Orders of the Day — German Reparation (Recovery) Act, 1921.

– in the House of Commons on 7th April 1925.

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Photo of Mr Winston Churchill Mr Winston Churchill , Epping

I beg to move, That whereas His Majesty's Government and the German Government have agreed that the existing procedure under the German Reparation (Recovery) Act, 1921, shall be suspended and replaced by an alternative method not involving payments by individual merchants in such a way as to be without prejudice to any right enjoyed by His Majesty's Government in respect of this Act under the Dawes Plan, the London Protocol of the thirtieth day of August, nineteen hundred and twenty-four, or otherwise, the operations of Sections 1, 2, and 5 of the German Reparation (Recovery) Act, 1921, shall be suspended on and after the tenth day of April, nineteen hundred and twenty-five, until His Majesty shall revoke any Order in Council which He may he pleased to make for giving effect to this Resolution. This subject appears to be overlaid with technicalities, but I think the story is quite simple, and I will try to explain it briefly to the House. The German Reparation (Recovery) Act, commonly known as the "26 per cent. levy," is the principal means, and indeed it is practically the only effective means yet devised, for securing for Great Britain her share in the German reparation payments. This Act has produced an increasing flow of reparation payments which we can set as they come to hand against the instalments of our debt payments to the United States of America. Any proposal to substitute another method for this useful mechanism would have to be most carefully scrutinised by the House as it has been most searchingly weighed and examined by the Government.

The German Reparation (Recovery) Act works in the following way. If an English merchant buys a piano in Berlin worth £100 he pays 74 per cent. to the Berlin seller, and he pays 26 per cent. to the English Customs. He then sends the Customs' receipt for £26 to the Berlin seller, who obtains payment in German currency from the German Government. That is the process. So long as the German exporter is reimbursed by his own Government the 26 per cent. which he has paid to the British Treasury, the Reparation (Recovery) Act has no protective effect whatever. On the whole, except during the Ruhr occupation, when for a time the German Government declared itself forced to cease to indemnify the German exporters, this Act has worked quite satisfactorily. Over £25,000,000 have been produced by its agency for the British Treasury. Let me remind the House that this sum of reparation is virtually, indeed actually, reparation in kind, and has always been treated as reparation in kind instead of reparation in cash by the Reparation Commission. It is a form of reparation in kind which, instead of being expressed by special or artificial imports of particular commodities arises, naturally, from the normal flow of the German goods, which our general trade in this country seeks to absorb. It is a form of reparation in kind which arises from natural processes and not from artificially stimulated processes.

It is, obviously, of high importance if we seek to recover German reparations that every conceivable method of taking deliveries in kind should be developed to its maximum. In my opinion, there is no doubt about the ability of Germany to make payment in marks up to the full scale and at the proper period fixed by the Dawes Committee, and I believe that there is very little ground for doubting her willingness to make such payments. The difficulty arises not in the collection of the payment of reparation in Germany in marks, but in the payment of those reparations across the frontiers in the currencies of the various States to which they are passed. That is the difficulty and that is the main limiting factor at the present time upon the discharge of reparations according to the Dawes scheme by Germany. Payments in cash, therefore, have to be supplemented by payments in kind, and payments in kind present many difficulties of their own, through the reactions which they create upon the national industry or may create upon the national industry of the receiving countries. It is, obviously, impossible for us, for instance, who are a great coal exporting country, to imitate France and Italy in taking our reparations or any portion of them in the form of deliveries in coal. But we do absorb in the ordinary course of trade considerable quantities of German goods. Although the quantities are less than those which we received before the War, still they are considerable quantities. The Reparation (Recovery) Act enables us to take a proportion of the value of all these imports for reparation purposes.

Such is the position as it exists to-day, and such was the position when His Majesty's present Government assumed office. No sooner had we taken office in November last than there was submitted to us the draft of a commercial treaty between Great Britain and Germany, which had been skilfully and carefully negotiated in Berlin by the British Ambassador there, Lord D'Abernon. The provisions of the treaty were important. They are now published and they have been approved by all parties in the House. For the first time in this treaty we obtained formal and effectual recognition from a foreign country of the advantages which it enjoys through the existence of our Free Trade system. We believe that the treaty ought to be agreed to. We believe that if it were agreed to it would foster and revive trade between Great Britain and Germany, the delay in which is a recognisable factor in the present depression of our affairs. We consider that it would lead to a development of our export trade with Germany which, through many causes, has so woefully shrunk from its pre-War level. The Government was, therefore, disposed to sign the treaty. The German Government, however, attempted to make a condition of their signature that the Reparation (Recovery) Act should be abrogated, and they made various suggestions for alternative machinery. They were quite willing to pay the same sums as were being collected under the Reparation (Recovery) Act, but they objected to the method. They complained of it as invidious, and sought to devise other means by which the same result would be achieved.

None of these means commended themselves to us as satisfactory. A deadlock ensued. The German negotiators came over to London, and they discussed round a table their various alternative plans. Throughout these discussions we maintained the following position, that we could not give up the solid advantages which the Treasury derived under the Reparation (Recovery) Act unless we were convinced beyond what I believe is called a peradventure, that we were not going to suffer the slightest practical disadvantage as a result of the change. Provided that that was established, and that we were reassured and convinced on this point, we said that we were quite willing to adopt any method which was more acceptable to the German Government and not objected to by the Reparation Commission. We said that the fact that it was more acceptable to the German Government, provided that our interest was not affected, was a circumstance which recommended it, apart from other matters, to us. We told the German delegates that if they could find a satisfactory alternative, not at that moment, but at any time in the future, we would examine their alternative in a spirit of good will and with a sincere desire to reach an agreement. We told them also that if in regard to any alternative of which, prima facie, we liked the look, difficulties arose with the Reparation Commission, or in any other quarter, we would use our influence and our good offices to smooth them away. On letters being exchanged between the Governments in this sense and in this spirit the German Government declared their willingness to sign the Treaty, and the Treaty was signed on both sides. Since then, for four months negotiations have ensued; most laborious and intricate negotiations, exploring every avenue, and dealing with many alternative suggestions. These negotiations have been in progress between the British and the German official representatives, and throughout we have had the assistance of the Agent-General for Reparation Payments.

The result of these negotiations is now submitted to the House in this White Paper, which is available in the Vote Office. Quite apart from the negotiations which we have conducted about the Anglo-German Treaty with the German Government, and the arguments arising out of that, which I have just explained, there arises, from separate causes, another series of reasons which have led us to the feeling that some readjustment in the basis of the Reparation (Recovery) Act has become desirable. Under the operations of the Dawes plan, the reimbursement of the German exporter has to be made not by the German Government but out of the Dawes annuities. The German Government pay into the pool, and the reimbursement under our 26 per cent. levy to the German exporter is made out of the Dawes annuities. These annuities can only be drawn on by us up to the limit of our share agreed upon with our Allies. All the available receipts are collected and placed in the pool, and after deducting certain prior charges for the armies of occupation, the Belgian priority, and various other priorities, the balance is divided among the Allied creditors in accordance with the Spa percentage. The British percentage, as is well known, is 22 per cent., so that the proportion that we are entitled to receive, no matter how we get it or from what source or by what methods, is the proportion fixed in relation to the general pool, in accordance with the inter-Allied agreement. As trade between Germany and Great Britain slowly revives, the yield of the Reparation (Recovery) Act tends proportionately to increase. During the later months of the present year it has yielded a sum definitely in excess of the share which is due to us from the general reparation pool. The Transfer Committee set up by the Dawes plan, under the chairmanship of a young and distinguished American citizen, Mr. Parker Gilbert, has at every stage adopted a reasonable and helpful attitude to these negotiations; but this Committee felt bound to draw our attention to the accumulation of surpluses, moderate surpluses, but still surpluses, which have occurred in later months beyond our agreed shares from the general pool. If this tendency had continued, either we should have had to reduce the percentage of our levy from 26 per cent, to some lower figure—20 per cent. 22 per cent., or some other lower figure—or else we should be in the position of no longer setting the good example which we have hitherto maintained, of strict, punctilious fulfilment, both in the letter and the spirit, of every inter-Allied agreement into which we have entered. It would be very inconvenient to traders in this country if we had to be constantly varying the rate of the levy upon the German imports, in order to make the minor adjustments, of £200,000 or £300,000, one way or the other, which arise in the normal development of trade, and to make the minor adjustments which would be necessary for us to conform to our share from the reparation pool Therefore, from an international and inter-Allied point of view, as well as from our desire to meet the reasonable wishes of the German Government in so far as they can be met without any danger to British interests, we have become increasingly disposed to make a new arrangement.

Let us see in simple terms what that new arrangement is. Instead of the procedure which I have explained to the House, by which 26 per cent. of the value of the imported German goods is collected by the Customs from British importers, about 800 principal German exporting firms have undertaken, under the organisation of the German Government, to deliver the sterling which they receive for their goods up to an amount sufficient to cover whatever is the British share in the Dawes annuity, according to the agreements made with our Allies in any year. The Reichsbank arranges the collection of this sterling from the German exporters, and it pays them the equivalent in Reichsmarks. It pays them as an ordinary matter of business and the Agent-General takes over the sterling from the Reichsbank up to our share of the Dawes annuity. He then reimburses the bank with the equivalent in marks, and he transfers the sterling to the British Treasury. The German Government have arranged, further, as a measure of precaution, to establish a reserve fund of £500,000 sterling to be constituted in Germany, and to be drawn upon if, or in proportion as, the German exporters should not be delivering their due amount of sterling to the Reichsbank at any given moment, and we have an undertaking that this reserve fund is to be continually maintained at a level of £500,000. We, therefore, have this sum of money between us and any temporary short fall in the receipts of the Reichshank from the 800 German exporting firms. Therefore I think that it is fair to say that we get the full sterling equivalent of the 26 per cent. levy on the German imports, so far as it is compatible with our share in the general reparation pool. according to the latest inter-Allied agreement, but while we get what is our share, and I think a good and sufficient guarantee, the money is collected in the ordinary course of business without any collection by the British Customs on the individual consignments of German exporters, and without any complicated encashing of individual vouchers in Germany. Great simplification and diminution of friction is, we hope, effected by this new procedure.

Lastly, let me say, we are bound by our promises to the German Government to give this system a fair trial. If it should not prove in practice to be satisfactory to us we have an agreement with the Germans that we shall have a frank and friendly discussion upon the subject and upon the difficulty. If the result of that discussion should still leave the situation unsatisfactory from our point of view, then we retain the ultimate power of resuming all our rights under the Reparation Recovery Act, and the form in which this resolution is submitted, and the procedure of striking out certain Clauses of the Act, but not repealing the Act, is designed purposely not to abrogate the Act, but only to place it in a condition of suspense.

I commend this new procedure to the House. I think that credit is due to our official negotiators for the ingenuity and patience which they have displayed in these, tangled negotiations. We have recognised a similar spirit of good faith and good will on the part of the German negotiators. His Majesty's Government is satisfied that the German Government will collaborate loyally in the execution of the new system, and we believe that that system will produce the same results as have been produced by the existing levy, limited as it is by international agreements, and will produce these results with less friction and disturbances to the general course of international trade. I commend this Resolution to the House as a small step, but a real step, upon that path of European peace and restoration on which this country, without distinction of party, has entered and along which it is the sincere determination of His Majesty's Government to persevere.

Photo of Captain William Benn Captain William Benn , Leith

Suppose that the amount collected under this new scheme is in excess of anything to which we are entitled under the Dawes annuities, who gets the money?

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

I am very sorry that I did not manage to convey that to the hon. and gallant Member. Everything that is collected from every source is paid, either actually or in theory, into the reparation pool, and then, after the prior charges have been deducted, the balance is distributed between all the allied Powers in accordance with the Spa percentage.

Photo of Captain William Benn Captain William Benn , Leith

We collect and they get.

Photo of Commander Hon. Joseph Kenworthy Commander Hon. Joseph Kenworthy , Kingston upon Hull Central

I can see a difficulty with regard to the goods which have come here for re-export. Has that side of the question been discussed? The difficulty is that British merchants do not always wish to disclose the goods for re-export. How is that difficulty going to be got over?

Photo of Mr Fredric Wise Mr Fredric Wise , Ilford

May I ask a question?

Photo of Mr James Hope Mr James Hope , Sheffield Central

I do not think that we can have a process of interrogation now. Replies to points raised can be given in the course of the Debate.

Photo of Mr William Graham Mr William Graham , Edinburgh Central

The Chancellor of the Exchequer, in the speech to which we have just listened, indicated that this was a subject which has been hedged round by a great deal of technicality. I ought to say, first of all, that the House is indebted to him for his statement of the problem which has been abundantly clear, and I think that his explanation of the new arrangement has been given in just the simplest terms that could be employed. We on this bench wish to support the new arrangement. It may not be necessary to discuss the proposal at length, but I hope that the House will bear with me for a minute or two if I recall some of the discussions which took place about the time of the original Act of 1921, and more particularly during the spacious clays of 1924, when we were in office and when we were compelled to reduce this levy from 26 to 5 per cent. Let me refer first to some of the discussions which took place in 1921. There was at that time no division of opinion in this House regarding the importance of reparation, but practically all Members had come to the conclusion at that date that there seemed to be little prospect of getting any reparation payments at all, and accordingly almost any device was welcomed which would bring to Great Britain some money year by year under that head. Now while there was no difference of opinion whatever regarding the importance of getting some kind of reparation, there was a great deal of difference of opinion in that Debate expressed in all parts of the House as to the mechanism of that Act, and the fear was expressed that it would in practice interfere with the activities of British and German trade and in the end defeat the very object in view.

I cannot help feeling that a great deal of that criticism has been justified by the proposal which the Chancellor of the Exchequer has made this afternoon, because, after all, what he proposes to do in practice under this Resolution is to wipe out Clauses 1, 2 and 5 of the Act of 1921. If any hon. Member turns to that Act he will find that these are the operative Clauses of the Measure, and that Clauses 3 and 4 contain nothing more than one or two supplementary provisions, and also, particularly Clause 4, some arrangement for the variation of contracts. So as regards the German Reparation (Recovery) Act of 1921 we shall in effect to-day, if we adopt this Resolution, wipe out all the individualistic mechanism which that Act contained. In the course of the same Debate many extravagant statements were made, and I refer to them to-day only for the purpose of showing how far we, have travelled along the road of common sense in this connection.

This Act was ridiculed by one school of thought in this House which stood out for extravagant reparation, for a reparation which, I think it is recognised by every one to-day, could never have been paid, and which, if we had attempted to enforce it, could only have done this country incalculable damage. There were people who said that this Act was no good because in practice the people who would pay this money would be either the British importers or the British consumers, and one hon. Gentleman who is no longer connected with this House suggested a march to Berlin, while others suggested the seizure of German territory and other devices of that kind. All that has now disappeared. The Act was adopted, but those who anticipated a very large yield from these proposals were disappointed.

During the Debate in 1921 no Member on the Government Bench condescended to give any figure as representing the probable yield under this Act, but in the course of the discussion it was stated by one authority that £20,000,000 a year was expected, whereas we know from the statement which the Chancellor of the Exchequer has made that during the whole of the time, as I understand, the aggregate has been about £25,000,000. At the same time, everybody, whatever his view of reparation, is compelled to admit that this is the one instrument which, for all practical purposes, up to the present time has brought us in any reparation at all. There I think we are on common ground. Accordingly, we pay that tribute to the Act this after noon, though in effect under this Resolution a large part of its mechanism is to disappear. At that time various hon. Members who spoke with very great authority were afraid that this Act, in the event of the German Government not standing to its bargain with its own merchants, would lead to a very difficult state of affairs in this country, if the British importers and British consumers were required to pay the 26 per cent. import duty. That was exactly what happened during the time that we were in office in 1924.

I do not want to dig up old controversies this afternoon, because those days are gone. But I remember that Conservative Members on that. occasion were very strongly of opinion that we were letting Germany off, although independently Conservative Members, and certainly all Liberal Members, had been hammering at the door of the Treasury—a very sturdy door it is true—pointing out to us that as the German Government was no longer reimbursing its nationals under this Act, they would pay the 26 per cent. duty in this country together with British consumers. That leads us to a very good illustration of the essential weakness of the Act of 1921. During the course of last year's Debate, I tried to argue that the weakness of an Act of this kind was that you had no fully effective reciprocal test. The Act worked well enough so long as the German Government reimbursed its nationals, but if it stopped doing so you had no conceivable means of making them stand by the bargain. Accordingly, you were driven either to abolish the duty altogether, or to reduce it to a nominal 5 per cent., which was the step that we adopted, until the German Government was prepared to take another view of the matter and to stand to the bargain. Therefore, I cannot help feeling this afternoon that our view of the step taken has been abundantly justified. If we have had to wait until we were out of office for justification, the fact is none the less sweet to us in Debate in this House.

What is the essential proposal that the Chancellor of the Exchequer submits? Everyone recognises that to try to go on collecting reparation under this Act on a purely individualistic basis—by that I mean the individual transaction of the individual trader—was practically an impossible way of collecting reparation on any large scale. At all events, I may say this regarding it, that it was the collection of a certain amount of reparation with the maximum trouble and difficulty, and in some cases delay, and I am afraid with some hardship to our own traders in Great Britain. During the Debate in 1921 my right hon. Friend the Member for Norwich (Mr. Hilton Young), who was afterwards Financial Secretary to the Treasury, and undoubtedly an authority on these matters, said that the Act in that form should not be continued for one day longer than was strictly necessary, and by that phrase I understood him to mean that as soon as we could possibly get down to some comprehensive basis, it would be better for us all in this reparation problem. The Chancellor of the Exchequer has in the long run been compelled to resort to a device of that kind, because what takes place now, as I understand the scheme, is this—that we take about 800 representative German firms, and they make an overhead contribution to the Reichsbank, which is understood to be a measurement of the yield of this 26 per cent. levy month by month, and that is to be the basis of payment.

I cannot help pausing for one moment—this is only a minor issue, because it concerns Germany and not us—to say that I find it a little difficult to understand what is to be the position of the other firms exporting, apart from the 800. I can only imagine that they are going later to extend the list, or that the transactions are small, and that it would not be worth while to go into them, and that, therefore, it is better to take an overhead 30 per cent. from the 800 ascertained people, and to say that that is equal to a 26 per cent. yield. The Chancellor of the Exchequer confirms that view of the case. That, of course, is a matter for Germany, and if that is a better arrangement, I have nothing to say against it. But, in practice, we to-day substitute a kind of overhead arrangement. Of course, it rests upon the good will of the German people and their determination to do their duty under this scheme, in the first place, and indirectly to the arrangement under the Dawes Scheme, together with the Spa percentages. Let me say at once that I think every hon. Member on this side of the House will agree, whatever view he may take ultimately of reparation, that a device of this kind, making for overhead and bulk arrangement, can only be in the interests of the recovery of European trade at present. It takes away the individual duty on the part of the trader in this country, and it substitutes for that a large scale bulk duty within the German State. That seems to me to be wholly advantageous from the point of view of British industry and commerce, and, I should imagine, advantageous from the point of view of German trade as well. We, therefore, support this proposal, partly because it bears out a great deal that we have argued in the past; partly because we believe that it is going to put a part of the reparation settlement on a basis in keeping with improved, and I trust improving, conditions of international trade; and partly also because, as the Chancellor of the Exchequer has indicated, up to the extent to which it is valid at all, it will make a contribution to the revival of Central Europe and the removal of international economic disease at the present time.

Photo of Mr David Lloyd George Mr David Lloyd George , Caernarvon District of Boroughs

I also would like to express my approval of the arrangement which the Chancellor of the Exchequer has been successful in putting through. I congratulate him upon the success of the negotiations. At the same time, perhaps I may modestly appropriate a certain amount of commendation for those who framed the Reparation (Recovery) Act, which enabled him to put these negotiations through. He very frankly admitted that this arrangement would have been quite impossible unless he had had this weapon available. I do not understand that the arrangement is altogether abrogating the Clauses referred to. I understand that he is holding them in reserve; he is suspending them, and there will always be the knowledge that if this contract is not respected, there will be the Reparation (Recovery) Act to fall back upon. The Act was never anything but an expedient to bring the necessary pressure to bear on Germany to pay her contribution of reparations to Great Britain. From that point of view it has, as my hon. Friend has admitted very fairly, been the only successful expedient up to the present for the purpose of extorting reparation. That must be borne in mind, having regard to the contempt poured upon it at that time.

I do not believe that anyone said on the Ministerial Bench at that time that £20,000,000 would be paid. According to my recollection, the utmost that was said was that if German trade with Great Britain recovered its pre-War normal extent, the amount would be £20,000,000. It is obvious and a simple calculation. It is only one-quarter of the value of our trade. Our trade before the War was £80,000,000 of imports from Germany, and 26 per cent. of that is a little over £20,000,000. But we were entitled to expect even more than that ultimately, because £80,000,000 represented pre-War prices, and the present comparative prices would be anything in the neighbourhood of £120,000,000. That is a moderate addition to make, and I think the total would be more than that. So we were right in anticipating the possibility ultimately of something like £30,000,000, which would be equivalent to what we are paying to the United States in respect of our own debt. Therefore, if the Reparation (Recovery) Act fructified, as it ultimately would in any arrangement which issued out of it, we were entitled to expect to receive from this expedient a sum of money which would enable us to settle the whole of the Inter-Allied Debt difficulty upon the basis of the Balfour Note. That in itself is a very considerable achievement.

The Chancellor of the Exchequer has stated that the difficulty which we always have to encounter in payment of reparation is a difficulty which has confronted nations for the first time on a large scale—the payment of a large sum of money across the frontier. You can pay £350,000,000 upon an internal debt with more or less difficulty, but you can pay it. But when we come to pay £30,000,000 across the frontier, we, the greatest international traders in the world, the great centre of the financial interest of the world, find it difficult. Other nations find it difficult to pay us £5,000,000 or £10,000,000 in respect of interest. The difficulty is the paying across the frontier. The Germans up to the present have paid something like £400,000,000 or £500,000,000 altogether in respect of reparation and the armies of occupation. They have paid to the Allies something like £400,000,000 or £500,000,000 in gold. That is a very serious thing for them.

This arrangement was purely an expedient. There are only two ways in which you could do it, apart from melting their securities. That is a very difficult thing to get at, as everyone knows. You cannot get out the securities of nationals in other countries without their consent. Therefore, there were practically only two methods of paying reparation. One was by means of exports, and the other was in kind. As far as we were concerned, we did not want much in kind, except potash and dyes. Beyond that there was nothing which we could receive. Conceivably we might have received a little timber, but whenever there was an attempt to get timber, even the French who needed it for restoring their devastated areas found that somehow or other it did not materialise. I do not know why. At any rate in kind we could receive only potash and dyes. Therefore we had to fall back on exports, and this scheme, devised in 1921 to take advantage of the fact that we were the biggest international traders—which means that we not only sold more to other countries, but bought more from other countries—was a crude and rough method which, as the then Financial Secretary to the Treasury said, was only an expedient until there was some plan devised which would suit both Germany and ourselves better.

5.0 P.M.

The German Government failed in 1923 or 1924. That was entirely attributable to the fact that the invasion of the Ruhr had broken down completely the whole mechanism of German industry, commerce and business, and the Germans were not in a position to carry out what was a bargain of theirs. This was not merely on Act of Parliament carried here; it was an arrangement with Germany which the Germans themselves had signed, and when they failed it was due to circumstances, let us frankly admit, over which no Government in Germany had any control. That was in November, 1923, when a Conservative Government was in power here. It was a very difficult situation for the Labour Government to deal with, and they had to deal, not go much with Germany as with France. There was a certain amount of pressure to prevent their paying anything except in respect of the Ruhr. However, that is gone, and the Government of the day, using the Reparation (Recovery) Act, have made an arrangement which, I admit at once, is a better one than the Reparation (Recovery) Act from the point of view of the British trader, and also from the point of view of Germany herself. But I am glad that they are keeping these powers there in suspense. The best proof of the success of that Act is that the 26 per cent. will extract more reparation from Germany than our share. We never pretended, under the Reparation (Recovery) Act, to collect more than our own share. It has succeeded to such an extent that to-day we are recovering the whole of our share, and there is still a surplus. That is something upon which we may felicitate ourselves.

There was a question put by my right hon. Friend, and I want to press it a little further. Do I understand the German Government will pay 26 per cent. upon German exports to this country, although the amount of our share would only really come to, say, 20 per cent., and that the difference between 20 and 26 per cent. goes to the general pool for the Allies? If so, we are undoubtedly collecting by our expedient the extra six per cent., not for our own benefit, but for the benefit of the Allies as a whole. That is a question worth looking into, and I think it is worth while of the Government considering whether it is to our interest in this matter to become collectors for the general fund of indebtedness under reparation.

The other point which I should like to put is this: The German Government could not have entered into this arrangement until they had returned to the gold standard. Under the Reparation (Recovery) Act, they could refund the amount of the deductions to their own nationals in marks. The marks being marketable inside Germany, they could be used for the payment of wages, for the purchase of material, for the conducting of their business, and, therefore, the Reparation (Recovery) Act was the only expedient upon which the German Government would have found practicable to operate, until they had stabilised their mark by means of the expedient by which they had returned to the gold standard in respect of a certain proportion. I forget when they stabilised their mark, but it is only within the last few months that they could have entered into this contract. Therefore, I say it is no disrespect to my right hon. Friend who has just sat down that he did not enter into this bargain. He could not have done it, and the German Government could not have done it. It was only after they had returned to the gold standard that they were able to make an arrangement which was an improvement upon the Reparation (Recovery) Act, and I agree with my right hon. Friend the Chancellor of the Exchequer that there is every prospect that they will be able to pay their share. Whether they will be able to pay the very large sums which are ultimately recoverable under the Dawes Report, perhaps it is too early for us to anticipate, out the position is improving.

I had some very remarkable figures given to me to-day of the recovery in the German position. On 31st December, 1913, the total of their deposits in their principal banks came to 5,808,000,000 gold marks, which is, roughly, I think, about, £290,000,000. On 1st January, 1924, the total of their deposits in the same banks was 1,089,000,000 gold marks, which is, roughly, £54,000,000 or £55,000,000. They were down from 290,000,000 to £50,000,000 in their deposits. On 31st December, 1924, in the course of a single year, their deposits in these banks had gone from 1,089,000,000 to 3,305,000,000 gold marks. That is a very remarkable recovery in the course of a single year. Their deposits in these banks have gone up from £55,000,000 to £165,000,000 in the course of the year 1924, and I believe there is every indication that these figures will approximate the 1913 figures by the end of this year. They are rising very rapidly. So that in itself is a matter which indicates clearly that the arrangement made by the Chancellor of the Exchequer, guaranteed by 800 firms, is one which is likely to materialise. I am glad, therefore, that he has been able to make it. I would, however, ask him to consider very carefully the desirability of our becoming collectors as British traders in respect of the general fund of the Allies, whether we ought ourselves to make any arrangement except in respect of our own share, but that whatever arrangement is made it will be made on the same general lines as the other Allies.

There is another question I should like to put. The French are receiving coal and other commodities. Under the Versailles Treaty, the coal arrangement is to come to an end in a certain number of years. Under the Dawes Report, there is no limit, I think, to the period. What I want to know is this: Is the value or that coal also to be not merely credited to Germany, but debited to France, Belgium and Italy on that account, exactly in the same way as the Recovery here? I am assuming it is. I should like to know upon what basis the amount is to be debited—whether is the price at the pithead, or the price which the Germans themselves could get if they were selling to France?

Mr. J. R. MacDONALD:

The commercial value.

Photo of Mr David Lloyd George Mr David Lloyd George , Caernarvon District of Boroughs

My right hon. Friend says it is the commercial value. That is very important. That makes a very great difference, because, as my right hon. Friend knows very well, there was a good deal of difficulty about. that. The Germans did not get credit for the commercial value in the old days. That would have made a very considerable difference in the reparation they made. I should like to know whether it is the commercial value, and not the value at the pithead. Otherwise, I think the arrangement is an admirable one, and I congratulate my right hon. Friend upon it.

Photo of Mr Fredric Wise Mr Fredric Wise , Ilford

The right hon. Member for Carnarvon Boroughs (Mr. Lloyd George) has just given the House some figures of the deposits in German banks, and how those bank deposits have increased. I do beg of him and of the House to realise that that is one of the dangers we have to face to-day. I always considered that the German Reparation (Recovery) Bill, which became an Act that was introduced when the right hon. Member for Carnarvon Boroughs was Prime Minister, was probably the best Act he ever passed. I humbly say so, because I felt that it really brought payment of reparation to this country, and I am indeed sorry to hear what he has said to-day, that although it has been a success, he approves of this new arrangement. My right hon. Friend the Member for Central Edinburgh (Mr. W Graham) stated that this Resolution was abundantly clear. It is not quite clear to me whether the reserve or pool is in marks or in sterling. You have not got to look at this important problem whether it will be a success to-day or to-morrow, and I fully realise that Clauses 1, 2 and 5 can be reinstated, but you must look forward five years, when the large sum of £125,000,000 has to be paid under the Dawes Scheme. This is a very large sum to transfer from one country to another, and if you had this Recovery Act in operation it might be the only way you would get any reparation at all. The right hon. Member for Carnarvon Boroughs suggests we might be the collectors for other nations. Why not? Many of them owe Britain large sums.

What is the position in Germany? Germany is expanding. Germany has practically no internal debt. Our National Debt is £160 per head of the population, compared with Germany's 48 marks. Naturally Germany wants to do away with the Reparation (Recovery) Act, and I am indeed sorry that I am the only Member—or perhaps I should say one of few Members—who does not quite approve of what the Chancellor of the Exchequer has introduced. As the Chancellor of the Exchequer stated, this is full of technicalities, and only a technical man can deal with this interchange of money between one country and another. The Chancellor of the Exchequer referred to payment in marks under the Dawes scheme and the willingness of Germany to pay. Let the House realise that, although a country may be willing to pay another country, it is not always possible to pay. The external currency cannot always be bought. There is only one fund out of which reparation payment can be made, and that is by the exports being greater than the imports. That is your only fund, though, of course, there are some such items where assistance to the payment can be obtained such as gold, but I do not really think that need be considered. The main point for external payments is that exports must be greater than imports.

What is the history of this German Reparation (Recovery) Act? The original Act said it had not to exceed 50 per cent. I thought 50 per cent. too large, and I believe 50 per cent. was tried for a. few months and brought in about £12,000. It was then reduced to 26 per cent. I thought even 26 per cent. was a little too high, because it interfered with the trade between this country and Germany and between Germany and this country. When the Labour Government were in power, they reduced it to 5 per cent. I criticised that. The right hon. Member for Central Edinburgh stated just now—I believe I am not misquoting him—that was all right, but he seemed to forget that the Labour Government put it up again to 26 per cent. after the Dawes Report, or perhaps I should say after the London agreement had been signed.

Photo of Mr William Graham Mr William Graham , Edinburgh Central

We were compelled to do that, because the German Government were not standing to their bargain; in other words, our importers paid the duty.

Photo of Mr Fredric Wise Mr Fredric Wise , Ilford

I quite agree with what the right hon. Gentleman says. The German Government was in a chaotic state. The German Government, owing to the terrific inflation, were paying with what is called K bonds to the exporter from Germany. Naturally those K bonds became currency, and the Recovery Act was bound to fail. But let us remember that the right hon. Member for Central Edinburgh put back the actual duty of 26 per cent. on, I think, the London Agreement being signed. I quite approved of what the Labour Government did. I think it was right because it produced reparation and that is the main thing which we have to consider. We cannot get taxation down in this country if we do not get some sort of reparation, and reparation in this way are not reparation in kind. I do not altogether agree with the Chancellor of the Exchequer in regard to that matter. If a person, as he stated, bought a piano for £100, £74 was paid to the German exporter and £26 went to the Customs officials; that is not in kind; that is in cash and that is sterling. If you carry out the scheme as suggested in this Resolution it will not be a case of sterling but it will be a case of marks. Supposing you cannot transfer those marks to this country. [HON. MEMBERS: "But is that so?"] I understand so.

Mr. J. R. MacDONALD:

Cannot we find out whether that is so or not Is it not the case that, as a matter of fact, there is no translation of the sterling into marks? The sterling happens to be geographically situated outside this country, but as a matter of fact it is not translated into the currency of the other country and ultimately finds its way back here as sterling, untranslated all the time.

Photo of Mr Fredric Wise Mr Fredric Wise , Ilford

It has to be bought, and in the original method it had not to be bought. In the original method it was a paper transaction. Now if the Germans put sterling into the pool or reserve, that sterling has to be bought against marks. I am open to correction on this matter, but that is what I understood the Chancellor to say. I agree that we must have co-operation with Germany. I feel we must also have co-operation with our own traders, and if Germany is not willing to co-operate with us, automatically there is a failure, and you do not receive any reparation, whether it is through this Resolution or whether it is not. Reference has already been made to the present position of Germany, and I wish to impress on the House the figures given by the right hon. Gentleman the Member for Carnarvon Boroughs as to the increases in deposits at the various German banks. It is vital for our traders that we should realise that Germany is getting stronger and stronger almost every day, and I contend that a scheme under which we were getting reparations of some sort should not be given up. Why should we give the Recovery Act up when it is proving a success? Of course the Germans want us to give it up. I am not yet certain from what the Chancellor said, whether or not this Resolution has any dependence on the Treaty between Germany and this country which was duly put through. I should like to know also whether the Dominions have been consulted on this point. They participate in these reparations. Have they agreed to suspending the German Reparation (Revocery) Act, an Act which was practically the only scheme which has brought reparations to any country? If they agreed to such a scheme, I wonder if they understood it. I am not looking forward to next year. I am looking forward to the time when these large payments have to be made in five years' time, and I feel that this House will not be carrying out its duty unless it looks into this Resolution most carefully and understands clearly whether this pool or reserve is to be marks or sterling, and even if it is sterling, whether that sterling can be bought in four or five years' time when the larger payments have to be made under the Dawes schemes. Any hon. Member who is technically interested in this scheme should carefully consider whether it is more for the benefit of the country to leave things as they are to a scheme which is bringing in reparations under the present methods or to adopt the new proposal of the Chancellor of the Exchequer.

Photo of Mr Hastings Lees-Smith Mr Hastings Lees-Smith , Keighley

I wish to put to the Chancellor of the Exchequer two questions for the sake of clearing up a number of points which have been left in doubt even after his statement. The first question will lead up to the difficulty which the last speaker has raised. We obtain as a result of the arrangements made at Spa, 22 per cent. of the reparations paid by Germany, France obtains, I think, 54 per cent., Italy, 10 per cent. and Belgium about 8 per cent. I understood that hitherto the method followed was that each country, so to speak, got what it could from year to year. We imposed the Reparations (Recovery) Act and took what we could get, France obtained what she could get from deliveries of coal, coke and dyestuffs, and so on, and if any country got less than its percentage a credit to that country piled up in the books of the Reparation Commission to be obtained later. I gather from the Chancellor's statement that system has now been regularised and that, year by year, each country receives its proper proportion and no more than its proper proportion. Are we to understand that if we receive £7,000,000 as our 22 per cent., France will pari passu receive £16,000,000 or £17,000,000 through payments in kind as her 54 per cent., and that Italy will receive £5,000,000 as her 10 per cent., and so on? If, as I gather from the Chancellor's statement, that is the ease, a payment of £7,000,000 a year to us involves an all-round payment of over £30,000,000 a year, and as our proportion of trade with Germany increases should it eventually become £20,000,000 or £30,000,000, that involves, according to the Spa percentages, taking the Allies as a whole, a payment of £100,000,000 to £120,000,000. Although the right hon. Gentleman's statement has been clear he has not yet explained how this arrangement is going to overcome the central difficulty of the reparations problem, namely, the difficulty of getting the money across the frontier.

May I put the position to the right hon. Gentleman? He knows that the experts laid it down in the Dawes Report that Germany was to pay a certain sum in a full year—let us say £125,000,000—but they made it clear that they were very dubious whether, in fact, that sum could ever really be transferred. So dubious were they that they set up regular machinery, the Committee to which the Chancellor referred, who are empowered to step in and refuse to allow any further payments to be made. I cannot see from the right hon. Gentleman's explanation how this proposal arranges any machinery to overcome that simple difficulty. Suppose we are being paid two years hence let us say £10,000,000 to £15,000,000. Germany cannot pay us that sum unless she is going to pay France £25,000,000 to £30,000,000 and Italy £8,000,000 to £9,000,000, and so on. She must pay altogether about five times the amount which she is paying to us, our share being only 22 per cent. of the total. I wish to know if under this arrangement it will be possible for some authority in the reparation plan to step in and say: "If this sum is paid to Great Britain, corresponding sums must be paid to the other Allies. The total sum cannot be transferred without destroying the German exchange, and, therefore, we forbid this arrangement to go forward." This scheme cannot be put into operation unless there is some authority with the right to forbid these payments altogether, and even if that be so, I do not yet see how this scheme has succeeded in overcoming the central difficulty of the problem.

Photo of Captain William Benn Captain William Benn , Leith

Until my hon. Friend the last speaker intervened, I felt very nervous about rising to criticise that which all the great men appear to approve. I took part in the Debate in 1921, and my right hon. Friend the Member for Central Edinburgh (Mr. W. Graham), my geographical neighbour, and I appear to have changed places on this question. His party voted against the Bill in 1921. I did not do so, but I wish I had. We were then discussing the offer of Dr. Simon, and anyone who wants to see how wise the Allies have been may compare that offer, which was then described in contemptuous and derisory terms, with the Dawes Report. It offered £50,000,000 a year. That is what the Dawes Report offers us, but only after we have made a loan to the German nation. In regard to the old Act, our criticism was justified. We said you could not enforce it against neutral countries. The President of the Board of Trade, who is certain of every statement he makes, said "Ridiculous," but within a few months he had made an order that it should not apply to any goods except those coming direct from Germany. We said it would have a protective effect, and in the first two or three months of its operation and during the period when my right hon. Friend the Member for Central Edinburgh was Financial Secretary to the Treasury it had a protective effect, and, as such, was generally recognised to be objectionable. That it produced money I do not doubt, but I am beginning to have doubts as to whether it really assisted in the restoration of Germany economically, and that, I believe, is the common end of all parties in this House. We forced the German Exchequer to pay out marks to reimburse our traders who had received these documents from us, but whether that flow of marks assisted the recovery of Germany or merely assisted to push the mark down to destruction is a point upon which I should like a better opinion than my own.

The doubt which I have about this scheme is how far it infringes the integrity and authority of the Dawes Report. That Report lays down quite clearly that the Reparation (Recovery) Act involves payment in kind, and despite the very ingenious argument of the hon. Member for Ilford (Sir F. Wise), that is so. The piano comes here, and we take part of the piano for ourselves, and that is payment in kind. Having laid that down the Dawes Report gives a number of rules, on the observance of which the success of the scheme depends. For instance, it says that their organisation shall be unaffected by any foreign organisation, but there is nothing about the reparation agent having an account in the Bank of England, which appears to be part of this scheme. The deposits are to be made in the Reichsbank, and only withdrawn under conditions such as will protect the exchange. That is the point made by the hon. Member who spoke last. It says that payments in kind cannot exceed the true surplus. That is a statement which we all accept as being economically true. It also says that payments in kind should be limited as far as possible to the natural products of Germany, such as coal, potash, and so forth, and that it is economically unsound to take payments in kind when those exports involve a prior import for their manufacture—and that would happen in the case of most of the goods which Germany sends to us. That is precisely what happens in the case of most of the goods which Germany sends to us. It says again in the Dawes Report that the Transfer Committee shall have the power to make the payments under the German Reparation (Recovery) Act. I want to ask the Chancellor of the Exchequer how far this scheme is going to impair the integrity of that scheme. We know that Mr. Parker Gilbert protested in the first instance against the Act being continued. Some sort of understanding has been arrived at, but we do not know what.

There is one paragraph in the White Paper, paragraph (2), on page 2, that is very difficult to understand, but the Dawes Scheme lays certain special levies on German trade. This is a new levy. and 800 traders have to pay a proportion of what they receive in sterling to the German Exchequer. That is a new levy, completely outside the Dawes Report. Furthermore, how far have the Transfer Committee the power to say, "We cannot afford to let you keep this, because it does not represent a true export surplus from Germany"? It is easy to annex a certain proportion of German goods which come our way, and that is what we have been doing, and doing very successfully, but that is not getting an annuity from Germany unless at the expense of our Allies or at the expense of ultimate German bankruptcy. Is there an export surplus from Germany at the present time? Some figures appeared in the "Times" a few days ago showing that, whereas there was an import surplus for December, I think, of six hundred millions, for January the import surplus was increasing. If there is not an export surplus, how can you go on indefinitely by this device, clever as it is, getting a genuine contribution, except at the expense of all the other parties to the arrangement?

That is really the difficulty that I find. I am very far from wanting to see us without the money with which to pay the Americans, but if you believe in the Dawes Report, I believe it is the means of quietly letting the whole reparation issue die of malnutrition, because it says clearly that it is not a heap of marks accumulated in the Reichsbank that matters, but that it is the transfer that matters, and the Germans are not responsible for the transfer, so I believe that in years to come the Dawes Report will be the euthanasia for the whole of the passion which we feel over this question of reparation. In the meantime, it must be given a chance, and I ask if the Transfer Committee has the full power over this matter, or is there some way by which we short-circuit the organisation of the Dawes Report, in order that our coffers shall be filled while the coffers of the Allies or the smaller Allies go empty? To put it to the test, may I ask this? Supposing that every Ally were to impose a similar scheme, what would then become of the scheme arranged by General Dawes, for which the elaborate machinery was carried out, with many safeguards, very successfully, by my right hon. Friend the ex-Prime Minister? These are some real doubts that occur to my mind, and I should be very grateful to the right hon. Gentleman if he could clear them up.

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Leicester West

I should like to ask the question which has been put by my hon. Friend the Member for Keighley (Mr. Lees-Smith) in a slightly different form. As I understand it, in the new arrangement we are to receive as much of the equivalent of the Recovery Act money as we are entitled to under the Dawes Report. Supposing there is enough money in the German pool for us to receive our adequate share, is that to be the ground on which we are to be paid, or are we only to receive it when the money in the pool has been converted into Allied currencies for all the Allies who are to receive the money? In other words, is the criterion for payment to us to be that there is money in the pool in Germany in marks, or is the criterion to be that the money is being distributed to all the Allies in their own currency That, I understand to be the question put by the hon. Member for Keighley, and it seems to me to be a very important one.

I agree very largely with the hon. and gallant Member for Leith (Captain W. Benn), when he explained that in his view every payment, whether under the old Recovery Act or under the new system, was in effect a payment in kind. It seems to me that we cannot get away from the fact that any payment from Germany to this country, however it is disguised, can only operate to increase the exports in kind from Germany to this country, and pro tanto to have an injurious effect upon the exports from this country to Germany and other parts of the world, and I think that we make a great mistake if we attempt to disguise that fact from ourselves. But I did not quite agree with the hon. and gallant Member for Leith when he infers that the one important factor is the economic recovery of Germany. I think it is true that the nations of the world are so related to one another that the economic recovery of Germany is a valuable thing, not only to Germany, but to us, but I think, from our own point of view, the essential thing is the recovery of our own trade, and it seems to me what so many people forget is that the state of the exchange is of the utmost importance for the recovery of our trade, and that when the exchange is what the financial houses think is favourable, that is the time when it is unfavourable so far as the business and manufacturing houses in this country are concerned. I believe it is a fact that at the present time the exchange value of our pound is something like 5 per cent. better than the price level would justify, and if that be the case—and it is something like the case, at any rate—that means to say that every manufacturer in this country seeking to sell his goods abroad finds that, in order to make a profit, he has to charge 5 per cent. more in terms of their currencies than he would do but for that unduly appreciative effect on our exchange.

In the midst of the general laudation of the old Recovery Acts and of the questions that are put with regard to the changes that are being made, I do not feel disposed to be laudatory of the Acts to the extent that some other hon. Members have been, because I feel that the effect of those Acts, however disguised, has really been to alter the exchange in our favour and thereby to make it more difficult for our manufacturers to produce and export their goods, and that the change that is proposed to-day is not very material with regard to that. This is how it really works: Let us take the alteration brought forward by the Chancellor of the Exchequer. It is suggested that on a piano costing £100 the English consumer pays £26 under the old Act to the Customs House and £74 to the German exporter. Under the new plan he pays in sterling, because it is that sterling which the German exporter hands over to his own Treasury to be sent back again to England, and the German Government pays him the equivalent in marks back to himself. So far as these 800 exporting firms are concerned, mentioned by the hon. and gallant Member for Leith, it is simply that they get hold of a certain amount of sterling and that they are reimbursed from that through the German Government, which pays them marks. As far as they are concerned, it is merely an exchange problem, but from the point of view of the question of British exports, instead of the Germans requiring to take the whole of the £100 from us in goods to repay them for the £100 worth of goods they send here, they are only called upon to take £74 of goods, because they have taken E26 in cash, and that is the injurious effect that it has upon the British manufacturer, that it lessens the demand for the manufacture of British goods. Whether one puts it in that way or in the form of unduly appreciating our exchanges, it seems to me to be a proposition of doubtful value.

To sum up, the points that I want to make are these: First of all, I do not share the general laudation of the old Recovery Acts, because, though I think they did bring us in money, I am not at all sure they have not brought it in at the expense of the recovery of British trade; in the second place, I do not think the new proposals differ as much from the old as some hon. Members, on all sides, are inclined to think; and, in the third place, I want to press the question put by my hon. Friend the Member for Keighley as to what is the determining factor as to whether we can draw money or whether we cannot.

Mr. R. MacDONALD:

I only intervene to put a question to the Chancellor of the Exchequer. I was rather surprised at the remarks made by the hon. Member for Ilford (Sir F. Wise), because, as it seems to me, if his arguments against this suggested method of handling this problem be sound, he ought not to support the Recovery Act, because, so far as I can see, there is no economic question that is raised, especially relating to international exchange, by the new method which is not, as a matter of fact, raised by the old method. Also, the questions raised about the balance, of trade, and British exports to compensate for German exports, are precisely the same under the new method as under the old. I think, perhaps, we were never happy from the point of view of good, sound economics, even about the old.

Photo of Mr Fredric Wise Mr Fredric Wise , Ilford

I was happy, because we were getting reparations.

Mr. MacDONALD:

So we shall get them now, I think, in so far, and with exactly the same disturbance, as we got them before, and if we had not got the practical, business necessity of trying to make the best of things, nobody would ever dream for a moment of pursuing this policy, because it is not sound economically, but we have to cut our coats according to the cloth of our opportunity at the present moment, and do the minimum amount of damage whilst attempting to secure the maximum amount of benefit. The question I want to put to the Chancellor of the Exchequer is this: Who maintains the operations of the Recovery Act? It only changes the method by which it is done. He still, as I understand him in reply to the interrogatories put to him, maintains the 26 per cent. that is paid, in fact, into the Reparation Pool, not in the currency in which Germany pays the other portion of her reparation into the pool, but in sterling—

Mr. MacDONALD:

Therefore, yon are going to have two sections in the pool. You have half mark water, and the other half sterling water in this general pool. Our arrangement is that we are going to draw our share of reparation from the sterling water, so far as the British transfer is concerned—I am assuming for the moment that the economics are sound—and that it is going to be in the form which will not raise the problem of whether by exporting the contents of the pool into Great Britain the exchange value, on the international market, of German, currency is worsened?

Mr. CHURCHILL indicated assent.

Mr. MacDONALD:

That is, as I understand, the position of the Chancellor of the Exchequer. Very well. I understand also that we have made no provision to accommodate, either by a sliding scale of the 26 per cent.—which I understood him was not a business proposition—I am not sure that I agree with him, though, perhaps, on further consideration I might—at the present moment my mind is open—but if this inflow of sterling into the pool is going to be fixed upon the 26 per cent. basis, and is going to have no relation to the outflow from the pool, what is going to happen to the mark residuum? If we are to put in, say, X plus Y in sterling, and only draw out X, what is going to happen to Y? Is that going to be translated into marks, first of all, and then become subject on its withdrawal to the rules which will be imposed by the custodians of the pool for withdrawal on behalf of France, Germany, Belgium, or Italy? Is that so, or is it not so? I think we ought to have some clearer light thrown upon that. It is this question that the outsider to-morrow, reading the speech of the Chancellor of the Exchequer in this Debate, will require to be clear upon.

The other point is this: This 26 per cent. value which is going into the pool is going to be imposed on our trade. It is going to be a yield, not from French trade or from Belgium trade, it is going to be a yield from British trade. To this extent it must have a hampering effect upon our trade. I do not know what the extent is to be, but obviously it is a hampering agency. Supposing any trouble takes place, is the protection that we have under this arrangement equivalent to the protection that France has for her share in the pool itself? I do not think it is. Supposing hostility—and, thank goodness, there is no hostility at the present moment—but supposing hostility showed itself, it would be easier for Germany to penalise us than to penalise France under the Dawes arrangement. But if it is necessary for us to come to this arrangement, and not to secure ourselves that the yield, of the arrangement is equivalent to the repayments and our withdrawals, then it should stop. Why should we come to this arrangement in such a way that the Allies benefit especially from it? If we have drawn out of the pool there is still a relative loss on account of this special arrangement. Why that should come to the other beneficiaries under this Spa Agreement I do not really see. I would like to know what safeguards and what security the Treasury have to prevent that? It is very essential that as this special arrangement is with us that it should be for our benefit, whatever benefit that may be.

Photo of Commander Hon. Joseph Kenworthy Commander Hon. Joseph Kenworthy , Kingston upon Hull Central

was called out of the House and I did not hear the whole of the statement of the Chancellor of the Exchequer, therefore, if the questions I propose to put now have been replied to already I hope the hon. Gentleman will forgive me. In the first place, I did not ask the right hon. Gentleman who has sat down, but I should like to have asked him several questions. In the first place, under the system that we are now getting rid of, and which I absolutely disagree from, and which is altogether unsatisfactory, if the importer of German goods could prove—after a great deal of difficulty in these cases—that these goods were in transit for re-export he could get a refund of the amount which was claimed by the Customs. What happened in this case? We have these 800 firms who are importing German goods into this country. It is not always convenient or desirable for British merchants buying goods from Germany to indicate that they are for re-export. I should like to know whether this aspect of the case has been considered by the Treasury, the Board of Trade, and the other Departments concerned, and whether it has been discussed with Germany and how we are going to get over that difficulty? It is obvious if we are going to have this total amount levied upon everything coming to this country whether for re-export or not, the amount will be very large. I should tike to know how that matter is going to be arranged?

I think I am right in saying that neither Canada, or South Africa, or India, or even the Irish Free State levied this duty on German goods. Therefore, presumably this export tax will not be levied on those goods going to those, markets. I should like to know more about this. As has been said by several hon. Members, this has been an unmitigated nuisance to British merchants doing business with Germany. This is the sort of thing which has gone on in the past. Every package has had to be opened and inspected by the Customs, the original invoice produced. The charge in London for opening the package has been 1s. 4d. for each package, and by other authorities 1s. 6d. That has been an imposition on trade. It has done a great deal of mischief. Seeing that goods come from Germany in comparatively small packages, it has meant a tremendous amount of work, time, trouble and expense. We are thankful that has gone at any rate, and I only refer to it in passing, for I maintain my actual hostility to the original Act, which I opposed in this House. Hon. and learned Gentlemen on the opposite benches have seen the wisdom of the course of action I opposed, and the late Government's deduction of 5 per cent. suggested it. I have looked through the White Paper which we have, and I note the trouble and the nuisance of the whole business is recognised by the German and the British Governments. Listen to these comfortable words which are in the first paragraph of the White Paper. Whereas it is desired to reduce the burden and to remove the disabilities which the present method of administering the German Reparation (Recovery) Act, 1921. … places upon trade and commerce between Germany and Great Britain. That, I say, is recognised in a Government White Paper, after almost countless denials at that Box by the President of the Board of Trade, and by this and previous Governments. Look, again, at paragraph 8, on page 4: The British and German Governments both recognise the desirability of relieving trade and commerce from the burden of collecting a 26 per cent. levy from each transaction, etc., etc. Indeed these arguments apply to the present proposals. For it will be a nuisance to the German firms. As has been pointed out by my hon. and gallant Friend for Leith (Captain Benn), and by the right hon. Gentleman the Leader of the Opposition a moment ago, it is this tax upon British trade which will not encourage the 800 German firms to send goods here and sell them in our markets, and then we shall lose our markets to Germany. For these reasons, while welcoming this relief and change, I regret very much that the Government has not taken their courage in both hands and swept away the whole of this method of collecting money. I think the Dawes Scheme is much more practicable and much better. I am not sure, however, whether it is going to be suitable, and it may be used hereafter as an excuse for not carrying it out. I should have been glad if the Government had swept away the whole thing. I have faced an election since I opposed the original method of collection. I am prepared to face the electors again, and to say what I have to say outside or inside this House, for we only do ourselves harm by trying to collect money by this means.

Just one other question. It says in the Motion that the Sections, etc., shall be operative until His Majesty shall revoke any Order in Council which He may be pleased to make for giving effect to this Resolution. After this Resolution has been passed by the House of Commons, if the House is not sitting will the Government be able to take action or will there be an oppor- tunity of Parliament being consulted in the event of revocation? That question seems to me to be of some importance, because it is very desirable that merchants and importers should know exactly where they stand in any proposed alteration of this kind. I hope that experience has shown the inutility of trying to raise money in this way, and that the Government will before long come to the House and ask us to wipe the whole business out.

6.0 P.M.

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

I can only speak again by the indulgence of the House, and perhaps that indulgence—if indulgence it can be called—will be extended to me. I have been asked a number of questions from different quarters of the House. I should like, in the first place, to express, on behalf of the Government, our appreciation of the satisfaction shown by the House, not only by our own supporters, but by the House as a whole, at the arrangement which we have made. That satisfaction is almost universal. There has also been a general disposition to congratulate the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George) upon the proved success of the method of obtaining reparations from Germany with which he was so directly concerned, and for which, as head of the Government, he was at the time responsible. Those congratulations, as I say, are almost universal, and I do not think my right hon. Friend the Member for Carnarvon Boroughs will value them the less because the only two dissentients have been prominent members of his own party.

Photo of Captain William Benn Captain William Benn , Leith

We stayed in the party, anyway.

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

I will endeavour to deal, however briefly, with a few of the questions which have been asked. First of all, let us take the two dissentient Members of the Liberal party who are in revolt against their leader upon this question.

Mr. THOMAS:

They are the Liberal party.

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

I think that is perhaps excessive eulogy for them; but let us take their questions. The hon. and gallant Member for Leith (Captain Benn) suggested that this new arrangement would in some way or other traverse, confuse and baffle the general arrangement and settlement which had been arrived at in pursuance of the Dawes Report. That is really quite an unfounded apprehension. We have throughout these negotiations kept in the closest touch, as I said, with the Agent-General for Reparation Payments and the Transfer Committee, and these arrangements were approved by a unanimous resolution of the Transfer Committee, and the whole of the new agreement, as the preamble shows, was specially drawn so as to give the Transfer Committee the control, and the exact control contemplated by the Dawes plan. We are advancing, therefore, entirely within the limits of the international arrangements which have previously been made. All the proposals in this instrument have been carefully co-ordinated with the existing provisions.

The hon. and gallant Member for Central Hull (Lieut.-Commander Kenworthy) is much concerned with the difficulty which he fears will arise in the case of re-exports. It is news to me that serious difficulty has arisen under the working of the present German Reparation (Recovery) Act. I was not aware of it. Certainly no serious complaints have been made. They may have been made to the hon. and gallant Member, but I was not aware that there was any serious complaint on that point. But if there have been any, or if there has been any substantial foundation for complaint, both are equally swept away by the adoption of the new process, because no function will have to be discharged by any British importer, except to pay for the goods which he buys, and what further reactions or inconveniences there may be will take place in Germany, and there will be no effect of any sort or kind upon the imports into this country from Germany, whether they are for internal consumption or for foreign re-export.

Photo of Commander Hon. Joseph Kenworthy Commander Hon. Joseph Kenworthy , Kingston upon Hull Central

Will the right hon. Gentleman allow me to intervene for a moment? This is a very important point. The German merchant sending goods to this country does not know, and it is not desirable that he should know, whether they are for internal consumption or re-export. In this scheme he will have to pay 30 per cent. on the whole value, and therefore it is an excessive tax over and above the original 26 per cent., because a great deal of our trade is entrepot trade.

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

I see. I misapprehended the hon. and gallant Member's point of view. I thought he was concerned with the embarrassment of the British re-exporter, but apparently he is afraid that the 800 German exporting firms may be called upon to guarantee payment to the Reichsbank of a larger quantity of sterling than would really be due if the levy had only been calculated upon that port on of the German imports into this country which are intended for internal consumption and not for foreign re-export. Well, I do not think that the 800 German firms are likely to suffer any serious inconvenience in that respect, because, as I shall show in answer to another question, once the limits under the Spa percentages of our share in the general reparation pool has been reached, the surplus is retained by Germany in sterling and does not an any way enter into the reparations area. So much for that.

The Government were asked questions, both by the right hon. Gentleman the Member for Carnarvon Boroughs and by the Leader of the Oppositon, on the subject or the coal deliveries. All deliveries in kind obtained by France, Italy, Great Britain, Belgium, or any other Power, are credited to the general reparation pool. There has been no question of France, Italy or Belgium obtaining a large quantity of coal and that not being credited to the general reparations pool. But there is this qualification. Under the Treaty of Versailles it is arranged that during a period of eight years fixed by the Treaty the deliveries of German coal shall be accounted for to the Reparation Commission upon the basis of the German pithead price, and until that period of eight years has elapsed obviously, under the Treaty, that continues to rule. But assuming that period has elapsed, it is quite understood by our Allies that the commercial price will rule.

Mr. MacDONALD:

It is specified in the agreement.

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

It will rule as governing the valuation to be placed upon the deliveries in kind accounted for to the reparations pool. Then there was the point made by the hon. Member for Ilford (Sir F. Wise), who is one of the opponents of the general policy of this scheme, and who is concerned about the possibilities of the exchange between Great Britain and Germany being deranged by these remissions of sterling which have to be made from the Agent-General after they have been collected from the German firms. There is really no danger of any evil arising from that. When the German exporter sends his goods here he is paid in sterling bills, and sufficient of those sterling bills are delivered by him against marks to the Reichsbank. They are then transferred from the Reichsbank to the Transfer Committee, but only up to the quantity which is due to us under our share from the reparations pool. Then these identical bills, without going through any process of exchange, are transmitted by the Agent-General to the British Treasury, and no sort of disturbance of the exchange takes place. My right hon. Friend the Leader of the Opposition used an expression about their being two kinds of water in the pool—sterling water and marks water. That is not so. In the pool there are only marks, and we have a claim to our legitimate share of those marks. When the sterling which has been collected by the Reichsbank, and handed by the Reichsbank to the Agent-General, is in the hands of the Agent-General, he debits our account by the true equivalent value in marks of that sterling, and then transfers the sterling to the British Treasury. That is how the process works. That is quite clear, is it not?

Mr. MacDONALD:

Quite clear

Photo of Mr Walter Runciman Mr Walter Runciman , Swansea West

On that point I should like to ask this question. The right hon. Gentleman speaks of transfers in marks going abroad from the transfer authority and remaining there and not disturbing exchange. At what stage are those mark bills to be encashed, and when they are encashed will they not disturb exchange then?

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

No. I explained quite clearly that the German exporters deliver a proportion of the sterling bills which they receive to the Reichsbank, and those sterling bills are in due course transmitted back to this country.

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

Sterling bills, and they come back through the agency of the Agent-General. Is that all tight? These are really most formidable conundrums.

Photo of Mr Austin Hopkinson Mr Austin Hopkinson , Mossley

Will the right hon. Gentleman allow me to ask him—

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

Really, I think I might be permitted to go on. I have already spoken once, and I ought not to trespass unduly on the good nature and patience of the House. I want to deal with the question raised by the right hon. Gentleman the Member for Carnarvon Boroughs, which was also touched upon by the Leader of the Opposition. But let me make it quite clear that the amount of sterling which is paid by the Reichsbank to the Agent-General is limited not by what is received from the German exporter, but by the share we are entitled to under the international arrangement regulating the distribution from the pool. That is the process, and if, for instance, a much larger sum of sterling were received from this country owing to increasing German trade then we are entitled to draw from the reparations pool, the excess of that sterling sum would remain in the Reichsbank in Germany and be a part of the general credit resources of Germany, and in so far as there is any excess outside the limit of the share which we are entitled to receive, the whole of this process is automatically inoperative, and all that has taken place between the German exporter and the British purchaser is a perfectly free and untrammelled operation of international buying and selling. I think I have made that clear.

The right hon. Gentleman the Member for Carnarvon Boroughs raised a further point. He asked suggestively, "Ought we not to use any further surplus collected through the agency of this levy to increase the general volume of reparations in kind effctually delivered by Germany across the frontier?" Under the London Agreement we are not allowed to take steps without accounting for them to the Transfer Committee, and they have definitely indicated that they would disapprove of our collecting in excess of our share.

From the purely British point of view it would not be in the interests of this country to accumulate a large quantity of sterling through this new process in the hands of the Transfer Committee beyond what is our proper share, because by so doing we should be transferring sterling from this country in considerable quantities as our trade with Germany increased, and this sterling in excess of our original share would fall to be divided upon the basis of our receiving only 22 per cent. We should, in fact, be paying a large sterling contribution to the Inter-Allied pool. It is true that when we pay 100 per cent. of our sterling to Germany it goes to Germany, but what is not needed for the purposes of reparations fructifies in the regular channels of commerce, and prepares the ground for a further economic transaction. I trust I have now succeeded in answering all the questions put to me.

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Leicester West

The right hon. Gentleman has not answered the question which I put to him. I want to know is the amount we are to receive under this scheme the proportion of the pool, or the proportion of what is paid to the various Allies?

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

I am afraid I do not follow the hon. Member's question.

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Leicester West

I understand that according to this scheme we are only to receive as much of the Spa percentages as are permitted by the Dawes Scheme proposal. Is the amount that we are entitled to receive simply the Spa percentages from the whole pool or the Spa percentages of that part of the pool which is paid out to the Allies?

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

Now I understand the question. Everything that is collected goes into the pool. Then, in the first place, there are the priorities which are deducted, such as the cost of the Army of Occupation and various priority charges fixed by Treaty, and so forth. Then the balance is divided between all the Allies on the Spa percentages of which our share is 22 per cent., which percentage only operates after the prior charges have been deducted.

Photo of Mr Fredric Wise Mr Fredric Wise , Ilford

I understand the pool is in marks.

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Leicester West

Supposing there are £100,000,000 sterling of marks in the pool, it may not be possible to pay the whole of that hundred million sterling in pounds, francs and lira. Supposing that difficulty arises, are we, because of this scheme, entitled to take our whole proportion and leave the rest in marks, or shall we only be able to take that proportion provided at the same time a similar amount is paid in francs and lira.

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

That is not likely to arise; it is perfectly clear that we receive our share from the pool after the prior charges have been deducted, and that at the present time is slightly less than the rates which we are deriving from the existing Recovery Act. In the future there is very good reason for believing that under this new method only an amount of sterling will be paid in by the Reichsbank to the Agent-General equivalent to our share. It will not be paid into the pool, but we shall be debited on the pool with its mark value, and it will be handed to the Agent-General for transfer to London.

Resolved, That whereas His Majesty's Government and the German Government have agreed that the existing procedure under the German Reparation (Recovery) Act, 1921, shall be suspended and replaced by an alternative method not involving payments by individual merchants in such a way as to be without prejudice to any right enjoyed by His Majesty's Government in respect of this Act under the Dawes Plan, the London Protocol of the thirtieth day of August, nineteen hundred and twenty-four, or otherwise, the operation of Sections 1, 2, and 5 of the German Reparation (Recovery) Act, 1921, shall be suspended on and after the tenth day of April, nineteen hundred and twenty-five, until His Majesty shall revoke any Order in Council which He may be pleased to make for giving effect to this Resolution.