HL Deb 10 November 1959 vol 219 cc463-6

2.42 p.m.

VISCOUNT MERSEY

My Lords, I beg leave to ask Her Majesty's Government the Question which stands in my name on the Order Paper.

[The Question was as follows:

To ask Her Majesty's Government to consider adding a fixed redemption date for 3½ per cent. War Loan; or alternatively to accept the surrender of the stock at a fixed price for purposes of estate duty.]

THE MINISTER WITHOUT PORTFOLIO (THE EARL OF DUNDEE)

My Lords, the Government have given much sympathetic consideration to the difficulties of holders of this stock. Dating 3½ per cent. War Loan would, however, be likely to involve an increased burden on the taxpayer when redemption was carried out. Furthermore, such intervention, contrary to the market expectations, would be likely to cause a rise in the price of the stock. It would be unfair that the benefit of this should go to those who bought at recent prices, but not to those who sold recently at a loss. The right of a holder to surrender stock at a fixed price for the purposes of estate duty is a fundamental condition of a stock, determined at the time of issue.

LORD DYNEVOR

My Lords, could the noble Earl say who will be the loser if stock rises in price?

VISCOUNT MERSEY

My Lords I should like to thank the noble Earl for his reply, but I would add this. If, as it seems to me, the Government reply is based on the argument that there should not be an alteration in the fundamental conditions of the loan, I would point out that in this particular case there has already been an alteration. Originally, the loan was a 5 per cent. stock with a definite redemption date. Under great pressure from the then Governor of the Bank of England, Mr. Montagu Norman, everybody was told that it was almost a patriotic duty to convert.

SEVERAL NOBLE LORDS

Order, order!

VISCOUNT MERSEY

It seems to me that those who took that view have received the worst of both worlds. They bear that burden of an irredeemable stock bearing interest at only 3½ per cent. I wonder whether the noble Earl may not think that this is a case which deserves some further consideration.

THE EARL OF DUNDEE

My Lords, in 1932, when conversion took place, every holder of 5 per cent. War Loan was offered repayment at par. The Government were in a position to redeem the 5 per cent. War Loan at par, as they had the right to do, at that time. Those stockholders who did not elect to have their stock redeemed at par were given the option of converting into a new stock on different conditions at 3½ per cent., which was then the prevailing rate of interest, instead of 5 per cent. I think that everybody who either buys or retains an undated Government stock must be aware that the capital value of that stock is bound to go up or down in inverse proportion to the prevailing rate of interest.

VISCOUNT ALEXANDER OF HILLSBOROUGH

My Lords, would it not be quite impossible for the Chancellor of the Exchequer to grant this request received from the noble Viscount without giving consideration to the conditions of all the other undated Government stocks?

THE EARL OF DUNDEE

My Lords, the noble Viscount is entirely right. I think that it would undermine confidence in the financial proceedings of the Government if they were to favour one particular class of stockholder.

EARL FORTESCUE

My Lords, I should like to ask whether, if the proposal regarding the 1932 3½ per cent. War stock were adopted, it should not be applied to all other similar stock. There is one notable example, 2½ per cent. Consols, which when I first went to the City forty years ago were called "reduced" Consols and "Goschens". I should also like to ask the noble Earl whether he is aware that only a year ago it was possible to exchange 3½ per cent. War Stock into 3½ per cent. Funding Stock dated 2,004 without any loss, and that that was done on a considerable scale, but that it is not now possible.

THE EARL OF DUNDEE

My Lords, the questions of whether stock is dated or not, whether it can be changed into another stock or whether it can be used to repay death duties, are all fixed at the time when the stock is issued, and I do not think that the Government can arbitrarily alter the conditions of a security from time to time to meet isolated requests of this kind.

LORD LATHAM

My Lords, would the noble Earl agree that the proper policy for the Government to pursue is to secure a lower rate of interest?

THE EARL OF DUNDEE

My Lords, I think that that is quite a different question. It is a question that goes to the root of our whole economic policy, but it does not arise out of the Question on the Order Paper. The point which affects this Question on the Paper is that when interest rates are high the capital values of all Government stocks are depressed, and when interest rates are low, they go up correspondingly.

LORD HAWKE

My Lords, would the noble Earl inquire from the noble Lord, Lord Latham, the names of those investors who are willing to lend to the Government at lower rates of interest than there are at present?

LORD SALTOUN

My Lords, as a trustee who lost heavily by the reduction of interest on War Loans after the First World War, I would ask whether there is not a case for special treatment of this kind of stock. If the Government can treat it to the detriment of stockholders, why should they not treat it for the benefit of stockholders?

THE EARL OF DUNDEE

My Lords, if the noble Lord had elected to do so in 1932, he could then have been paid off at par and could have invested the money in some other stock.