation of the efforts of the Chancellor of the Exchequer for the year and that Budget was listened to with rapt attention. It was regarded almost as the main, if not the sole, purpose of the Chancellor of the Exchequer.
In this narrow view of the functions of the Chancellor of the Exchequer two important considerations were left out. The first was the much larger national income, which is not the national revenue of the State but the income of the country as a whole, and in the first instance of private individuals or other definite organizations. It was thought in those days that this larger income was not the province of the Chancellor of the Exchequer but the province of private individuals much best left to their own devices with the help of the commercial banks, and it was not until comparatively modern times that there was even a statistical enumeration of the total income of the nation in that wider sense.
Then a third separate wheel, which was not directly controlled by the Chancellor of the Exchequer and the Treasury, was the Bank of England, subject no doubt to certain statutory provisions but nevertheless a law unto itself to a very large extent in the conduct of its own affairs, the principal of which were the weekly decision as to the bank rate and the continuous handling of foreign exchanges which the Bank of England regulated largely if not exclusively with a view to the existing law with regard to the gold standard. I have always taken the view that not merely the revenue of the State but the income of the country as a whole and the conduct of the Bank of England in its larger aspects, dealing with the foreign exchanges and the fixing of the bank rate, were matters well within the province of the Chancellor of the Exchequer and that he could not properly discharge his function as the main finance servant of the Government and of the nation unless 952 he took a larger view than had been the case in days gone by.
I felt that particularly when I was confronted with certain facts. I realized that in a General Election the people of the country, at considerable expense and considerable trouble, with a vast amount of propaganda, made certain important decisions by casting votes into the ballot box, and no doubt the Government so brought into being played a very great and important part in regulating the affairs of the country. But in some respects the destinies of the people of the country were more influenced by decisions of the Bank of England with regard to inflation, deflation, the bank rate and the foreign exchanges than all the provisions of the Government of the day. It always seemed to me quite wrong that, while the former should be subject to the will of the people and expressed by the ballot, the matters decided by the Bank of England should be decided by a body that was to some extent self-elected and in a sense irresponsible. I am not using that word in the sense that the wise and gifted and talented men who controlled the Bank of England were not aware of their responsibilities, because they were. The Governors of the Bank of England, with whose policy some of us disagreed, were nevertheless actuated by high motives and I do not suggest for a moment that they were irresponsible in the sense that they came to light decisions without considerable thought. But they were not responsible to any body of public opinion, because their shareholders never interfered, and even their shareholders were only a limited number of the public. It was an extraordinary state of affairs that at a General Election people should go to the trouble of electing a Government whose purposes might be frustrated and whose business in the interests of the people might be negatived by decisions made in the recesses of the Bank parlour by people who were not responsible to any body of public opinion.
Lest it should be thought that I am taking in any sense a Party view on this matter, I would draw your Lordships' attention to two facts. First of all, concerning the position of the Chancellor of the Exchequer with regard to the income of the country as a whole, it was a Conservative Chancellor of the Exchequer, Sir Kingsley Wood, who first published 953 those very wide and interesting tables relating to the national income which were associated in the minds of many with the noble Lard, Lord Keynes, and which gave such immense information during the war as to the sources of national income and expenditure; and, further, it was a Conservative Chancellor of the Exchequer, Mr. Neville Chamberlain, who introduced the Exchange Equalization Account, which did very considerably alter the relationships between the Bank and the Treasury and insisted on his policy of cheap money. I do not know the inner workings of the Bank and the Treasury, but, as commonly rumoured, that was contrary to the policy of the then Governor of the Bank.
This brings me to the silent, hidden revolution which brought the Bank under the Chancellor of the Exchequer and the House of Commons, and, to a certain extent, under criticism at any rate from your Lordships' House. The facts are, of course, that a long time ago there were discussions between the Treasury and the Chancellor of the Exchequer and the Bank England and its Governor, but until he creation of the Exchange Equalization Account those discussions were between somebody who knew a great deal about it and somebody who did not profess to know very much about it, and very often did not know very much about it. The Bank of England knew from practical experience a great deal about the foreign exchanges, it knew from practical experience a great deal about the bank rate, whereas within the Treasury, though they were able men, they did not pretend to know very much about it, and they left decisions on those matters almost exclusively to the Bank. Now when the Exchange Equalization Account was founded, and admittedly became subject to the purview of the House of Commons, it became necessary for the Treasury to have experts to deal with these matters: As a result the Treasury and the Chancellor of the Exchequer took an active part in deciding matters relating to the foreign exchanges, and the position never reverted to what it had been before.
Now, if that is so, to a very large extent with the exceptions to which I am going to make reference in a little while, it may he said why do we want to change the position: I am going to explain why I consider the Bill should be carried. It is 954 the habit of people in these islands to carry out wide, secret and hidden revolutions without changing the outer form, but it is also the custom in this country when that has been done to give statutory form to the change in order that in future it may be recognized, that we cannot go back on it, and also so that the consequences may be fully understood. I will give one illustration—I do not want to wander too far from the point—the Statute of Westminster. Many ignorant people thought the Statute of Westminster altered the position as between Westminster and the Dominions. The fact is that the Statute of Westminster merely embodied in statutory form alterations which had already taken place but which it was desirable for the first time to put into concrete shape and definitive form. That is one illustration. I am sure a great many others could be given.
In the first place I say this change which has taken place beneath the surface ought to be put into a definitive form which people can understand and which people can act upon. There is nothing contrary to the general practice of our Constitution in bringing that about. But though that is an answer, it is by no means the whole answer. As long as this practice is only one of custom it can be reversed. It is perfectly theoretically possible—it will be until the Bill is carried—for the shareholders of the Bank to take a line of their own, to demand a change in the policy of the Bank and to insist on some entirely different policy, not in accord with the views of the Treasury and the Chancellor of the Exchequer, to be carried out. It is perfectly possible— to deal with a subsidiary matter in the. Bill—for the joint stock banks to pursue a policy quite contrary to the views of the Bank of England or the Treasury, and though it is very unlikely they would take any such course, it is much better that we should here and now put it into statutory form rather than wait until some emergency has arisen and then be faced with a situation which we all deplore.
Moreover, I would venture to suggest that as far as the practical position had gone—the situation described in this Bill—it had not gone quite all the way. The fact is, as I have already said, there were always discussions between the Treasury and the Bank of England, but discussions cover a number of different kinds of forms. The Bank of England might be 955 informing the Chancellor and the Treasury on matters which were more particularly under its control; it might be consulting the Chancellor of the Exchequer and the Treasury as to the policy which ought to be pursued. It might be receiving advice from the Chancellor as to its line of conduct or it might be receiving instructions. Now, there have been one or two instances since the formation of the Exchange Equalization Account that suggest to me that the Bank was not always acting on advice from the Chancellor of the Exchequer, still less receiving instructions, perhaps not even having consultations, but informing him of a certain line of conduct.
I have two matters specially in mind which certainly exercised the minds of the Members of the House of Commons at the beginning of the war. There was, first of all, the matter of the Czech gold, and, in the second place, the matter of the raising of the bank rate immediately after war was declared or just before it was declared. I do not know—I doubt if anyone knows except the noble Viscount, Lord Simon, precisely what the relationship between himself, as Chancellor of the Exchequer at the time, and the Bank was as regards those things. Was the Chancellor of the Exchequer of the day informed by the Bank as to what was being done about the Czech gold? Was he consulted about that action? Did he give advice? Was it on his advice that the action was taken, or was it on his instructions? And to some extent that is also true of this question of the raising of the bank rate. I do not think anyone can know about it except the noble Viscount, Lord Simon, and if he feels disposed in the course of his remarks to throw any light on it the House will be interested; if he feels he desires to keep his confidence on that, we shall equally respect it.
The point I am making is this: that it is generally the opinion that, certainly in the matter of the Czech gold, the Bank acted on its own initiative from motives that appeared to the Governor of the time perfectly right and proper—I am not questioning that—but that it acted contrary, to a very large extent, to the views of another place and, I should have thought, of the Government of the day. Therefore it has not been true entirely in recent years, if I am right in my assumption on that point, that in fact the Bank 956 of England on large matters of public policy, rightly or wrongly, took its directions entirely from the Government of the day.
Now I come to the last reason why I think this change is desirable, and I should have thought that it would have appealed particularly to the Opposition, not because they are largely composed of Conservative Peers but because they are in opposition at the present moment. If you have an unwritten rule by which the Bank of England does in fact, though not in name, carry out the wishes of the Chancellor of the Exchequer, it could always be, and has always been, a matter of doubt how far the subject could be raised in Parliament, because it is said that no Minister is directly responsible for the act. I had myself rather a curious illustration of that, in which, as a matter of fact, I did succeed in getting the subject discussed in another place; but there were considerable shakings of head about it, and it is quite possible that the Speaker might have ruled otherwise. Quite recently the Chancellor of the Exchequer—I think it was Sir John Anderson; in fact I am sure it was—announced the formation of two financial bodies, the Finance Corporation for Industry and the Industrial Commercial Finance Corporation. He announced it; but they were not promoted by the Government as such but by the Bank of England. I maintained that the House of Commons had the right to discuss these matters; but it was suggested that that was not the case, that the Government had nothing to do with them, and that they were the creatures of the Bank of England. I gained my way and did succeed in getting the matter discussed by another place, but I think it perfectly possible that another Speaker might have ruled differently.
I suggest, therefore, that it is of value to the Opposition—any Opposition—and to any House of Parliament, both Government supporters and Opposition, that the actions of the Bank of England, if they are in effect prompted by decisions of the Government, should be open to discussion in the Chamber; and if the Bill that I am seeking to commend to your Lordships' attention to-day be passed, that will indubitably be so, and no Speaker in another place and no decision in this House will reasonably prevent that being 957 done. I say that it is a good thing if what is in fact the case is admittedly the case, and admitted openly by Statute, because in that way—and in that way only for certain—can we be sure that advice, counsel and direction given by the Government of the day and acted upon by the Bank are debatable in the Houses of Parliament.
Now I think I have dealt with the reasons why I believe this Bill should be carried, and have shown your Lordships the justification for proceeding with this measure at the present time, and I do not think your Lordships, who probably are familiar with them, will want me to go at any great length into the details of the Bill itself. I will just say a few words with regard to it. Clause 1 effects the main purpose of the measure. It sets out the terms by which the shareholders of the Bank are bought out. I think it is generally admitted that the terms are fair and reasonable. When the opportunity was given to shareholders before the Select Committee set up in another place to petition against the Bill, there were very few objections taken and they were easily disposed of. Therefore I say that it is not an unfair proposal, or at any rate at first sight is not an unfair proposal, for the shareholders. And I think it is a profitable bargain for the State. An attempt was made in another place to argue that if it was a profitable bargain for the State it was an unprofitable bargain for the shareholders, but I think that was disposed of very fully by the present Governor of the Bank, the noble Lord, Lord Cato, in his evidence. He pointed out that the Bank dividend had remained at a fixed rate over a long period of time. That was not because conceivably a greater dividend could not be paid, but because he Bank recognized that it was not only conducted in the interests of the shareholders but was also to be conducted for the public weal.
When it was suggested, for instance, that there were large hidden reserves and those ought to be taken into acount and disclosed, Lord Catto, in the course of his evidence, made these very significant remarks. I am quoting from the Report of the Select Committee which dealt with this Bill. Lord Catto was under examination and he used these words, which are to be found on page 13 in the second sentence of the second paragraph: 958Inner reserves are essential to the strength and prestige of any great institution such as the Bank of England, and, I think perhaps this is something which I ought to go into in considerable detail, because whilst those reserves in the case of the Bank of England are important, let me say, quite frankly, that they are in no sense excessive considering the magnitude of the operations of this great institution, and the unique prestige and confidence that it has all over the world. I would consider that any disclosure of those inner reserves would be greatly against the national interests and might be very detrimental to the position of the Bank of England.Lord Catto, I believe, is present here today, and I hope we shall have the benefit of his remarks, but I am quite sure he will not go back on that statement—no doubt a very considered statement—which he made in evidence, and I venture to commend it to your Lordships. So much for Clause I.
Clause 2 deals with the constitution of the directorate, and Clause 3 with the consequential provisions. I scarcely think your Lordships will wish me to take up your time in dealing with those. I now come to Clause 4, which perhaps has been the most controversial clause in the measure. Subsection (1) of Clause 4 establishes the supremacy of the public in dealing with large national issues, but subsection (2) gives to the directorate of the Bank of England control over the day-to-day working of the Bank. That, I think, is a normal provision to which no one can reasonably take exception. Now I come to subsection (3), which deals with the commercial banks. It provides that the Bank of England shall be empowered to give directions to the commercial banks on the subject of policy, and shall further be empowered to obtain information, but your Lordships will have noticed, if you have the Bill before you, that there are two provisos. The first certainly, and I think the second also, was inserted after the Bill had been originally read a second time in another place. The first is that no such request or recommendation shall be made with respect to the affairs of any particular customer of a banker. That was put in as a safeguard, so that this power of obtaining information should not affect the position of a customer. It is, I think, a very reasonable provision and one which I venture to commend to your Lordships. The other provides that the banker shall have an opportunity of making representations before any such action is taken. I think that that also will commend itself to your Lordships.
959 With regard to this question of the joint stock banks, in olden days, when private banks were first formed, they were private institutions. Many of them failed, bringing great ruin on their depositors and on other people. But it was regarded as a matter which concerned them and the people who had been foolish enough, or unwise enough, to deposit money with them. But does any one of your Lordships seriously suppose that the Government of the day could allow a large joint stock bank, carrying with it a great part of the business of the country, to go into liquidation, to ruin its depositors and to upset the whose basis of the commercial life of the country? I think your Lordships will realize that is almost, if not quite, inconceivable. Therefore, although it is in a sense true that the commercial banks of the country are trading with their own credit, that credit is really all the time underpinned by the credit of the nation arid depends on the relationship between that bank and the Government of the day. He who pays the piper calls the tune. If it is really the credit of the nation which underpins the credit of the joint stock banks, as it undoubtedly is in the last resort, then it follows quite inevitably that the Government of the day, representing the public will, has a right on large matters of public policy to have a considerable say in the conduct of that bank in its larger issues. Not only that, as the Government of the day is dependent on wise information, so it is entitled to obtain from the joint stock banks, who are the finger tips of the financial and commercial interests of the country, such information as will enable it to choose its policy rightly and well in the interests of the country as a whole.
§ VISCOUNT SWINTON
May I put one question to the noble Lord? I think he said something rather new in the last of his observations. At the beginning, talking of this Clause 4, I thought he rather drew a distinction between the directions which the Treasury, or the Chancellor of the Exchequer, or the Government would give to the Bank of England and the directions which the Bank of England would give to the joint stock banks. In his later observations I think he made it clear that the Treasury would pass their directions through the Bank of England to the joint stock banks. I would ask him to make perfectly plain what is the 960 legal position under Clause 4. Is it this? Under subsection (1), the Treasury, after consultation with the Governor, will give their directions to the Bank of England. Subsection (3) enables the Bank of England to give its directions to the joint stock banks. The noble Lord said he who pays the piper calls the tune; that is rather different from what he said at the General Election. From what he says, I understand the legal change he desires is this. Under subsection (1), the Treasury would give instructions to the Bank of England, and under subsection (3) if the Treasury (we are dealing with the legal position) gave those instructions to the Bank of England, the Bank of England would be bound to give those instructions to the joint stock banks. Therefore the Treasury would in future be in the position of giving such instructions, via the Bank of England, to the joint stock banks as they thought right.
§ LORD PETHICK-LAWRENCE
That is perfectly right, and it is set out perfectly clearly in subsection (3):The Bank may, is they think it necessary in the public interest, request information from and make recommendations to bankers, and may, if so authorized by the Treasury, issue directions to any banker for the purpose of securing that effect is given to any such request or recommendation.I have no desire to hide the fact that the Treasury does in effect give directions to the joint stock banks, but does it via the Bank of England, so that we may be quite sure that the directions to the joint stock banks will come in the banker's jargon and according to banking law, because they pass through the medium of the Bank of England. There is no attempt to hide the fact that those directions will emanate originally from the Treasury.
§ LORD WOOLTON
Does the Treasury, at the same time that it issues these instructions, underwrite any subsequent loss which may result from those instructions?
§ LORD PETHICK-LAWRENCE
I could not answer that question. That is a matter which will have to be decided. Some instructions may indirectly result in some loss, but one cannot say. This is only an attempt to perpetuate the practice—
§ LORD PETHICK-LAWRENCE
I venture to suggest that the noble Lord is introducing a new point. It is not suggested that the directions should take the form of discriminating between Mr. Jones, Mr. Smith End Mr. Brown, although it may well be they will take the form of discriminating between certain classes of industry. If, as I said in another place, is a conflict between an industry which has been set up to make artificial raspberry pips and one which has been set up for i real public purpose, the Treasury might say that the bank should prefer industries of the latter type to industries of the former type. It might be that there might not be quite so much profit made by the banks from serving the public interest as from serving the reverse of the public interest, but in view of the fact that the credit of the banks rests ultimately upon the resources of the nation and that they are able to expand their trade largely because they have not got to be so absolutely particular about their credits as in the old days when they were dependent entirely on their resources End their gold, I do not think it is an unreasonable thing to say that the interests of the nation should come first, not only in the policy of the Bank of England but also in the policy of the joint stock banks. The joint stock banks have got to make their profits within the limits of the public interest.
I have given your Lordships, I suggest, the background of this Bill. It is not a narrow thing, as some of your Lordships may think. I have endeavoured to show you why the Bill should be introduced at this time. I have tried to show you that it is in the interests even of the Opposition that the customary forms should be embodied in a Statute. I have therefore nothing to do now but to move that this Bill be read a second time.
§ Moved, That the Bill be now read 2a—(Lord Pethick-Lawrence.)
§ 3.21 p.m.
§ VISCOUNT SIMON
My Lords, the Secretary of State for India and Burma has given us a very thoughtful and carefully-reasoned address, to which we have listened with attention, all the more so 962 because for a long period of years in another place he has often been the spokesman of his side on these far from easy financial matters. I have always appreciated both the manner in which he has put forward what he has to say and the reflections which lie behind what he says. What strikes me most about his speech this afternoon is this. He told us at the beginning that there were three inconsistent arguments, as he thought, employed against this Bill. The first was that it was revolutionary, and the third was that it would be better not to start to define what was at present a somewhat loose connexion. But there was a second argument which he correctly attributed to the Opposition about which he did not say a single word, and so I shall take the opportunity of saying something about it.
It was the argument that this Bill is not really introduced at this time because it is a matter of urgency, or because the passing of it is going to confer some benefit on this distressful country, but that it is really brought forward by the Government because they find that it is better to satisfy those of their followers who may be still under the delusion that by making such a change as this something of importance is going to happen for the prosperity of the country. Whether by accident or design, although the noble Lord most carefully defined these as the three matters with which he would deal, he wholly omitted to pronounce a single sentence on the subject of the one to which I have just drawn attention.
What has really happened, with all respect to the noble Lord, is that he has given us, with very great care and courtesy, an explanation, as he says, of the background of this Bill which is in his own mind. I agree that the explanation is one which needs most careful analysis. I shall try briefly to contribute what little I can to that. What he really had to do, however, was to give us sufficient reasons why, when the country and the Government are oppressed with immediate anxieties and problems of enormous gravity, and when there are all sorts of things which are clamouring to be done in the course of the change from war to peace, this Government should say "Well now come on, let us start off by nationalizing the Bank of England; that will please somebody." It has nothing whatever to do, as far as I can see, with benefiting 963 any person in, this country at the present time. I think that the noble Lord was very wise, though he was bound to catalogue this objection among the three, in saying not a single word to challenge it; because the noble Lord is on record on this subject, as he knows; and in another place, when the Bill was being discussed, this quotation was produced from him, a quotation as recent as June of last year. He said, in dealing with the nationalization of the Bank of England, "It is already very largely a department of the Treasury."
§ VISCOUNT SIMON
"If it is nationalized, it would not make a pennyworth of difference to the bulk of the people of the country."
§ VISCOUNT SIMON
I sympathize with the noble Lord's difficulty, because if that is his view, as I am sure it is, he must have very great difficulty in successfully challenging the statement which is made from this side—namely, that the teal reason for promoting this Bill now and in this situation is simply to give a measure of satisfaction to people less informed than himself, who for years have believed that if the Bank of England were nationalized all sorts of benefits would proceed to flow and all sorts of dangers would be avoided.
The noble Lord began with an anecdote about the lady with the dress. I will offer him one in return. When Kaiser Wilhelm I—not the Wilhelm II whom we knew—was in Rome, he went for a private audience with the Pope, and he was followed to the Vatican by Bismarck. When the Kaiser went into the Pope's apartments, Bismarck pushed himself forward to follow, but was stopped at the door by one of the officials, who said "This is a private audience for the Emperor." Bismarck said "But I am Bismarck." The Italian diplomat replied "Your explanation is perfect, but your excuse is no good." In the same way, the noble Lord opposite offers these explanations as a background, and gives us what is in many respects a very interesting survey of the past relations between the Bank of England and 964 the Treasury. I would emphasize that it is the past and not the present relations with which he is dealing. He entirely fails to give us, however, as it seems to me, any adequate reasons why Parliament should be required at this time, in front of matters so much more urgent, to deal with this Bill, which will remedy no evil at all, and for which there is no urgency.
What is the relation between the Bank of England and the Treasury, as it exists at present, which is open to serious practical objection? I suppose that most of us have read the speech made by the Chancellor of the Exchequer in another place about the Bill. I notice that he said that the compensation which the Government propose in this case was on an adequate, and I think he said a generous, scale. But he gave the most extraordinary reason for this; his reason was that the Government thought it right to give compensation on this scale because the Bank of England had behaved so very well and had co-operated so constantly and effectively in the interest of the country. I do not know whether compensation ought to be regarded as a sort of good conduct prize. There is a view that if you take away people's lawful property by force they are entitled to compensation equivalent to what is taken away. That is a possible view, though not, apparently, held in all quarters. I am more concerned with the reason why the Chancellor of the Exchequer thought that he should deal with the matter generously, and his reason was that the relations between the Bank of England on the one hand and the Treasury and the Government on the other had shown themselves over a series of years to be extremely satisfactory. If that is the case I ask again why in the world should we go in for this unnecessary change when there are so many urgent things clamouring to be done and not being done?
I wish shortly to put what I think is the real excuse for this Bill. There are several reasons, as it seems to me, which have moved the Government in this matter. The first is the necromantic and intoxicating effect among some of their followers of the word "nationalization." I notice that when Mr. Morrison was in Canada the other day—and was, for the moment, not in immediate contact with his colleagues—as he journeyed from 965 Ottawa to Toronto he saw a great light, and he proceeded to announce to the people of Canada that it was quite a mistake to suppose that this Government was going in for general nationalization and control. On the contrary, his view was that there would be far more private enterprises than ever would be publicly nationalized. I am glad to hear it because incidentally, I have never quite understood what would be the necessary financial adjustment when we have nationalization on a large scale. When we have private enterprise conducting a great business, and it makes profits, those profits are a source of Income Tax. They are a very valuable source of revenue to the State. I have never heard of a public nationalized service that pays Income Tax. If it did by any chance make profits—and there may be two views as to the probability of that—those responsible certainly would not, according to the ordinary understanding of the position, say, "Let us assess our profits for the purposes of taxation." They would, no doubt, say: "It all comes to the same thing; in any case the money all goes into the general pool."
There is a further difference. If private enterprise results in a loss—as it often does—then, under the existing system, these who have indulged in it have to face the loss themselves, whereas when we have the benefits of nationalization, any loss that may unhappily be incurred will, of course, have to come out of the general public pool. So I am relieved to know that this is not going to be carried as far as, I think, some sanguine persons thought. But why begin with this? Having set up for years this fetish of nationalization, a victim is needed. Somebody must be sacrificed on the altar. And there is this to be said about it—the Government showed great shrewdness here. I believe the Bank of England is the only enterprise which could be nationalized in a Bill which consists of only five Clauses and four Schedules. All other cases will take a great deal more paper than that. But in fact, of course, it will not do one ha'p'orth of good to the mass of the people in this country. If anybody thinks so, they are really being deceived.
I certainly do not say that this Bill is red ruin and the breaking up of laws. Not at all. I have not, myself, heard that 966 argument being used, but I take it from the noble Lord opposite that he is better informed. What I do say is this. The Bill is introduced simply because it is a ready illustration of a principle. Sam Weller, I think, described a gentleman who blew his brains out after a feast of crumpets as saying that he did it because it established a principle. It was a case of "Huroor for the principle," The principle in that case was that crumpets are wholesome. Here also it is "Huroor for the principle of Nationalization." I do not see that it has any other significance. If the change is properly and honestly used, there is nevertheless a danger—not, I hope, an active one immediately. I think, myself, that the transfer of the Bank of England to the avowed, advertised open control of the Government of the day may not perhaps always secure for our own central financial institution the respect which it at present enjoys, and which I hope it will enjoy under all Governments.
Then there is a second reason which it has become quite out of mode even to mention, but we heard a good deal about it a few years back. There are quite a number of people in this country—and I do not think the noble Lord would dispute it—who still believe that the Labour Party were the victims of what was called "a bankers' ramp" as long ago as August, 1931. I have always felt, and never failed to say, that it would be very unfair to put the whole blame of the destructive situation which then arose on the Government of the day, for it was due very largely to international causes. They could not he expected themselves to master the difficulties which arose. But it is no good imagining, after there has been this wild nonsense talked about "a bankers' ramp," that the less instructed supporters of the Government do not still cherish the notion that somehow or other it was a wicked combination of bankers which at a critical time produced such a disaster to the country.
I took the trouble to remind myself of one or two declarations which were made, I think, on the same day, or at any rate within two days of one another, and if the House will allow me, I will offer three short quotations. I am sorry that the Leader of the House is not here now, I would have told him that I was going to bring this up if I had known that it was 967 likely that he would be leaving his seat. Dr. Addison (as he then was), speaking at Swindon on August 26, 1931, said:The pistol that had been put to our heads was…in the hands of the controllers of the money market and, according to the reports made to us, the demands were very emphatic.Surely the Leader of the House would expect his words to reverberate, and they were repeated in all sorts of ways by many others. At about the same moment Mr. Snowden, who, after all, was the Chancellor of the Exchequer, and the chief, I think, of the noble Lord who has moved the Second Reading of this Bill, was stating this:… it is quite beside the point to say that the situation has been deliberately created by financial interests for political purposes. We may think that the international machinery of credit is capable of improvement, but to assume that international finance is deliberately conducted without regard to the interests of trade and commerce is an ignorant delusion.My third quotation, and the shortest, comes from that great master of pungent speech, my noble friend Viscount Samuel, who is now sitting below the gangway. He said:The suggestion that all this is a bankers' manœuvre, an international scheme to overthrow the Labour Government, is stuff and nonsense.Well, you pay your money, and you take your choice.
I hope that it will not be trespassing too much on the patience of the House if I respectfully address to the Leader of the House or to Lord Pethick-Lawrence the question: does either of them now really believe that the crisis of August, 1931, was a bankers' ramp?
§ LORD PETHICK-LAWRENCE
Since the noble Viscount has addressed the question to me, I will answer him in this way. I have set out in full my views on what happened in 1931. I wrote a whole chapter in my autobiography on this question and he will see to what extent what started by being a bank crisis was smuggled over as a political crisis on to the Government of the day.
§ VISCOUNT SIMON
That is a fair answer and I shall certain take the opportunity—it will not be the first time—of looking at the noble Lord's autobiography. But after all if this crime can be laid at the 968 door of the Bank what an argument has been missed by the noble Lord! All he had to do was to point out how under the existing system these things happened.
§ LORD PETHICK-LAWRENCE
I should like to point out that a great change has taken place by the formation of the Exchange Equalisation Fund. Therefore I did not go back to 1931 quite deliberately. It would have been unfair in the present situation.
§ VISCOUNT SIMON
I appreciate what the noble Lord says. I should like to say one or two words about the history of the matter, but I should like first to conclude what I was saying by adding that, provided the new system under this Bill is worked honestly in the interests of the State, as I am sure is the desire and intention of everybody, so long as it is not worked for Party advantages and in order to prejudice one set of people as against another, I must say that for myself candidly I do not see much difference in the system which is contemplated and the system which has prevailed in the past.
I should like to make my own contribution as to what the previous system was, I agree that there did come about at a certain date a change. I should have put it in this way. So long as we were on the gold standard the Bank of England had been specially charged with maintaining that standard and protecting the country's gold. I would go further and say from such small knowledge as I have, because it was before my time, that in the matter of adjusting the discount rate in the old days when we were on the gold standard the Bank of England did that to a very considerable extent without elaborate consultation with the Treasury, but when we are not on the gold standard. as has been the case in the last fifteen years, I do not really see from such experience as I have had and from such study as I have made that there is any branch of our complicated national financial interests and purposes which is separate as between the Bank of England and the Treasury. I really do not think so.
Just consider what has been the actual condition of the Bank of England at any rate during the period I am speaking about. It has been, and is, the expert adviser of the Treasury over a wide range of technical financial matters. It has very 969 exceptional means of knowledge; its advice and judgment as to what kind of loan can be placed and at what rate is of quite unrivalled authority. Of course it is the banker for the Government, but on such things as the issues of loans, the raising of money, exchange control and the management of foreign exchange, I should have said myself that it was. quite a mistake to say that the Bank of England was exercising or arrogating to itself any sort of authority, other than that of adviser to the Government and contributing to the Treasury the best information arid advice. I do not recall in my time, and I doubt whether other Chancellors of the Exchequer can recall an example, a case in which, after consultation with and advice from both the Governor of the Bank and the expert officials of the Treasury, there has in the end emerged disagreement. But the decision beyond all question is the decision of the Chancellor of the Exchequer. No other constitutional decision is possible.
The House probably knows—there is no harm in stating it—that there is literally daily touch between the Bank of England and the Treasury. It even has a kind of rota. The most important officials of the Treasury are in contact with the Bank. On the other hand the Governor of the Bank is constantly visiting the Treasury. He is not visiting the Treasury for purposes of dictating what is to be done but for the purpose of giving the Chancellor of the Exchequer and those whom he is trying to serve the best possible advice. It is not true that every Chancellor of the Exchequer is equipped with this extremely difficult knowledge for these purposes, but many and many a fine man of business who conducts his own affairs and understands the affairs of others would never claim to be an authority on such a difficult subject as foreign exchange. In fact, I have heard a great authority of the past generation declare that the only Chancel or of the Exchequer adequately equipped was Mr. Goschen. The qualities of Chancellors of the Exchequer vary and the fact that on all these immensely technical matters one needs advice and assistance of those so well qualified to give it, is beyond all question. I therefore do riot believe that the carriage of this Bill, the main portion of this Bill, is going to produce what is required. The question is whether or not the production of such a Bill at this time is really justified, as I 970 think, by the common consent of those who know most about it, that the existing arrangement works perfectly well.
I had better refer to the two specific points the noble Lord mentioned. They are really quite different points. I am speaking without having specially looked it up, but as regards the Czech gold there were of course two quite distinct matters which might go by that name. The one to which the noble Lord refers is, I think, the case in which the Bank of England acted as a bank or the custodian—I think that is the proper expression—of a certain quantity of gold deposited with it by the Bank for International Settlements. The Bank for International Settlements is not a national bank but an international institution, an institution to which all of us who hope to see more internationalism in the world give great confidence. When the customer of the Bank of England who has deposited in the custody of the Bank a certain block of gold demands to have it back, I must say that I do not understand the view that the right course would be to say that he should not have it. That would mean that when the banker has undertaken to hold something at your order the banker is not to give it to you. That is a new form of banking which I hope will not be followed under the new system. All I know is that the Bank for International Settlements called for that gold and they got it.
With regard to Mr. Montagu Norman, I have never taken the view that his presence on the Board of the Bank for International Settlements was a membership in which he was acting on the authority and as the representative of the Bank of England or the British Government or anything else. It is perfectly plain that the constitution of the Bank for International Settlements provided for a certain power in foreign countries and it is certainly not the case that in that matter he was acting as the mouthpiece or the spokesman of the Bank at all. He is a man of immense experience who served in that office.
The other Czech matter is quite distinct. It is the case that a number of banks in London held credit balances belonging to certain Czechoslovak individuals and when the Germans advanced in the direction of Prague there was a question whether or not they were to try to use their power to call for that money out of 971 our joint stock banks in order to get it into their own hands. In that case orders were given to the joint stock banks that they were not to part with that money because it was by no means clear that it was going to be appropriated to the right people.
§ LORD PETHICK-LAWRENCE
Perhaps I might just interrupt. To refer to the first matter, I did not express a view one way or the other, though I think it was more a debatable question than the noble Viscount admits and surely there are other aspects he has not touched upon. I only asked him in passing whether the Bank of England acted on its own or consulted him. That is the point I was making.
§ VISCOUNT SIMON
Perhaps it was natural that I should give a rather more elaborate explanation but I quite agree that that was the question. I do not think that in that particular instance the Treasury was consulted. I cannot see why, if the Bank of England holds a credit for a customer, the Bank of England should expect to get directions from the Treasury, "Don't pay your customer."
What I want to say finally is this: in fact the relationship between the Bank of England and the Treasury, as things are, is a matter of consultation, of co-operation and adjustment, like a great many other things in our constitution. If you were to endeavour to write it down, there are a great many other things the noble Lord had better start writing down. Let him write down the relationship between this House and Parliament and see what will happen. On the contrary I believe it to be a virtue in our own system that—
§ A NOBLE LORD: The House of Commons.
§ VISCOUNT SIMON
Yes, the House of Commons. I believe it to be a virtue in our system that where it is a matter of having full working agreement, things are not written down in precise terms in black and white. And I do not think you could get a better instance than that in which the Bank of England and the Treasury cooperate. Therefore for my own part I am not satisfied that it is really an advan- 972 tage to define those relations more rigidly. I am really not convinced that it is an advantage so to do. And there is a risk which, to me at least, has got to be weighed. It is the prestige of the Bank of England in the world. It is I think a mistake to say, as was said in the debate in the Commons, that in most countries you have a central bank. Really, is not the Bank of England occupying, or has not it occupied, a rather special position in the world? It stands really, or has stood, in a different position from those other central banks. It is not merely because it has been the centre of the sterling bloc, but because it has been on good terms with the Government. I do not mind a great central institution honestly worked, as this, having as it were, a certain aura of mystery, if you like. I cannot help thinking that the position of the Bank of England in the world through a long period of years has owed something to that fact. We know quite well that it is not an independent institution which manages the Government. Of course not. Nobody dreams that it is. Might it not be said that you are a little rash in saying you can substitute this Bill for the present position of the Bank of England without running a risk of reducing the authority of that perfectly unique institution? And, of course, if it were to happen hereafter—I am not suggesting that it will, but we cannot see what the future may have in store—that we had in this country a Government which was determined to make use of its money power in ways that were not legitimate and not in the public interest, look what a handle you would give by this arrangement in a possibly well-meaning but certainly misguided administration.
It does seem to me that if you can be sure of the integrity and the public spirit of a great body of this sort there is something to be said for its advice and guidance being received by the Treasury, not because of some formal definition, but because of well-established and well-understood tradition. I would like to make this quotation from the noble Viscount, Lord Samuel. He was not speaking of this Government or any Government, but he said this:If the action of the Bank of England and the other banks were to be determined not by business men actuated by any commercial con- 973 siderations, but by politicians animated by political motives. …"—by political motives!—the economic life of this country would soon be brought to disaster.I hope that is a view which is equally entertained on both sides of the House to-day, and I believe it is; but I would beg your Lordships to realize that you are not making things more difficult, you are making things easy for such a Government, if there were such a Government in the future, by the change now proposed.
There is, of course, one advantage which I admit, and, this is the last thing I want to say—if one is entitled to take satisfaction in what is a small matter. After this has happened nobody will be able to complain of "a bankers' ramp." It will no longer be possible for any body, in public or private, to say, "Ah! that really was the Bank of England." That, at least, is saved. The whole responsibility, avowedly and openly, is on the Chancellor of the Exchequer and his colleagues—as, indeed, it is now, and I have always admitted it. There has never been the slightest doubt in my mind or, I think, in the mind of any Parliamentarian or constitutional student who has ever thought it out, as to where the authority ultimately lies. The question is simply, is it a wise thing to go and pass a Bill of this sort, which is not called for because there is any evil to be remedied, not calculated to produce any advantage to anybody in these hard times, merely for the sake of a pinch of incense on the altar of nationalization, and in order to satisfy a number of people less well-informed than your Lordships and others, who still suppose that there is a wise and fruitful method by which the Government can be substituted for what they call, I believe, the money barons"? That is all nonsense. It is because I feel these arc very serious considerations that I venture to put them before your Lordships' House.
§ 4.4 P.m.
§ LORD CATTO
My Lords, before I begin my speech, I would like to answer one or two questions that have arisen in the course of this debate. May I first reply o one question which was put by my noble friend Lord Pethick-Lawrence? He read to you one paragraph from the evidence which I gave before the Select 974 Committee of another place, and he said that he hoped and believed that I would stand by every word I said. I confirm that, and of course, whatever I said in evidence I stand by entirely to-day.
Another point to which I should like to refer is this. The noble Viscount, Lord Swinton, is entirely correct in his understanding of Clause 4, subsection (3). The initiative rests with the Bank of England. I have one other point to raise, and that is in regard to what the noble Viscount—
§ VISCOUNT SWINTON
May I just ask this question? With great respect, the noble Lord has given me quite a different answer from that of Lord Pethick-Lawrence.
§ A NOBLE LORD: Order! It is a maiden speech.
§ VISCOUNT SWINTON
I would gladly give way, but we are dealing with a position which is of some importance on this Bill, two entirely different statements having been made to us. If it were not a matter of vital importance—and it is, because the noble Lord has opened on it—I would not have interrupted to put the question. I put to Lord Pethick-Lawrence, who was leading for the Government, that the Treasury could give a direction to the Bank of England and tell the Bank of England to pass that direction on to the banks. He said, "Yes, the Treasury are the pipers who call the tune, and it is quite right that they should do so." Now the noble Lord, who is going to continue as Governor of the Bank of England, and I am glad he is, says that Lord Pethick-Lawrence is quite wrong, and that the responsibility will not rest with the Treasury but will rest with him as Governor. Where do we stand?
§ LORD CATTO
I have no intention to argue the point. The words in the Bill are quite clear, and that is my understanding of what they mean. Now I would refer for one moment in passing to what my noble friend Viscount Simon said about taxation of a nationalized in 975 dustry. I am glad to assure him that in the case of the Bank of England, if it is nationalized, the profits, I venture to hope, will be such that will pay Income Tax; and, as a matter of fact, if he refers to the last paragraph in the First Schedule, he will discover that it is stated there that the Bank of England shall pay Income Tax.
The essential principle of this Bill, my Lords, is the bringing of the Bank of England into public ownership: and the short title cited in the Bill is "Bank of England Act, 1945." But let me make it quite clear this is not a Bank of England Bill. It is a Government Bill and responsibility for the essential principle therein rests, and rests solely, with Government and with Parliament. Having made this clear you will not expect me to discuss that aspect of the Bill: indeed—and I would ask your Lordships to note this— I have resisted and, in spite of some ill-informed criticism, I will continue to resist, any attempt to drag the Bank into the arena of Party politics. This is my reason: The avoidance of politics is a time-honoured tradition of the Bank of England; indeed, it is one of the very corner-stones of its policy without which its centuries-old relations with Governments would have been impossible. But, there are other matters of great importance in this Bill, on which my colleagues and I at the Bank are conscious, and deeply conscious, that we have a special duty and responsibility; in particular, adequate and fair compensation to the stockholders and proper arrangements for the efficient conduct of the business of the Bank under the new conditions. And on all of these we have had an opportunity of full and frank discussion with Whitehall. Indeed, I would like to pay a tribute to the Chancellor of the Exchequer and to the officials of the Treasury for the manner in which they have appreciated our special responsibilities and have welcomed our participation in their discussions. They have shown themselves as anxious as we are that nothing in this Bill should disturb the ancient dignity of this great institution and the confidence reposed in it at home and abroad.
Now I come to the Bill itself and I am sorry that I may have to cover some ground that has already been covered by the noble Lord, Lord Pethick-Lawrence, 976 but I think it is necessary for me to explain some of these clauses. It is a short Bill. It consists of six clauses and two schedules; but only Clauses 1, 2 and 4 deal with important principles on which you may desire me to offer some remarks. Clause 1 deals with the very important question of compensation to the stockholders or, to use their ancient name, the Proprietors, of the Bank. The price the Government propose to pay for the Bank stock to be taken over is stated in the Bill. It is not a negotiated price by agreement with the stockholders. It takes the form of what, I think, the lawyers call "compulsory acquisition" and the question that arises, and on which you have to be satisfied, is whether the price is a fair one. On that I can only give you my opinion. It has been said, and there was much debate on this point, in another place, that a fair basis of compensation is impossible without complete disclosure of the Bank's total net resources; but that is an entirely wrong assumption. The net resources are nothing like the wild figures that have been suggested by irresponsible people. They are adequate, but in no sense excessive for the operations of such an important institution which must continue as a going concern. I know of no important purchase or amalgamation of banks in which these resources have been disclosed, and for the reason that those institutions were to continue in being as going concerns, in one form or another, and there was no question of a distribution of assets. That is exactly what is to happen in the case of the Bank of England. It is to continue, as it must, as a going concern, for it cannot wind up like an ordinary company by resolution of its stockholders. That would be quite impossible except by Act of Parliament.
In cases of "compulsory acquisition" I doubt if there is any method of valuation within the wit of man that would satisfy everybody, but that does not necessarily mean that some fair and reasonable basis is impossible. In the case of Bank stock there are circumstances which make this not only possible, but possible with some degree of accuracy and fairness. It so happens that the dividend on Bank stock has remained unchanged for twenty-three years; and there was little or no expectation of an increase, for my distinguished predecessor said, in a public statement a number of years ago, that 977 whilst in theory the dividend on Bank stock could vary just as in any other company, the Proprietors had come to realize that service and not larger dividends was the first consideration. That was a pretty clear indication of policy, Bank stock has come to he looked upon almost as a fixed interest security; it sells on that basis as a trustee stock at a price only slightly below that of Government stocks.
The compensation proposed in this Bill is therefore based upon the transfer to the stockholder of an amount of Government stock that will assure him the same income as he has hitherto enjoyed on Bank stock over many years. It is interesting to note the course of the price in the market since the first announcement was mace of the Government's intention to bring the Bank into public ownership. The price fell sharply on that announcement, bat it rose again when this Bill was published and the terms of compensaton became known, and it has continued to rise until, to-day, it stands at the highest price in its long history. That seems to indicate the opinion. of the market on what the stockholder is to receive in exchange for his Bank stock—and the London market, I am sure you will agree, is a very good judge of such values. The position is, therefore, that any aggrieved stockholder—and I do not deny that compulsory acquisition is enough to make anybody aggrieved—can to-day sell his stock at a higher price than he paid for it, whether he has held it for a long or a short period.
In my evidence before the Select Committee of the House of Commons, answering a question on compensation to stockholders, I said:Yes, I am very conscious of my responsibility in that respect. Indeed I consider that I have (and I am deeply conscious that I have) a special duty to them to see that, as far as lies in my power, the price is fair and reasonable to them. But may I say one thing further in regard to that? I am also deeply conscious that I owe a duty to the State in this matter to see that the price paid by the State is also fair and reasonable. Indeed, it is essential, in a matter of this kind, that the price should be fair and reasonable to both sides. So far as my opinion carries any weight, I am prepared to say that I think the price proposed in the Bill fulfils these conditions.I stand by that to-day.
978 Clauses 2 and 3 deal with the appointment of Governor, Deputy Governor and directors and fixes their number, which is to be reduced from the present figure of 26 to 18, including the Governor and Deputy Governor—a change with which we were in entire agreement, as the present number is somewhat large. The Governor, Deputy Governor and directors will not be elected annually, as is the present custom; they will have fixed periods of office, five years for the Governor and Deputy Governor and four years for the directors. All are eligible for re-election, although the Chancellor of the Exchequer, and, I think, wisely, stated in Parliament that nominations will not normally be made over the ages of 65 or 66, so that the full term of service may be completed before reaching the retiring age of 70, which has long been the rule of the Bank. The Governor, Deputy Governor and all the directors are to have the high honour of appointment by His Majesty the King.
I come now to Clause 4. This is the most important clause in the whole Bill from the point of view of the banking community, and some of it, especially subsection (3), has given great anxiety in the City, but I will come back to that in a moment. I begin with subsection (1). This gives to the Treasury power of direction, and a great deal has been said about that power of direction already this afternoon. As the Treasury will own the whole of the stock if the Bill becomes law, this may he considered as not unreasonable. But the qualifying words are these: "after consultation with the Governor of the Bank." I should like to emphasize that. Those words were deliberately inserted, and I think that I am betraying no secret when I say that they were inserted at my request, and received cordial agreement from the Treasury. They ensure that to all intents and purposes the same relationship will exist in future between the Treasury and the Bank as has existed in the past. We have heard a good deal this afternoon, and we have often heard before, about the powers of the Bank of England, but I can say without fear of contradiction—and the noble Viscount, Lord Simon, has emphasized it—that the real position has always been that, however much weight may at times be given to the views of the Bank of England on questions on 979 which it had great experience, the final decision rests and always has rested with the Government of the day through the Chancellor of the Exchequer. I say that with great respect to what the noble Lord, Lord Pethick-Lawrence, has said.
I should like also to refer to what he said about the finance-for-industry companies. He said that these two companies were sponsored by the Government, and that an attempt was made to see that the matter should not be discussed in another place. Those two companies, however, were not sponsored by the Government. There is not a penny of Government money in either of them. If anybody sponsored them the Bank of England did, and, if you want to know what individual sponsored them, I did. There is no Government money in them, nor is there any responsibility to the Government in any way whatever in connexion with those two companies. They are there for the purpose for which they were created, to provide finance for industry. They are in no sense Government companies. Subsection (2) deals in a very satisfactory manner with the future management of the Bank under the new Charter, and ensures—and this is a very important matter—that the staff of the Bank will not become civil servants, and their salaries and pension rights remain completely undisturbed.
I now come back to subsection (3), to which I referred a moment ago. With my full support and assistance, the Chairmen and Deputy-Chairmen of the Clearing Banks and the British Bankers' Association saw the Chancellor of the Exchequer on more than one occasion, and had a full and frank discussion with him regarding subsection (3). Two amendments have been made, one to cover the traditional secrecy between banker and client and the other to ensure that the bank or banks concerned shall have full opportunity for discussion with the authorities and for publicity before any direction under this subsection is agreed to by the Treasury. I venture to hope and to believe that the powers under this subsection will be used only in the most extreme cases, and that existing practice between the Bank of England and the banking community, of consultation and persuasion, will long continue. Certainly that will be my endeavour during the remainder of my 980 term as Governor. It is interesting to notice—and I think that the noble Viscount, Lord Simon, referred to it—that many people do not like to rely upon time-honoured, informal methods. I was asked by a member of the Select Committee what happened if consultation and persuasion failed, and it may amuse you to know that the reply which I gave was "We begin all over again, and in the end, with great good will all round, we always get what we want."
I have detained your Lordships for a long time, and I can assure you that that does not increase my happiness; but I have nearly finished. It is perhaps true to say that the powers under this Bill do little more than give statutory authority for what has long existed by custom and tradition. Nevertheless, statutory authority is a fundamental change; and, as I said in my opening remarks, that is the responsibility of Government and Parliament. Whether it is for good or ill will depend in large measure upon the spirit in which this Bill is administered, and particularly upon the men chosen to be Governor, Deputy Governor and directors, for they must be men not only of wide experience in all branches of finance, commerce and industry, but imbued with the spirit of service to the community; for—and this again may amuse your Lordships—the work is onerous, and the fees are less than those of any other great institution that I know of in the City of London.
I hope that my remarks may prove helpful in this debate, and in conclusion I should like to use such words as may come to me to emphasize the importance of what we are discussing. It is unusual for a Governor of the. Bank of England to address your Lordships' House. It is more unusual for a Governor to speak on a matter concerning the Bank. I offer no apology for doing so to-day, because the matter which we are discussing is of urgent public importance; it concerns the future and the well-being of an ancient and honoured institution, which for over two and a half centuries has existed in our midst, and which throughout that long period has taken a leading part in the financial and economic history of our dear country. I venture to hope and believe that whatever the future structure of the institution may be, it will continue for many years to perform the same services.
§ 4.30 p.m.
§ LORD BROADBRIDGE
My Lords, in. rising for the first time in your Lordships' House to offer a few remarks, I must ask for the indulgence of your Lordships. I realize and appreciate the great dignity of this House, and how necessary it is, whenever one is desirous of speaking, that one should see that that atmosphere is maintained. I think you will agree that for a newcomer it is very embarrassing to have to follow such eminent men as the noble Viscount, Lord Simon, and the Governor of the Bank of England, but even that must not disturb what I intended to say, and if I offer one or two general remarks I hope it will be understood that I do so with the object of securing, perhaps, some clarification.
This Bank of England Bill, to my mind, as a layman, has some disturbing features. In fact, the whole principle of the Bill is wrong. As the noble and learned Viscount, Lord Simon, told us just now, there is no urgency for it. Why is it brought forward in this urgent condition? Even Lord Catto has not given us any reason why its production at this juncture should be regarded as urgent. In my opinion—and this opinion is shared by a good many people outside your Lordships' House—there is not justifcaton for Government interference with this great Bank. We have had it on the authority of one of our greatest industrialists, that nationalization will reduce this country to the status of a second-rate Power, and this seems to me to be the first step in that direction. In ordinary business life, if it is desired that two businesses which have hitherto been run singly, should be combined, in the case of the one that it is desired should be absorbed, an offer is made, as a rule, to the board of directors of that company to acquire the shares. Then the board of directors convene an extraordinary meeting of shareholders at which the offer is submitted for either acceptance or rejection. But there is nothing like that here. As Lord Catto has told us, a certain amount of stock is to be allocated to the existing private shareholders, and whether they like it or not, they have got to take it, and the Government will acquire holdings—if this Bill reaches the Statute Book, as no doubt it will—by force majeure or, as Lord Catto called it, compulsory acquisition.
982 I do not know who the negotiators were in this particular deal, but I presume that, as business men, they must have had before them a certified and audited statement of assets and liabilities. If that was the case, every kind of asset, hidden and otherwise, would be shown. We hear so much in these day of the strength of various undertakings on account of their hidden assets, and that is particularly so in regard to banks. So, one can scarcely imagine that the great Bank of England had not got any. I would like to ask whether we are to be told, for instance, what was the value placed upon the site and the building which stands upon the site. These things, of course, are of immense value, and surely, if we have got to determine what is to be done with this Bill, we are entitled to have before us all the facts which led up to this deal being consummated into the Bill which is now before the House.
It is not sufficient for the Government to say, as the Chancellor of the Exchequer said in another place, that the Government are getting a good bargain. Why should the Government get a good bargain at the expense of the existing private shareholders of the Bank? Your Lordships' House is, after all, the highest tribunal to which this Bill comes for approval, amendment or rejection. Surely, therefore, it is of the utmost importance, in fact it is essential, that every detail relating to it should be at our command. I want to know, and I expect your Lordships generally also want to know, if we are going to have this audited statement that must have been before the negotiators at the time when they were negotiating this deal. With that information in our possession, we shall be in a position to form our own conclusions. I understand that one of the suggested reasons why such a statement has not been produced—for I do not think it has been produced—is that it would not be in the interests of the nation to make such disclosures. But if we are to exercise a broad vision, surely we are entitled to have all the available evidence to assist us when we have to arrive at our conclusions.
This Bill proposes to grant somewhat wide powers, and millions of our people all over the country—and no doubt in the Empire also—who have either deposit or current accounts with one or other of the big joint stock banks, will be in 983 terested. Are the Government contemplating any interference under this Bill with the joint stock banks and with those moneys which the public now have in either deposit or current accounts? This is one of the matters upon which there has been a terrific amount of nervousness amongst members of the public. Lord Catto has given an explanation to-day, but we must bear in mind that Lord Catto may not always hold the position of Governor of the Bank of England, and once this Bill is passed then, so far as we are concerned, the matter is finished with—we have lost any opportunity for exercising control. I think, therefore, that there should be a most definite statement on these points.
There is the question of directing these banks to which Lord Catto has referred, and in this connexion I would like to read an extract from a statement made by the Chancellor of the Exchequer in another place. He was replying, in Committee, to an Amendment put down by one of the honourable members for the City of London. This is what he said:I would repeat that there is no intention in my mind—nor, I am sure, would such intention enter into the mind of any reasonable person in the future—that we should. force the banks to invest their money in directions which appear to them to be seriously likely to involve them in grave losses.What can a remark like that mean—not likely to direct them to invest their money in directions which would involve them in big losses? I do not know whether that remark was made as a flippant one or whether it was made seriously, but if it was made seriously I think we are entitled to know what the Chancellor of the Exchequer really meant because it has caused a great amount of surprise and disquietude.
No one doubts that the Bank of England is a great financial institution. It dates from the reign of William and Mary, 1694. The late Prime Minister said in another place that it was not his intention to preside over the liquidation of the British Empire, but when one comes to break up and damage one of the age-old financial institutions of our country surely we want to keep the backbone of our country and Empire. Such statements as that to which I referred cause great disquietude and make for disintegration instead of the reverse. After 984 the great upheaval of the war this country is in the position of requiring everything to be done by the Government to create the greatest confidence both at home and abroad, for if confidence goes everything goes. Nothing should be done that will lessen the great influence of Britain in the councils of the world, and in this great Bank of England we have one of the country's bulwarks. Then why do the Government interfere with it?
§ 4.43 P.m.
§ VISCOUNT SWINTON
My Lords, I am very glad that it falls to my lot to congratulate an old friend upon an excellent maiden speech. He is an ex-Lord Mayor, and an ex-member for the City. A man who has spent all his life in the affairs of commerce in the City of London and whose name has always stood high could hardly make his debut in this House on a better theme than a Bill about the Bank of England. I trust that we shall often hear him again.
I make no apology for following at the earliest possible moment, after the difference of opinion which has been expressed between the Governor of the Bank and the Minister who introduced this Bill into the House, to ask for a much clearer exposition of what is the real meaning of Clause 4 of this Bill. It is of vital importance that we should know. After all, we have been told by Lord Catto and others—and I know it from my own relations in Government—that relations have been very happy between the Bank of England and the Treasury, that there has always been intimate contact, and that the Bank of England has got on very well with the joint stock banks. Now and again they have had their arguments, and I should be surprised if they had not had them. I think it would be a bad thing if they had not, because in the clash of ideas comes wisdom.
That was all right so long as we went on the sensible illogical English way of letting institutions which were running very well go on running as they were. We are illogical perhaps in this country, but the justification is by work and not by faith. We tried to reform the Prayer Rook once. I do not know that we were successful in that. Various attempts have been made to reform this House. I am not sure that that was successful, but the House does an extremely good job and as for 985 the need of writing these things into an Act of Parliament, the one thing that we should never try to write into an Act of Parliament is the Constitution' of this country. I cannot understand the passion for writing these things out, but if we are going to write them out and enshrine them in an Act of Parliament it is vitally important that we should know what this clause of this Bill means. It is no good telling us that the Chancellor of the Exchequer is a man of wise judgment. I dare say he is Or that the present Governor of the Bank is an admirable man. He is. But we do not know who s going to he Chancellor of the Exchequer ten years hence, or who will then be Governor of the Bank, and it is absolutely vital that we should know what this clause means. What other powers does it give and who is to exercise those powers? It is important for this House before it parts with this Bill to know what this means, and it is vitally important for every banker in this country. Incidentally the term "banker" is defined in subsection (4) in these words:In this section the expression 'banker' means any such person carrying on a banking undertaking as may be declared by order of the Treasury to be a banker for the purposes of this section.If I say a banker—
§ VISCOUNT SWINTON
Perhaps it is like the man who was asked to define the duties of an archdeacon and he replied, "archidiaconal." When he was asked what they were he replied, "the functions carried out by an archdeacon." By and large, it certainly means that everybody who receives money on deposit is a banker Lord Pethick-Lawrence said we need not worry too much—I paraphrase what he said—if the banks are told that they are to give credit in this direction, not to this particular individual but to this line of business, because it is in the national interest. That may have a little effect on their profits; their profits may he a bit 1ess. I am not in the least concerned in this matter about the dividends which the banks declare. But they do not make very great advances to industry out of their rather modest capital, still less out of the funds out of which they are going to pay their dividends, but out of 'the deposits which are put into the bank 986 by individuals in the country. They have very strict rules as to how they make their advances and as to the proportion which the advances bear to the deposits. This is the essence of the banking business and why the English system has stood fast it is not because the bank can ultimately draw on Government credit.
I was really very frightened at the speech of Lord Pethick-Lawrence, and that one of his experience should advance this new theory to us to-day. That the solid structure of the banking business of this country was that they ultimately draw on Government credit is an extraordinary proposition. That is not the structure on which the advances in this country have been built up. They rest on sound judgment, wide reserves and on taking their chances and giving people their chances, and deciding who or what is credit-worthy. It is upon that the solidity of the banks has stood in good times and in bad. But one of the essentials of this whole structure is that the banker is a trustee for his depositors. Now he must exercise the duties of a trustee, and the system has worked on the whole very well. What is introduced into this? There is introduced by this Bill a power to give to the banks, the joint stock banks, the deposit banks, by the Government of the day, orders as to how they are to conduct their business and how they are to make their advances. I asked the noble Lord, Lord Pethick-Lawrence, whether that meant who would judge who was credit worthy. He said, "Oh, we could not tell the banks, or we should not." There is rather an important difference between "could not" and "should not." "We should not tell the banks that they were to give credit, to give an advance, to a particular individual and not to another." Well, I dare say they would not, but under this clause—and I asked the noble Lord this—I believe they could.
§ VISCOUNT SWINTON
No, I do not think the noble Lord is right. That is about getting information about cus- 987 tomers' accounts. Proviso (a) was inserted after debate in another place in order to ensure that the Treasury should not go prying into the accounts of individuals. The Chancellor inserted that Amendment in order to safeguard the privacy as between banker and client in a particular account in a particular bank. I do not think it has anything to do with it—"no such request…with respect to any particular customer…"
Surely, he will appreciate that it would prevent a recommendation being made to a bank to lend money or not to lend money to a particular client.
§ VISCOUNT SWINTON
I would like him to confirm that and make sure. Let me put it this way. Would it prevent the Treasury giving instructions to lend to a particular class of client? Remember, I am not accusing the noble Lord of wanting to do this to-morrow morning, but he is passing this legislation for all time, and therefore we really must see what powers we are giving, because, if we do not challenge them, later on we shall be told we have given those powers. Let me put it this way. I agree, if his reading is right, the Chancellor of the Exchequer could not say to a particular banker, "You have to give an advance to Lord Pakenham and not to give one to Lord Swinton." On the other hand, is there anything to prevent him saying, "You are to give advances to a co-operative society. You are not to give advances to small traders"? That does not involve any investigation of a particular person's account. On the contrary, it does raise exactly the point which Lord PethickLawrence intended to raise, that the Treasury should be able to say the kind of trader to whom advances should be given. This I think does mean that, though the Treasury could not say, "You are to give to or withhold an advance from a named individual," the Treasury could perfectly well say to the joint stock banks, under these powers, "You are to give advances to this class of people, and not to give advances to that class of people."
§ VISCOUNT SWINTON
That is as you understand it. That really means this. If you have got a more extreme Government it would be perfectly legal when this Act is through for the Government to say: "We believe in State trading; we do not believe in private enterprise." If you get a Government, or if you even get this Government, rather more pressed by certain elements, to say "Well, State enterprises are not going so awfully well; they ought to have a little bit more given to them," it would then be perfectly legal under this Clause 4 for the Chancellor to give an order via the Bank of England to the joint stock banks that they were to advance to Government enterprises; they were to advance to co-operative societies, but they were to go slow on their advances to private enterprise, to private traders. Now, that is the position. Well, I think that is a very curious and a very dangerous line for the Government to take. It is not just regularizing a system which has been going on. That may be the way in which the hand is going to be played between Mr. Dalton and Lord Catto for a certain time. I have no doubt Lord Catto is a very honest man, and, if he did not find that the thing was going in what he thought a reasonable way, he would resign. But supposing Lord Catto did resign as the Governor of the Bank, that would not obliterate this Act of Parliament once it is passed, and it would rest then with the Government to put in the person who was to conduct the Bank of England.
Now, Lord Catto said to us, "Oh, you need not worry about this because I had put in"—and he said he had pressed very hard to have it put in—" that the directions would not be given until after consultation with the Governor of the Bank." I am very much surprised to hear that he had to press that at all. I should have thought that it would have been in the original draft. Lord Catto is a very good banker and a very good merchant, but an extremely bad Parliamentarian, if he will not mind my saying so, if he thinks that the words "after consultation" have any very important effect. "After consultation" in law simply means that before you do a thing you have to ask somebody about it. But you do not have to carry out his advice, and over and over again it has been held 989 that provided you have seen a gentleman and had discussion with him you have satisfied that term "after consultation."
Now I really do suggest that this thing is a good deal more serious than we have supposed. We are not simply regularizing a position in the way in which it has grown up. Incidentally, it is the greatest nonsense to say that this Bill is necessary in order to avoid what has been called a "bankers' ramp." I had a good deal to do with the crisis in 1931 in the sense that I was present, as the noble Viscount (Viscount Samuel) was, throughout that time, and there was not a difference of opinion between the Labour Chancellor of the Exchequer and the banks; there was a good deal of difference of opinion, if I recollect aright, between certain members of the Labour Cabinet of the day. There was no difference whatever between the Labour Chancellor of the Exchequer and the Bank of England. And really, if we want to pass an Act of Parliament in order to ensure that what happened in 1931 shall not happen again, we do not want to pass one to nationalize the Bank of England; we want to pass an Act of Parliament, if that be possible, to ensure that the Chancellor of the Exchequer of the day shall not be the dominant member of the Cabinet and shall not carry his way with his colleagues, because that, as a matter of fact is what happened.
Now the noble Lord has already admitted that Clause 4 does entitle the Government to give any direction it pleases to the joint stock banks through the Bank of England.
That is not quite the position, as a matter of fact, but perhaps the noble Viscount would desire me to explain more fully the precise way in which the procedure will function when I make my own remarks.
§ VISCOUNT SWINTON
Yes, I would, but I would be glad to be interrupted. But by and large, on the giving of credit there is no doubt at all. After all, how is this thing going to work? One of our difficulties over this Bill is that it has been presented in such different terms at different times. Only a few months ago, Lord Pethick-Lawrence himself said that it was not going to make a pennyworth of difference to anybody in this country. I suppose he has been told that that was 990 not a good line to take or was not very consistent with the speeches made by his colleagues in another place, and so he came to-day and said, "Of course, it is going to make a difference, and whoever pays the piper is going to call the tune." In another place, the Financial Secretary to the Treasury left us in no doubt that this thing was going to be used; that it was not just a piece of window dressing. I think he said it was a revolutionary proposal—I could turn up the quotation—and that never again were the banks, including the Bank of England, going to be in a position to dictate to a Government. I have one of the quotations. It is: "The caravan moves on, but moves on in a new direction." He said: "Who controls the purse, controls other things"—"other things" presumably meaning policy, who is to have the money and what kind of things are to have the credit. Therefore, we are doing a great deal more than regularizing an existing position, and we should like, in the first place, to have from the noble Lord, Lord Pakenham—who I must say is a master of clarity in these matters—a very precise statement saying who is right, the Governor of the Bank or the Secretary of State for India, who gave entirely conflicting accounts as to what is the meaning of this clause. He will no doubt give a third account, which we shall be able to take as authoritative.
I feel that even if this were a piece of window dressing—and it seems to me to be a great deal more—it is not only unnecessary, it is dangerous. The one thing to-day that we want to foster, whether it is in this country or outside, is confidence. Can anybody suggest that this kind of Bill is going to increase confidence in the Bank of England or our banking system? The Bank of England is not like the ordinary central bank which has been created in other countries. The strength of the Bank of England in its ability to attract confidence to itself and, through itself, to the banking system of this country, has been its long, impartial, successful conduct. It has managed the sterling exchange.
In a very interesting speech after he came back from America, Lord Keynes justified the terms of the American loan on the ground that you could not hold the sterling bloc by force. Nobody ever really supposed you could. But no one 991 suggests you do not want to hold the sterling bloc. We want to hold it. There is nothing wrong about it. It is continuing what was the practice before the war. We want it to be as wide in extent, as steady, as stable, and as coherent as possible. We can hold the sterling bloc, which really means that the countries bank here in sterling, as long as those countries have confidence. It surely is profoundly unwise to do anything which could tend to disrupt that confidence. You would, by this Bill, do something certainly to make more difficult, if not disrupt, the relations of bankers with their clients. And for what? We are told it is planning. It is not planning. The real gravamen of the charge that ought to be brought against this Government to-day is not that they are planners—I am a planner, and I believe everybody to-day wants to be a planner—but that they are entirely failing to plan. What they are producing is a series of nationalization measures which have nothing whatever to do with planning. Nationalization merely means buying out or acquiring the shareholdings in those businesses by adding very largely to the national debt. There is nothing of planning in that.
You do not do any planning by buying out the Bank of England. It is how you manage the Bank of England which is planning. You do not do planning by buying out the mines, the railways, civil aviation, or any other industry. It is how you are going to run an industry. And I cannot see to-day the least evidence that the Government are planning industry in the sense of trying to see how industry can be made more efficient, how you can get a greater output per man hour, a larger production of the things we need at home, and how we can build up our export trade. For those things you do not want this kind of measure. You want the closest co-operation and the greatest confidence between the Government of the day, who must have their part in planning, and the industry and commerce of the country. You do a grave disservice to the country and throw dust in the eyes of the people, whether those who voted for you or the others, if instead of doing that kind of constructive planning you merely fob them off by adding to the national debt in buying up now that industry and now this.
992 Above all, I really am amazed that we should make our start on this. As Lord Pethick-Lawrence said a few months ago, (he has gone back on it to-day), the best that can be said for it is that if it is sensibly administered by a wise Governor and a wise Chancellor of the Exchequer, it will not make a pennyworth of difference to anybody. Why waste Parliamentary time? The risk is very different. The risk is that confidence, both at home and abroad, may be gravely impaired. I hope that when the noble Lord comes to reply to this very interesting but very conflicting debate—not conflicting as far as this side of the House is concerned, but conflicting in what has been said by the supporters, the expounders, the pioneers of this measure—he will do something to allay this unrest.
§ 5.11 p.m.
§ LORD PIERCY
My Lords, it was not my intention, and it is not my intention, to engage so formidable a gladiator as the noble Viscount who has just sat down. My intention is far more peaceful and I hope to pursue it, but I would like, without engaging too deeply in controversy, which is hound to be settled by the reply which will be given from the Treasury Bench, to say a word or two on Clause 4. To my mind the clause tries to draft something which, in intention, is rather subtle. I am inclined to think it does it successfully. What it is trying to do is to preserve vis-à-vis the commercial banks an initiative on the part of the Bank of England. It gives the Bank of England an initiative, but it is trying to do a little more than that; it is trying to preserve some measure of what I may call autonomy in the Bank of England in respect of the directions which, in given circumstances, it might feel called upon to give to the joint stock banks. I know it can easily be said that the Bank of England will be wholly owned by the Government and therefore this is really mere foolishness, but personally I do not think it is. I think the draftsman and the Government are trying to do something which, if it can be done, is worth while and which would, I should have thought, have appealed to the noble Viscount, with his sense for a system which has merits which are not necessarily logical.
I base my interpretation upon the words in subsection (3): "The Bank may, if 993 they think it necessary in the public interest. …" It is an easy interpretation of the clause to say that the Treasury can give directions to the Bank of England, but what the Treasury, I suggest, never can do is to give such a direction to the Bank as will make the Bank think certain steps are necessary in the public interest if in fact the Banc does not think so. That rather subtle point is, I think, one which accounts for the rather peculiar form of this clause.
§ LORD PIERCY
Read subsection (1) and you will jump to the conclusion that the Treasury can not only give directions to the Bank of England on maters which de properly and primarily between it and the Bank, but upon anything whatsoever; that the Treasury can in fact give directions to the Bank of England directing them to take the initiative with commercial barks and to give directions to them based upon the Treasury's directions. My point is that by subsection (3), the right of initiative is left to the Bank. I agree it would be the easy inference to say that the Treasury, by giving directions to the Bank of England, could always put the Bank of England into the position that it must give certain directions to the commercial banks. The proper answer will come from the Treasury Bench. All I am suggesting is that the clause, and particularly subsection (3), is so worded as really to preclude that as the real intention of the Statute, when it becomes a Statute. The real intention is the rather subtle one, but, I think, the valuable and worth while one, of preserving in the Bank some initiative, of laying upon the Bank the duty of considering the public interest, and ready giving it scope to make representations to commercial banks only in so far as it, the Bank, may think it necessary in the public interest. Again I say that it is open to anyone to say "After all, the Bank will be wholly owned by the Government, so how can it have a separate conscience or a separate view of the public interest, at any rate if its view should in any way conflict with that of the Treasury?" Anybody who cares to take that line can do so. WI-tat I am suggesting is that the draftsman here is trying to draft a rather delicate point, and a very valuable point if it can be secured.
994 My real object in rising in your Lordships' House to-day was rather different, and whether time will permit me to achieve it I do not know, but what I wanted to put to your Lordships was this point. It is very much in the spirit and tradition of your Lordships' House to look at things in their permanent rather than in their transitory aspect. It seems to me that on the measure we have before us there has been a certain distortion of view. There has been a tendency, both in your Lordships' House and in another place, to discuss the matter as if this Bill were a political device entirely and not a serious, well-founded piece of economic statesmanship. All that, if I may say so, is an effect of nearness. We have got our eyes fixed upon something in the foreground and have lost sight of the larger considerations in the background. I should be very surprised if twenty years hence it were at all easy to resurrect this rather, as I am suggesting, myopic view which so many of us have taken in this discussion. I believe that twenty years hence this measure, if passed into law, will appear a justly timed and inevitable stage in the history of the Bank and of the whole complex of our financial institutions.
The problems which lie behind this measure and the matters we are discussing to-day were considered by a Royal Commission in the years 1929 to 1931. That was the last large, general discussion on these matters. In the few observations I intend to make I shall have constantly in mind the discussions of that Commission. I think it would be agreed all round the House that it would be quite a mistake to take, so to speak, an instantaneous snapshot view of the Bank and of its standing and functions as they exist to-day and to assume that the situation was always like that. The danger in taking such a view is the fact that the Bank at this moment is at the culmination of a long process of evolution, and the latest stages of this evolution are very remarkable and very recent. There was a passage in Bagehot which has been widely quoted:The founders (of the Bank) may have considered that it would lend money to the Government, that it would keep the money of the Government, that it would issue notes payable to bearer, but that it would keep the'banking reserve' of a great nation no one in the seventeenth century imagined.995 Bagehot was writing in 1872. At that time the functions of a Central Bank were only very vaguely understood and even when Sir Edmund Harvey joined the Bank in the 'nineties the logical consequences of the new status of Central Bank were still very imperfectly understood; for example, as regards the proper relation of the Bank of England to such commercial business as might be going. In the discussions of the Macmillan Committee, Lord Keynes gained acceptance for the proposition that in the Bank "a slow evolution is going on of which we are in the last uncompleted stage." I suggest that in its present fully developed, fully responsible character of a Central Reserve Bank, leading the world, it might be said, in that capacity, there is a very great deal to be said for the Bank at last becoming a State institution.
The one impressive argument against that which I have encountered, and which has been mentioned twice in this House to-day, relates to the international standing of the Bank. It is suggested that as a private institution of a unique kind the Bank can command greater confidence in the world at large than it can as a State Bank. If I may say so with respect, I think that there is a touch of sentiment and a touch of antiquity about that argument. It is relevant to conditions which have been changing under our eyes in recent years, and are already outmoded. I feel that in the present situation of monetary conditions, internationally governed by the new Conventions into which we are entering, and internally dominated by the policy of full employment, it is essential that the national policy should be safely and securely unified. That can be done only by bringing the Bank, and through the Bank, the banking system, under State control. Therefore I suggest that on that consideration the present step, represented by this Bill, is timely, and the arguments for it are irresistible.
My second point relates to the form in which this transaction is being carried out. The form in the Bill, in effect, leaves the Bank, broadly speaking, as it is, and simply establishes in the last resort an operative link between the Bank and the Treasury on the one side and the Central Bank and the commercial banks on the other side. That arrangement, as set out in the Bill, is to my mind undoubtedly 996 the right one; but I think that the present time is almost the first period at which that form of arrangement could be said to be both practicable and appropriate to the situation. In 1930, the idea of a kind of quasi-independent public corporation was still being put forward by persons who were dissatisfied with the conduct of our monetary affairs, and for the reason that at that date excellent judges could argue against Treasury control of the Bank of England on the ground, it was said, that that might tend to intensify the bias in the direction of financial as against industrial considerations which was part of the complaint which they made against the administration of the Bank in the 'twenties.
I speak with great respect in the presence of at least one former Chancellor of the Exchequer, but the relationship of the Treasury and the Bank in the 'twenties, as far as an outsider could judge it, seemed to be in certain respects very intimate, and in certain respects rather at arm's length. It was intimate because of the debt situation which had been created by the war. The Governor was pointing out what he described as the special problems which had to be dealt with in addition to normal questions. There was, for instance, "the troublesome question of perpetual maturities of debt occurring almost from year to year and giving us no respite." After another war, perpetually recurring maturities, borrowings, savings operations and fundings have become our lot indefinitely, and I think it is safe to predict that Treasury operations for a very long time to come will be inextricably intertwined with what might have been called in older days the proper business of the Bank. For that reason, which is very present in the mind of anyone who has had anything to do with the short loan market, the relations between the Bank and the Treasury are bound to be those of continuous collaboration, as indeed it has been pointed out to-day that they have been for some time.
In another respect, however, in the 'twenties the relations between the two were at arm's length. The Controller of the Finance and Supply Services of the Treasury could say that the control of the currency was exclusively a matter for the Bank of England. Technically, legally, I fancy that that position is still 997 true; but I also fancy that to-day, to avoid misunderstanding, the Head of the Treasury, if he made that observation, would probably accompany it by a rider to this effect: "But, of course, we arc vitally concerned with the volume of purchasing power." It is at that point that the old apposition (if such a word was ever appropriate) of the view-points of the Treasury and City has disappeared. It is no longer possible to say that "the Treasury is obsessed by the necessity at all cost of stopping expenditure and is concerned mostly with the balancing of the annual Budget." The bias has in fact been corrected by events, and above all by the doctrine, which I think I may reasonably say has been accepted by all Parties, of the maintenance of a high and stable level of employment as the foremast aim of economic policy and, within that framework, the aim of monetary policy.
It seems to me clear that while the collaboration of the Treasury and the Bank necessarily brought about by the debt situation is one good reason for formalizing the relationship—they live in each other's pockets—the other thing which makes it essential is the tact that the aim of economic policy, full employment, must be and can only be pursued through monetary policy. I therefore suggest that some link-up of a. formal kind between the Bank and the Treasury has become inevitable.
My third point rather looks towards the relation of the Central Bank with the banking system as a whole. The monetary difficulties of the 'twenties and 'thirties turned upon the extraordinary difficulty of reconciling the necessities of the internal position with those of the external position. You desired to maintain the price level at home, but your exchange operations forced you into steps which were likely to depress it. So you had a conflict which was extraordinarily difficult to resolve. I am not saying anything one way or the other about the solutions arrived at in the 'twenties. They were extraordinarily difficult times. The point I want to make is that similar problems to those Occupy us now, and will continue to occupy us for a very long time to come, and that their management and solution call for a new ordering of the financial system. I think that the solution of that interrelation of problems calls for what I might describe as discipline on the part 998 of the commercial banking system as a whole, discipline under the leadership of the Bank of England and ultimately of the Treasury. That necessity, I think, was apparent in the 'twenties.
Here I will quote the words of a great authority, who is a distinguished ornament of this House. He said:I have matters of very high policy in mind. It appears to me that perhaps the greatest dilemma of the banking system at the present time is that what is the right policy from the internal point of view may be the wrong policy from the external view. Well, now, if we depend upon laissez faire and automatic working and inscrutable actions, it may be impossible to avoid something that is done for external purposes having unfavourable internal reactions. But, if you have a joint policy between the bankers and the Bank of England, by which an act of the Bank of England was allowed to have its full effect externally, and was prevented by the bankers from having an unfavourable effect internally, currency management might be put on a different plane.That situation is one which is very much with us now, and will be with us for an indefinite time in the future, and it can only be solved if there is some focus of policy and one ultimate determinant of policy. To get the right policy—and this, I suggest, is very germane to the Bill—you must pool the experience of the Bank of England, of the commercial bankers, and of the Treasury. And that co-operation, that pooling of experience, is essentially the system set up by the Bill, or, if you like, left intact by the Bill. But the Bill does define where ultimate responsibility and authority will rest.
There is a problem of political philosophy, the problem of sovereignty. There are situations where the locus of sovereignty must be determined. I can conceive of no objection in this case to the ultimate decisions resting with the Government. The monetary situation, internal and external—and perhaps externally even more than internally—is very dangerous, very difficult, very obscure. The solutions proposed will always be matters of doubt and difficulty. They may succeed, and they may not succeed, and if they do not succeed they may have very wide repercussions which will be unfortunate. The responsibility for those decisions must rest with the Government—as indeed it does. But, in order that the responsibility should be clearly placed, and that the policy should be carried out with ease, and with flexibility, there must be some nexus, some formal 999 nexus, between the Treasury, the Bank of England and the commercial bankers, so that the one decision can run through the system.
I have very little more to say, and I would like to point out this. Our banking and financial institutions, as they stand to-day, are the result of a fortunate, happy and, above all, a natural development, and they are the envy of the world. But to-day's good is not necessarily to-morrow's good. You cannot say that in their existing state at this moment you have crystallized them for all eternity. There must be, and there is, development. The essential thing in the present situation is precisely this need of bringing throughout the whole complex of monetary institutions a common front, and imparting to them a single unifying policy on the really critical points of high policy. It is easy to suggest that under the Bill all sorts of merely vexatious things can be done by the Government. It might be suggested that they will take a direct interest in the actual practices of commercial banks in granting credit. No one is going to suggest that in a national investment policy it may not be necessary to give priority to particular classes of industry. That may very well come about. In that respect, undoubtedly, it may very well be that under some direction of the Bank, given with the authority of the Treasury, the banks may be asked to do something in that way. But there is no real likelihood of the Government stepping down into the arena of the actual day-to-day operations of the banks.
One of the great merits of this Bill is that it does not advance from the nationalization of the Bank of England to the nationalization of the commercial banks. The Government does not step down into the relations between the customer and his bank. It has left the system in that respect intact, only reserving the right of making provision, as it does, in Clause 4 (3) for the direction of commercial banks on points of ultimate policy. To my mind the objects of the Bill are irrefutable, and they will appear so on the long view. The actual drafting of the Bill, the form of the Bill, is very well calculated to achieve the objects in view. After all, what are the objects? The object is, if I may so put it, to introduce into the system, as it were, a factor 1000 of certain assurance for unity in ultimate matters of policy. The Bill does this, I suggest, with the minimum disturbance of existing institutions and without in any way impairing the flexibility of the system, and without in any material degree affecting the sense of responsibility, the autonomy and the initiative which at present reside in the individual parts of the system. One can easily conceive of a Bill of a different sort, a Bill which might try to analyze a living body of practice into a code, and hedge it round with definitions and prohibitions on one side and another. That would have been a most unsuitable way of dealing with the situation. But here we have instead a Bill which provides the essentials in simple form, and leaves everything else to the innate powers and instincts of the system itself developed in long-established practice and the common sense which informs it.
I conclude, my Lords, by suggesting to your Lordships that some time hence this whole measure will be seen in its proper perspective as a wise and timely step in the evolution of our banking system, as a measure well calculated for the objects it had in view, and one likely to be salutary for our immediate financial and economic future.
§ 5.40 p.m.
§ LORD CALVERLEY
My Lords, I address the House with trepidation and I am certain that your Lordships will wonder why, as a mere layman in finance, I have the impudence to intervene in such a debate as this. I do so because this is a human problem and that aspect of the introduction of this measure cannot be over-emphasized. Before coming to that, my noble friend Lord Swinton got the "jitters" because he was wondering if some wicked Government, blue or red, would give preferential treatment to the co-operative societies as against the small trader. I can assure my noble friend that I know quite enough about the co-operative societies with their capital of £450,000,000 to know that they are not in need of a flag day, at least in the immediate future. I would remind Lord Swinton that it is the policy of His Majesty's Government to give immediate help to the small trader and that they have already started on that policy.
I want to go back to what the noble Viscount, Lord Simon, had to say with 1001 regard to the urgency of the problem and in fact to what both the noble Lords had to say about the money barons and 'the bankers' ramps. I would remind your Lordships that it was Viscount Simon's own leader, and it was Viscount Swinton's own leader, who made most interesting and lurid speeches about the money barons in the City and bankers' ramps and so on and so forth. I can assure both noble Lords that so far as the Labour Party is concerned we are not afraid of the big bad wolf. I want to emphasize the human side because the ordinary man in the street, especially the people in the north of England will take a lot of persuading that in the past the Bank of England has not interfered in industry. I hope I am doing no injustice to these twenty-four gentlemen. I do not know their names but they represent very little of joint stock banking interests because I believe some of them represent yanks known as clearing banks or discount banks.
But the point of this Bill so far as the ordinary person in the street is concerned is that the Bank of England should belong to the people of England and not to these stockholders, and not even to these twenty-four gentlemen who sold gold at 67s. 10½d and bought it back again at 80s. within a few days. In Yorkshire we should say they were daft and gormless. You will never persuade the miner in South Wales—and this is what has made this question a matter of urgency—that the Bank did not interfere in the dark 'twenties, again under the leadership of a Government of which Lord Swinton was a member. Overnight the wheat subsidy was cut off and that has left bitter memories such as will never be effaced for another generation in South Wales. Overnight the wheat subsidy was cut off and farmers found themselves in a precarious position "This was put down to the policy of the Bank of England.
If that was not so it is about time the Bank of England issued a manifesto in its own defence. We had the Geddes axe in the 'twenties and the people of this country—again I speak especially for the people in the industrial north—will never forgive that Government for axing, not priming as there was a need for pruning, the social services of this country. Again, that was laid to the account of the Bank of England and it will ever he so until we 1002 can get some authoritative statement that it was not so. Again, you will never make the ordinary man in the street believe that the Bank of England did not so manipulate things, irrespective of its selling of gold until the twenty-four directors were knocked off their golden perch, that they were a kind of sinister figure behind the scenes in 1931, and that they even made the joint stock banks of which we are so proud, do certain things of which we are ashamed.
It is a human problem and it is a matter of urgency because the people of this country have decided that they through the other Chamber and this. Chamber—and this Chamber has made and can make a great contribution—through Parliament shall be the main sluice to supply the needful credits in order that industry can be put on its feet again. That is one of the reasons why it is really a matter of urgency. Why have you got your working parties? There is all this talk about nationalization but the working parties have been formed for 80 per cent. of the industries of this country which are going to be run by private enterprise. You cannot nationalize that great industry with which I am proud to have had something to do in a small way as a weaver, the textile trade, and the cotton trade of Lancashire. These industries together, even with mining which will be nationalized, will need adequate credits to put them on their feet. It means all the difference as to whether people are going to be employed or unemployed and that is a very human problem.
We used to be very proud at our football matches, when the goalkeeper made a save, to say that his hands were "as safe as the Bank of England." But perhaps we forgot that the Bank was an old lady in a crinoline. We forgot that the Bank of England has been built up on such banks as the Yorkshire Penny Bank and our great building societies north of the Trent and south of the Tweed. I once heard a Governor of the Bank of England asked "what is the difference between the Bank of England and the Treasury?" He said "the Bank is Tweedledum and the Treasury is Tweedledee." But some of us have a very shrewd suspicion that Tweedledum has at times been able to put the thumbscrew on what we call the Treasury. This Bill is the birth of Siamese twins; it is going 1003 to be one indivisible whole and, I believe, a great success.
I must say that there is an ethical side to this, but I will leave that to the bishops. There is really an ethical side because we do need a new spirit in industry. My noble friend Lord Woolton came to the greatest county there is in England, and he spoke on good manners and courtesy in the way we dealt with each other. We certainly need more good manners and courtesy in industry and in our industrial affairs, and not to be so ready, as we are at times, to tell the other man to "go to hell." Well, I believe that when' the people of this country realize that they are not going to be exploited, that the Bank of England is their Bank, as it should be, that it is there as their servant, I believe when they realize that there may be even a change of heart, but that will he almost a miracle, and so I ask for your support for this Bill. It is a matter of urgency in preventing the disillusionment which we had after the last war, and I am glad that this master Bill—it is the master Bill, my Lords—has been introduced and is the forerunner of 'other Bills for the planning and making of a better Britain.
§ 5.52 p.m.
§ LORD WOLVERTON
My Lords, it falls to my lot, as is the custom in this House, to congratulate the noble Lord, Lord Calverley, on his maiden speech, and I hope we shall hear his voice on many other occasions in this House. But perhaps he will forgive me for not following all the things he said about the small traders. I do not know a single case in the last twenty years where the Governor of the Bank of England has acted contrary to the wishes of the Treasury. After the very able speeches which have been made on this side of the House in opposition to this Bill, very little remains for me to say to-night and my only excuse for inflicting a short speech on your Lordships is that my family have been bankers for generations, and I myself served my apprenticeship in an old-established banking house in the City of London before entering your Lordships' House. I feel therefore that I can speak with some slight experience on this Bill, to which I take in many parts strong objection.
I entirely agree with what the noble Viscounts, Lord Simon and Lord Swinton, 1004 said, that this Bill is entirely ideological and is unnecessary at this critical time in the history of the country. I feel inclined to say of this Bill what Seneca once said of some persons of whose actions he disapproved:They might perchance have found the necessary if they had not gone in search of the superfluous.The liaison between the banks and the Bank of England and between the Bank of England and the Treasury has never been closer than it is to-day, entirely by the voluntary effort of free people working together. The system runs extremely smoothly, so why change it when there are so many more vital questions of reconstruction to be settled at the present moment.
I think we are being fobbed off with this Bill, the first of the Government's nationalization measures, to satisfy the policy of the theoretical Socialists of the Labour Party in their planned economy in a so-called free country. During the Recess I have taken the opportunity, as I expect many of your Lordships have done, of touring this country. What do we find? Very few houses going up; coal production on the decline, exports not rising, food very little more plentiful and still with very little change and variety. Last Saturday I visited a new housing estate, which has been put up in a provincial city, of Portal houses. I called on one of the families, who very kindly showed me round. I asked them what they thought of it. They said well, they would sleep in their Portal house, but they had had a priority docket for furniture since last October and were still waiting for their furniture. I mention that only because I think it important that the Government should concentrate very much more on those much more urgent things than on the Bank of England.
That is all that I wish to say on the general policy of the Bill, but there are a few things that I should like to say on the Bill itself. The Bill, as everybody knows, is divided into two parts. The first part deals with the nationalization of the Bank of England itself and the second part with the direction given by the Bank of England through the Treasury to the other banks. May I deal first of all with the first part? I feel that the compensation which has been offered to the shareholders is inadequate, but, of course, the 1005 shareholders had their opportunity in the House of Commons to appear, if they wished, before a Select Committee, and I understand that they will have their opportunity to appear before a Select Committee of this House, if they so desire. For my own point of view, I think the terms are inadequate, especially as the Chancellor of the Exchequer said that he was getting a very good deal cut of this transaction. If, in the first part of the Fill, no further compensation can be give a to the shareholders, I then think that the Government should not take any greater amount than has been taken out in the last twenty years by the shareholders of the Bank of England in their annual dividend. That is an extremely important point.
Coming to the second part of the Bill, I think it has been—although it is a very objectionable Bill from my point of view—greatly improved in another place by the two provisos (a) and (b) in Clause 4, subsection (3), that there shall not be a search of an individual account; also that the banker shall be able to make representations to the Treasury if the direction seems to him to appear harsh. There is one very important point I should like to stress on that matter. The Chancellor of the Exchequer said in another place that in practically all cases representations could be made, but he went on to say that the Official Secrets Act did come in in certain cases. I think that is very unsatisfactory and that we should have a strengthening up by another subsection of the clause to show exactly how the Official Secrets Act does come in and who will rule whether it comes under that Act or not. With those few words at this late hour I will say nothing more, except to remark that I am afraid I cannot support this Bill. I feel it is unnecessary at the present time, especially when there are so many other vital things for His Majesty's Government to get on with, such as I have tried to mention this afternoon.
§ 6.1 p.m.
§ LORD WARDINGTON
My Lords, many of your lordships have addressed the House this afternoon and I expect you would rather like the debate to come to a close, but I hope you will bear with me because I have been interested in banking, I am sorry to say, for over fifty years, and I should like to say a 1006 word or two on this Bill. I can assure you that I will take only a very small portion of the time that I spent in banking in addressing to you my few remarks.
Bankers have accepted this Bill as being the wish of the country, and they have, as the Chancellor has announced, expressed their willingness and intention to do all that they can to co-operate and make it work successfully. But that does not mean that it is a good Bill, or that it is a necessary Bill, and I have not really heard anything in the nature of a principle underlying the measure. Some excuses were made for it. One which Lord Calverley apparently had in his mind was that never again should we see "a bankers' ramp." To anybody who has had anything to do with banking—and I was in the forefront of banking at that time—it is absolute nonsense, and I do not think any argument is necessary beyond this: that the whole of the banking and financial structure is based on confidence and credit, and he would be an insane man who kicked away from under him the very basis on which he rests.
Another reason has been given by the Chancellor of the Exchequer: that it was to legalize and sanctify the relations between the Bank of England and the Treasury; in other words, to make an honest woman of the Old Lady of Thread-needle Street—I believe that is the way he put it. But was there any reason to sanctify those intimate relations? Nobody ever accused the dear Old Lady of living in sin. In fact, her fame was fair throughout all the world, and her name was synonymous with everything that means correct living, honesty, and a respectable nature.
I tried to get at the principle of this matter. I remember years ago talking to a Labour Chancellor of the Exchequer, and I asked him why it was that his Party were always girding at the banks and the Bank of England, and why was he teaching the country that they were dangerous animals that ought to be either put out of the way or thoroughly controlled. I asked if there was any real fault to be found either with the Bank of England or the other banks in their work and what they were doing. His answer interested me. He said: "In theory, I do think that the savings of the people ought to be under the control and in the 1007 hands of the representatives of the people." Well, that was an interesting remark. He did not elaborate it, but I could not help wondering if any single Member of Parliament had ever been returned to Westminster by his constituents with the idea that he was going to look after a constituent's banking account.
§ LORD WARDINGTON
He went on to say that apart from that—that was his theory and his belief—the banks were already largely socialized (and in this particular case he was talking, I think, more of the joint stock banks than the Bank of England); that they did not dissipate their dividends, they were working in the interests of the country and the public generally, and, in any case, their business would have to be conducted by the very people who were conducting it now, even if they were nationalized. It was interesting to hear that belief from a Labour Chancellor of the Exchequer, and it is interesting to me also to recall what was written in 1925 on this subject when the Labour Government in the previous year had been laying down banking regulations in connexion with the Dawes Loan.
This was written by the well-known City editor of the News Chronicle. After stating that he thought it was no exaggeration to say that three-quarters of the financial dislocation which followed the war (that is, the war of 1914-18) was due to the domination of banking and currency systems by Government—and he instanced such countries as Russia, Germany, Austria, Poland, and France—he went on to say:Was it not the Labour Government which took the responsibility and accepts the credit for the reorganization and the putting into force of the Dawes Loan and the reorganization of the German financial system, which, in one of its cardinal provisions, insists that the new German bank of issue is to be entirely free from governmental control or interference?That was the view of the Labour Party in 1924, and what has happened to change their view except the reiteration of that most stupid cry, "a bankers' ramp," and "We cannot have any more of it"? That has been drummed into the ears of the people, and I agree with Lord Calverley 1008 that it may take some time to get rid of it. The slogan itself was a "ramp." It is particularly interesting to me to go back and see how views change, even in the Labour Party.
I want now to refer to only two points in the Bill. One has already been mentioned at some length. In regard to the compensation which is to be given to the shareholders, I agree with what my noble friend Lord Catto said on this matter: I do not think that the shareholders could have expected or ought to have expected more. But this is a particularly sui generis case with the Bank of England. I think there is a danger in believing that possibly the principle may be carried to other concerns which are nationalized. It is quite true that the Chancellor of the Exchequer has made a good bargain. He has got a considerable amount of money or assets for which he has not paid, and the shareholders as a whole have acquiesced in that. I do not know whether your Lordships remember a story in, I think it was, a book by Victor Hugo, where he described how an old priest befriended a man and was robbed by that man of some valuable candlesticks, and how when the man was apprehended and brought before him the kind old priest said, because he did not want him put into prison, "I gave them to him; he did not steal them." I do not think anybody could say that thief was any less a thief because the priest who was robbed acquiesced in the robbery. My only consolation in that story is that the result of the kind action of the priest was that the robber mended his ways and lived a respectable life thereafter.
With regard to the other point, this debatable Clause 4, I do think there is real substance in the criticisms which have been made. The two provisos, (a) and (b), have gone some way to meet my personal apprehension (and I am speaking purely in my personal capacity), but I think Lord Swinton made it quite clear that an irresponsible future Government might easily use this clause for petty political objects and would have a weapon ready made to their hands with which to do great damage. In a democratic country I cannot see how anybody can object to some provision which would make it necessary to have a debate as to what really was in the interests of the country. After all, who is the arbiter 1009 on a question of that sort? I think no one would dispute that it is Parliament, and primarily the House of Commons. Therefore, if any case did arise where there was a difference of opinion between the Governor and the Treasury or, if there were a perfectly subservient Governor, between the country generally, if it only knew what was in store, and the Treasury, such a case ought to go before Parliament and be properly thrashed out.
I hope the Government will feel there is substance in the criticism which Lord Swinton particularly stressed, and with which I heartily agree, and if they do feel there is substance in it I hope some provision will be made to prevent anything being done in a hole-and-corner way without publicity and due discussion. I cannot see, how anybody could object to a thing of that sort. It may be considered that the danger suggested is fanciful. I do not know what is the present Government's expectation of life, but it must come to an end sooner or later, and nobody knows what kind of Government will succeed it. When you are legislating for all time, those things must be taken into consideration. I hope therefore that some Amendment or some added provision will be made to meet what really is a substantial point.
§ 6.14 p.m.
My Lords, I feel that we have all enjoyed the varied contributions. to this debate, delivered with a great variety of expertness, and I hope that noble Lords who have in some cases given years of their lives to the study of these questions will not regard me as remiss if I pass very rapidly over their contributions. May I allude first of all to the speech made by my noble friend Lord Wolverton? I remember going to school it the same term, or as we then called it, half, as Lord. Wolverton, and I feel he has weathered the years better than I have. I was interested in his allusion to the fact that his family had long owned a bank. A branch of my family owned a bank, but they were bought out. by the big man in the person of Lord Wolverton's family. I do not know whether that was a bankers' ramp! That brings me to the second personal point I must mention. It is my city to disclose the not altogether painful fact that I am a stockholder of the Bank and to ask your Lordships' permission to proceed. May I say that I rejoice 1010 in the fact that I am a stockholder, and that I rejoice all the more intensely because the shares have appreciated so rapidly and in such an unprecedented fashion since the disclosure of the Government's terms of compensation?
I come to the speech of the noble Viscount, Lord Simon—a master, as always, of dialectics. If I may draw an analogy from the academic profession, in which have sought to earn a living for so long, I cannot help feeling that on this occasion he was rather in the position of a tutor whose attention has wandered and who is striving to play out time. He made a great deal of play with various aspects of the subject, but I could not feel at the end that he had in any way sought to refute the actual points brought forward by my noble friend Lord Pethick-Lawrence. In essence the noble Viscount argued that this was an unnecessary Bill, and that it was much too early in the Session for unnecessary Bills. I do riot know why we should want them later on. I do not know why he seemed so keen that if this Bill must come it should come later on, when we should be still more busy; but that was the gist of his argument. I hope in the course of my remarks to indicate strong reasons for regarding this as a necessary Bill. While it is true that this Bill, when it becomes law, as I hope with your Lordships' consent it will very shortly, will not put any butter on the bread of any individual in the immediate future, it is a necessary condition—I repeat, a necessary condition—of the fulfilment of the programme of the present Government.
The noble Viscount alluded to that old phrase, "a banker's ramp"—a phrase which was taken up from more than one side of the House. The phrase was defended by my noble friend Lord Calverley, and resented and repudiated, to the best of his ability, by my distinguished banking friend the noble Lord, Lord Wardington. I do not feel that at this time of the day there is any need to impute unpatriotic or unworthy motives to any section of the community, whether bankers, members of your Lordships' House, or even university dons. I do not see any need to drag personal motives into the matter one way or the other; but I am bound to state the opinion of the Government which I represent here and, I 1011 venture to think, the opinion of the majority of the people of this country at the present time, that the advice that the bankers collectively gave to successive Governments in the years up to 1931 was very bad advice indeed. If your Lordships accept that view of history, I do not think we need pursue further the question of precise phraseology.
I shall not venture, except with great diffidence, to say even a word of comment upon the most authoritative contribution from the noble Lord, Lord Catto. To do so would be rather like Sancho Panza congratulating Don Quixote, or, some of your Lordships may think, like Frederick Engels saying a word for Karl Marx. At any rate, I feel sure that we all regard ourselves as privileged who have listened to him this afternoon. I come, then, to the contribution of my noble friend Lord Broadbridge, whom, with becoming modesty as a relative newcomer myself, I should like to congratulate on an important maiden speech. He raised certain questions which I shall attempt to answer seriatim. First, he regretted that we had not been told all the facts about the assets of the Bank. I do not mean to pursue that question very far; I rest myself on the view of the noble Lord, Lord Catto, or, if he has now come to be regarded as a trifle prejudiced in our favour, on the view of my noble friend Lord Wardington, and on the view which Sir John Anderson expressed in another place, that these terms are eminently fair and reasonable. I should like, however, to answer a second point raised by the noble Lord, Lord Broadbridge, which goes closely with that one, with regard to the future publication of Bank of England accounts. I am not in a position to make a positive statement on that subject this afternoon, but the Chancellor of the Exchequer has indicated that he is in very close touch with the Bank on the best way in which in future the general results of the year from the point of view of the Bank, can be laid before the public.
The noble Lord, Lord Broadbridge, also asked whether any interference was intended with the deposits of private individuals in the joint stock banks. I feel that it is worth while saying here that, as all noble Lords opposite of experience know, there is no threat whatever to the depositors in the joint stock banks, or, 1012 in the case of the few who are fortunate enough to possess them in the Bank of England, to the deposits there. I myself found during the recent General Election—when, now I come to think of it, I was not blessed with the success that no doubt my views required—that the only doubt expressed regarding this question of the nationalization of the Bank of England was whether it involved the expropriation of bank deposits. That was a genuine misconception running through the country, and I am glad to have this opportunity of saying that of course there is no threat whatever to the deposits of the small man, or, for that matter, of the big man.
The noble Lord put a final question, raised earlier by the noble Lord, Lord Woolton, to which I confess it is not easy to give a perfectly cut-and-dried reply. I do not suppose that many of your Lordships imagine that a cut-and-dried reply is possible. He asked whether it was intended to direct joint stock banks in such a way that they made losses. It was made plain by my noble friend Lord Pethick-Lawrence that of course occasions might arise where a joint stock bank was advised, and in the last resort recommended, to pursue policies which were not those calculated to ensure a maximum profit; but I hardly think, when we reflect that the initiative in these matters—a point about which I shall say something in a moment—must come from the Bank of England (which means in practice, of course, from Lord Catto and his colleagues), that those of you who know the noble Lord and his colleagues are likely to believe that directions are likely to be given to the joint stock banks of a kind which would cause serious injury to them.
My Lords, I have not intervened in this debate because I am a director of a bank, and I thought it might be improper, therefore, to do so; but I should like to put one question to the noble Lord. He says that any directions which are given by the Bank of England to the joint stock banks are given on the initiative of the Bank of England alone. Does he mean by that that subsection (i) of Clause 4 has no bearing on subsection (3) at all? There appear to me to have been in the earlier part of the debate two points of view expressed. There was the point of view 1013 expressed by the noble Lord, Lord Pethick-Lawrence, who said definitely, I thought, that he who pays the piper calls the tune, and that therefore the Chancellor of the Exchequer could give a direction to the Governor of the Bank of England, and the Governor of the Bank of England would be under an obligation to transmit that direction in sonic form or other to the joint stock banks. The noble Lord, Lord Catto, who followed, expressed a very different point of view, because as I understood: him—I may be mistaken—he said that subsection (1) had nothing whatever to do with subsection (3), and that subsection (3), which deals with directions from the Bank of England to the joint stock banks, meant that these directions would be given purely on the initiative of the Governor of the Bank of England, with no prior direction from the Chancellor of the Exchequer. That is a very important point, and I think that the House should have an absolutely direct answer, Yes or No.
My Lords, the noble Viscount, the Leader of the Opposition, may not realize that the noble Viscount, Lord Swinton, went into this point at sonic length while the Leader of the Opposition was, I think, absent. I propose, when I come to Lord Swinton's remarks, which are next on my list, to deal with that precise point. At the moment I am trying to answer the question of the noble Lord, Lord Broadbridge, as to whether there was much danger of the banks being forced to make losses; and I say that since the initiative will came from the noble Lord, Lord Catto, and other gentlemen of almost equal experience and eminence, the danger is very slight indeed.
I now come to the searching questionnaire submitted by the noble Viscount, Lord Swinton. I should like to say in advance that, without setting myself up as an authority on this rather elaborate controversy which is held to have developed, but which in my view has not developed, between the noble Lords, LordPethick-Lawrence and Lord Catto, to the best of my recollection there was no conflict between the statements made by them. But that, as will be appreciated, can be more easily judged when we are able to read Hansard, and what noble Lords will desire will be a statement from me, to the best of my ability, as to the correct interpretation of the phrases in 1014 question. Let me say first of all that I hope that we shall not assume that the Bank of England is going to adopt an altogether new attitude towards the joint stock banks in future. To-day the Bank of England has the power, if it chooses to use it, of coercing the joint stock banks to a very large extent, and I hope that we shall not assume that the attempt to put into statutory form a power which already exists in the last resort, will alter altogether, or at all, the friendly and sympathetic attitude which the Bank of England has shown for many years towards the joint stock banks. I say that by way of preliminary.
I single out—and I hope that the noble Viscount will confirm me in doing so—four main questions that he raised. First of all he wished to know whether we really intended to tell the House that in future there would be a power possessed by the Bank, acting with the consent of the Treasury, to persuade or, in the last resort, compel the joint stock banks to discriminate between certain classes or categories of customer. Yes, my Lords, that is so. I do not see that that power would need very often to be exercised, but we are certainly convinced that not only the total volume of credit in this country but the broad distribution of credit in this country is a public responsibility which cannot altogether be shelved, by those who manage the Bank of England and those who manage the Treasury. I do not see why, because a power is claimed to discriminate between, say, production and distribution, or between agriculture and it may be some other form of activity, there should be any reason to conceive that the power would be used in a fashion to favour political partisans. To me it is almost incredible that noble Lords should believe that the Government, subject as it is to democratic censure and criticism, would put itself in a position where it could be accused of lending public money to its own supporters rather than to its opponents. I am sure that such a position could never arise in this country. If any Government attempted to do anything of that sort that Government would not remain very long in office, or, if it hung on, it would be expelled in a fashion that did not permit of its soon returning to power.
Further, I would remind the noble Viscount that we do in fact discriminate at the present time in regard to capital 1015 issues. The Treasury draws up the broad policy in relation to capital issues, and carries it out on the advice and in association with the Capital Issues Committee. We are simply saying that with regard to short-term credit the same kind of criteria shall apply as has applied for some time past to capital issues.
§ VISCOUNT SWINTON
May I intervene at this point? I am not in the least accusing the noble Lord of wanting to do something that is wrong. I would ask for some explanatory statement on this matter. Supposing that you had State enterprise and private enterprise both engaged in the same kind of occupation, there would be nothing in this Bill to, prevent the Government, if they so desired, from saying: "This is the kind of operation which may be financed, but you shall give credit to the State operation rather than to the private operation." I am not talking to the noble Lord about what he intends to do. I am speaking about what is the really important issue—what is the legal position. If he admits that the Treasury have the power to discriminate between Class A and Class B, then they must also have power to discriminate between A(1) and A(2). I do not think that has been denied.
The noble Lord can conjure up nightmares which I hope will never come to reality. May I say that I do not want to run away from this? I want to emphasize our intentions. We lay down the principles for the distribution of credit in broad categories. That, we say, is a matter for the Government of the clay, and the Government and the Bank of England cannot shirk responsibility.
§ VISCOUNT SWINTON
And the Government will be able to give directions, to the Bank of England and the bankers.
I am coming to that—that is the second question with which I am proposing to deal. The noble Viscount has been so kind as to congratulate me on my clarity. I hope that I shall be able to make this somewhat clearer before I have finished. The position is this: The initiative rests with the Bank of England; (I am talking now of the directions which might in the last 1016 resort be issued—though we hope that that precise position would not very often arise—to the joint stock banks). The initiative rests with the Bank of England, and in a sense the final responsibility for the directions given rests with the Treasury, because the Treasury must authorize the Bank of England to issue directions. We are assuming a case where the Bank of England is unable to persuade the joint stock banks of the wisdom of some course. In that case the Governor of the Bank will have to go to the Treasury, and say: "I require your authority to issue these directions." They will be issued on the initiative of the Governor (I am glad to see that he nods his assent), but of course with the sanction and in that sense on the responsibility of the Treasury.
I hate to bother the noble Lord again about this, but that is not the point. The point is this. Before the Governor uses his initiative, can he be instructed as to the direction in which his initiative is to be used by the Chancellor of the Exchequer?
§ LORD CATTO
May I intervene to say that if that was so, then, as the noble Lord will surely realize, it would not be on my initiative. I could not be acting on my initiative if I had been directed to do something.
The, subsection says:The Treasury may from time to time give such directions to the Bank as, after consultation with the Governor of the Bank, they think necessary in the public interest.That is, directions of any kind, which might cover directions concerning deposits at joint stock banks, or any other directions they might think right. Then you come to subsection (3), which says,The Bank may, if they think it necessary in the public interest, request information from and make recommendations to bankers, and may, if so authorized by the Treasury, issue directions to any banker for the purpose of securing that effect is given to any such request or recommendation.Some noble Lords, I think, feel that it is not clear whether subsection (1) does not cover subsection (3). The first stage would be that the Treasury would give direction to the Bank of England. The Governor of the Bank would then make recommendations in the light of the directions to the joint stock banks. Using his own initiative or not, he would be the 1017 man who did it, and, ultimately, if he did riot get satisfaction from the bankers, he would go back to the Treasury and say: "Can I have an authorization?" And they would authorize him to give a direction. Mat is the foundation of the doubt which has arisen in the minds of some noble lords, and I hope that Lord Pakenham will be able to resolve it for us.
When the Committee stage is reached, noble Lords will have the opportunity of discussing this in detail. May I say that I attach great importance to the intervention of Lord Catto on this point? What I take it to mean is that in a case of that kind he would regard his initiative as having been overridden.
§ VISCOUNT SWINTON
This is riot merely a. matter of what Lord Catto says or thinks. I appeal to the Lord Chancellor to interpret this. The issue is quite a simple one. With regard to the directions given to a joint stock bank Lord Catto says the Treasury can order no direction. to a joint stock bank except on his recommendation.
§ LORD CATTO
The noble Lord should riot put words into my mouth which I did riot use. What I said was: "The initiative is with the Bank of England." I used no more words than that.
§ VISCOUNT SWINTON
Very well, then, I take the noble Lord's exact words: "The initiative is with the Bank of England." I am not in the least wishing to misrepresent the noble Lord. He may have an understanding with the Chancellor of the Exchequer, but it is very important that this House, that both Houses of Parliament, in fact, that the people of the country as a whole, should have a clear understanding on this, that they should have a declaration from the highest legal luminary in the country. I therefore ask the noble and learned Lord Chancellor to tell us in this connexion what the Bill really means. The issue, as I have said, is very simple. Lord Catto says that the initiative must rest with him, or with whoever happens to be Governor of the Bank of England at the relevant time. I ask this question, which is a simple one. If die Chancellor of the Exchequer o: the day desires to give to the joint stock banks of this country instructions or directions, 1018 can the Chancellor order the Bank of England, after consultation, to give those instructions, or is the Chancellor of the Exchequer impotent to give instructions to a joint stock bank unless the initiative comes in the first place from the Bank of England?
That is a perfectly simple point and if the initiative lies with the Bank of England that is one thing. On the clause as it is drafted here, plainly the Chancellor of the Exchequer can give his instructions through the medium of the Bank of England whether the Bank of England likes it or not. That is the question. I would ask the learned Lord Chancellor to answer that.
§ THE LORD CHANCELLOR (LORD JOWITT)
My Lords, it is not very convenient to interrupt this speech, but I should have thought that this particular machinery in subsection (3) is plain enough on these words:The Bank may, if they think it necessary in the public interest. …The condition of the use of this machinery altogether is plain. It is what the Bank think. Unless the Bank think it is in the public interest they cannot use this particular machinery at all. The general wording of subsection (1) could not cover the same topic as the particular wording in subsection (3). I am saying this on the spur of the moment.
§ LORD BALFOUR OF BURLEIGH
My Lords, may I rise to ask a further question? The noble Lord said that there would be an opportunity of discussion in the Committee stage. Is there an Amendment for that Committee stage?
My Lords, I am informed that there will be a Committee stage. I have no Amendment myself and I am not aware of any Amendment which is going to be moved. I am most grateful to the Lord Chancellor—not for the first time—for clearing up a difficulty, but I should like to repeat that the contingency which has very properly been investigated by the noble Viscount, Lord Swinton, is one which we believe would never arise if this machinery were working properly. I want to emphasize that and I am sure I shall have Lord Catto's approval in doing so. The Governor will 1019 not in the ordinary sense be a Government official; he would not regard himself as covered by orders. I feel sure he would resign rather than carry out instructions of which he did not approve. I feel sure that that is the practical operation of the clause in question, but the noble Viscount has very properly examined one particular contingency which might in theory arise.
The noble Viscount raised two other points of considerable substance, the question of confidence, to which the noble Lord, Lord Calverley, replied, and the rather different point as to whether the Government in fact were attempting to discover how industry could be made more efficient. Regarding the question of confidence, I shall be saying a few words at the end, but as regards the question of planning Lord Calverley, in a maiden speech which I am sure we all enjoyed all the more because he brought a breath of the hustings into this august Chamber, very properly reminded the noble Viscount, Lord Swinton, that Sir Stafford Cripps has established a number of working parties which cover a large part of those industries dealt with by the Board of Trade.
I will not say more about Lord Calverley's intervention except to say that I hope we shall hear him very often again. To Lord Wardington I simply say that the bankers are, I am sure, a much misunderstood body of men. I only hope that those who cannot agree that this Bill will save the public from the City will accept the view that it will at least save the City from the public. In the few minutes that I shall further occupy your time I should like to suggest that there are three questions your Lordships will want to settle in your minds before you give this Bill, as I am sure you will—I hope you will—a Second Reading. First of all, do we accept the basic principle laid down by the Government? The noble Lord, Lord Wolverton, said he had searched the documents in vain to discover a principle. The principle is that the broad financial policy should be subject to community control. That is a principle which I have not heard anybody dispute to-day. I take it as conceded on the other side. The noble Lords who have criticized the Bill have mostly argued that the principle in ques- 1020 tion is already operating but that at any rate is the principle behind the long struggle for the nationalization of the Bank of England.
Secondly, noble Lords will wish to know what are the practical intentions of the Government. On that sufficient light has surely been thrown by the statements of Lord Pethick-Lawrence and Lord Catto. I do not find, even in the searching analysis of the noble Viscount, Lord Simon, or that of Lord Swinton, any serious criticism of what they thought was intended in practice by the present Government. They were basing their fears on a longer view, on a future which should never materialize. So as regards principles and practical intentions I feel most noble Lords are content to accept the standpoint of the Government.
But a third question presents itself. It is seriously doubted by noble Lords opposite whether it is not unnecessary, and, because unnecessary, irritating and provoking and a waste of time, to clothe those practical intentions with statutory form. On that point I would say this. I will not cover again all the ground or much of the ground covered by the noble Lord, Lord Pethick-Lawrence, but I would suggest that the constitution of the Bank, in its present form, suffers from three serious defects which should be removed by the present Bill. In the first place, it fails to provide a solution of certain difficulties that might conceivably arise in the future. I hope those difficulties will not arise, but under the present constitution there is no way of resolving the conflict that would occur if the conceptions of the Government came in conflict with those of the financial authorities. I hope and believe that situation will never arise, but, any rate, it is necessary to put this Bill in black and white on the Statute Book in order to make quite clear who in the last resort is master. Secondly, the present constitution of the Bank fails to allocate responsibilities visibly and clearly between the different authorities. As I am sure such an eminent constitutional authority as the noble Viscount, Lord Simon, will agree, that is a serious defect in any constitution, whether political or economic.
With both those points the noble Lord, Lord Pethick-Lawrence, has dealt, but there is a third consideration, and here I would like to repeat, if in rather more 1021 academic language, the pungent statement of a popular, and not unnatural and, in my opinion, not illogical point of view, the pungent statement made by the noble Lord, Lord Calverley. It is all very well, my Lords, to say that the Bank has a unique position and a marvellous reputation. So it has as a Bank whether one speaks as a stockholder, a depositor, or as anybody else who looks at it simply in the capacity of a bank, but as a source of financial policy for the country, it is no good pretending that the Bank of England enjoys a reputation such as some speakers have sought to credit it with this afternoon I am not arguing about the merits of the popular view; I am simply stating what I feel sure can hardly be denied is a fact, and I seriously ask you whether the time has not come to remove any suspicion in the public mind that finance is the master of production whereas we are all agreed today that production should he the master of finance.
I ask you to give this Bill a Second Reading. It is intelligible to all. It should remove the suspicions of many and it should cause anxiety to none. It should enable, as the noble Lord, Lord Catto, has said, an ancient and time-honoured institution to perform even more efficiently in the future those tasks which it has performed in so signal and remarkable a fashion in the past. Finally, it should convince the public that our plans for production, for full employment and for national prosperity will not be interfered with by any financial obstacles, and that the men who make the goods will receive all the assistance that the men who make the money can give.
§ On Question, Bill read 2a, and committed.