The Adjournment of the House has been moved in order that I may, with hon. Members' permission, announce the Government's plan for the conversion of the War Loan. I offer my apologies for interrupting the normal business of the House, but I have no option. The House has the right to be the first to hear an announcement of this character, and the hour of the evening at which such an announcement must be made is precisely determined for me by a consideration, on the one hand, of the hours of business in America, and, on the other hand, of the minimum time which must be at the disposal of the Press to enable them to make the scheme known and understood in the country upon the following day.
Talk of conversion, has been in the air a long time, and naturally so, for it has been growing increasingly obvious that the War Loan at 5 per cent. was out of relation to the yield of other Government securities, and, moreover, that the maintenance of that old War-time rate attaching to so vast a body of stock and hanging like a cloud over the capital market was a source of depression and a hindrance to the expansion of trade. Nevertheless the choice of a proper moment at which to launch so vast an undertaking is one which demands most careful and anxious consideration, and the final decision to make this announcement to-night was only arrived at after a number of alternatives had been examined and rejected.
I may, perhaps, give the House some of the reasons which have convinced me of the necessity for prompt action. In the first place economy is an urgent matter, and this scheme, effecting so great a reduction in our interest charges, is an essential element in any economy proposals. In the second place I anticipate that from a general reduction in the level of interest charges great benefits should flow to industry, which will be enabled more easily to obtain such capital as it needs and to secure that capital on better terms. There is a great consensus of opinion that the continued existence of a vast body of British Government stock yielding a 5 per cent. return is an artificial obstacle to a fall in interest rates to a lower level at which they would otherwise naturally stand.
Thirdly, we are in the fortunate position that the relative merits of British Government securities, by comparison with all other investments, British and foreign, have never been more amply recognised by the world at large than at this moment. That, as the House will realise, is a vital factor in the success of such an operation.
Fourthly, while we are in a position to secure immediately such important results as I have indicated, I do not consider that further delay would be justified either by the prospect of small additional savings or by any hope that the operation would become any easier with the lapse of time.
The final and the strongest argument for immediate action is to be found in the spirit of the country. After a long period of depression we have recovered our freedom in monetary matters. We have balanced our Budget in the face of the most formidable difficulties, and we have shown the strongest resistance of any country to the general troubles affecting world trade. I am convinced that the country is in the mood for great enterprises, and is both able and determined to carry them through to a successful conclusion.
Before I come to the particulars of the scheme there is one personal matter to which I should like to make reference. It is well known that my predecessor, Lord Snowden, had hoped to undertake this operation last year, had conditions been favourable, and in the Finance Bill introduced by the first National Government in September last he embodied a series of Clauses preparing the way. Lord Snowden was deprived of the satisfaction of carrying his plans into effect, but I propose to avail myself in every detail of the procedure provided in the Finance Act of last year, which has rendered my task easier and introduced conditions more favourable than would otherwise have been possible.
In a few moments' time a special edition of the "London Gazette" will be published. It will contain a notice intimating that the Government intend to repay the War Loan in cash on the 1st December next to those holders who decide to apply for repayment within three months from this date, but the notice will also intimate that holders of the Loan are invited to continue in the Loan on altered conditions.
It is my confident hope that the great mass of the holders will respond to this invitation. I am arranging for copies of documents to be available to hon. Members in the Vote Office immediately on the conclusion of my statement, and, for this reason, I shall for the moment omit minor alterations, and shall confine myself to a statement of the principal changes in the terms of the continued Loan. The dividend of the 1st December next must be paid at the rate of 5 per cent. per annum, the rate payable under the original prospectus, until the notice to repay becomes effective. Thereafter, beginning with the dividend payable on 1stt June, 1933, the rate of interest will be 3½ per cent. per annum. Up to the 1st December, 1952, five years later than the latest date for the repayment of the Loan under the original prospectus, the Government forgo all right to redeem the Loan. After that date the Government reserve to themselves the right to repay the Loan, at any time, either in a single operation or by instalments. The existing arrangement under which the interest is paid without deduction of Income Tax at the source—a special privilege which has proved itself a great convenience to an enormous number of small holders—will continue unchanged.
I am bound by the terms of the prospectus of the 5 per cent. War Loan to give at least three months' notice to redeem, but in an operation of this immense magnitude it is very desirable that we should know as quickly as possible where we stand, and that we should have ample time to concert such remaining measures as may be necessary. For this reason, but also because we recognise that the inevitable reduction in the rate of interest may, when it first comes, be seriously felt in a number of cases, we offer a cash bonus at the rate of £l for every £100 of stock to all those holders who not later than 31st July, assent to the offer to continue in the Loan: this cash bonus which in the case of the ordinary investor will not be liable to Income Tax, will be paid to each holder within 14 days from the date of receipt of his effective assent.
The House will desire to know what saving would be effected by this scheme. The saving in interest charge at which we aim by this conversion scheme is in the region of £30,000,000 per annum. In the nature of things none of the saving can be realised in this financial year, the current expenditure of which will be unaffected by this operation. But the whole of the saving will be realised in the year 1933. It must, however, be remembered that the reduction of interest carries with it a reduction in the yield of Income Tax and Surtax and, taking this into account, the net budgetary saving may be put at about £23,000,000 per annum.
There are nearly 3,000,000 people who hold War Loan. Many of these have, I expect, but little experience in construing a complicated prospectus, and they will therefore be glad to receive a simple statement of the aims and policy which underlie this operation. For these reasons, I have thought it right to arrange that, when the prospectus and other relative documents are sent, as they will be, to every holder, a letter over my signature should also be enclosed, explaining the nature of the scheme and the purpose behind it. I am making copies of this letter available to hon. Members in the Vote Office as soon as my statement is concluded.
The letter will go, as I have said, to all holders, great and small. Large investors to whom a conversion operation is a familiar process may well find in parts of it phrases more simple and less technical than is customary on these occasions. I feel no doubt that, remembering the immensely wide circulation the message will have, they will appreciate my object and will not regard the letter as superfluous
I am sure that anyone who may be contemplating the issue of new capital in the market in the early future will forebear from coming forward for a few weeks while this great operation is proceeding and that the authorities in the City of London will co-operate in this necessary object. I should add that the sale of Savings Certificates will be temporarily suspended as from this evening, but, as we have of course no intention of abandoning that valuable method of borrowing, a new certificate, details of which will appear in the Press to-morrow, will be placed on sale after a short interval.
I will mention one other matter which may be of some interest. My preparations have been proceeding for many weeks, but the essential need for secrecy in preparation has prevented me from printing any of the many millions of forms which I require. With the willing co-operation and assistance of the Bank of England, the Government propose to attempt the gigantic task of printing 15,000,000 forms and despatching them by post in nearly 3,000,000 envelopes within a space of 24 hours from now. These letters will not, of course, reach all the holders to whom they are addressed on Saturday morning, for the holders live in all parts of the country—and indeed of the world—but they will all be on their way by to-morrow night. In this way we shall cover all the holdings at the Bank of England and the Post Office. In addition, upwards of 500,000 letters containing supplementary notices in special cases will, we hope, be posted early on Saturday. I do not undertake that we can completely fulfil this almost superhuman programme, but we shall spare no effort, and I am sure that our endeavour to present our scheme with the least delay and in the most intelligible form will be widely appreciated.
For the response we must trust, and I am certain we shall not trust in vain, to the good sense and patriotism of the 3,000,000 holders to whom we shall appeal.
I am sure, Mr. Speaker, that the House will not expect any discussion on the statement which has just been made, but I am sure also, that you and my fellow Members will allow me to say one or two things on this occasion. First, may I say a personal word to the Chancellor of the Exchequer? On behalf of myself and my friends I congratulate him on being in good health and able to come back and to make this statement to-night. We heard that he had been ill; we are very glad to see him, and we hope that his health is as good as the clearness of his speech would lead us to imagine. With regard to the statement itself, I only want to say on behalf of my friends that we welcome it most heartily. Everyone knows our view on this subject, and we are delighted that, at long last, an effort is to be made to put this enormous debt on a better footing. Although we have tremendous differences of opinion with the noble Lord in another place and with the right hon. Gentleman, we congratulate them both on having had a part in bringing this scheme to fruition. We all agree that the step which the right hon. Gentleman is taking is the very best form of economy. It is one of those steps which we think would enable us to have a better understanding with regard to the conditions of life throughout the length and breadth of the land. We also think that everyone: of the stockholders ought to be- only too willing to fall in with the right hon. Gentleman's proposals, and we hope that his appeal to their patriotism will result in accomplishing that which he has set out to do.
I hope that my relationship with the Chancellor of the Exchequer will not be held to debar me from offering a few observations,, as a previous holder of that office. I join very heartily in the congratulations which the right hon. Gentleman the Leader of the Opposition has felt able on this occasion to offer to my right hon. Friend and his colleague. I desire only to add that I think that the statement which the Chancellor has just made was as wise in the steps which he outlined as it was lucid in its exposition, and that I am confident that he will meet with the response from the country which he has a right to expect.
I am sure that all sections of the House desire to congratulate the Chancellor on what I think is one of the most momentous statements made in this House since the War, for we have listened to-night to the complete vindication of British credit in the eyes of the world and, what is more, to the complete vindication of the National Government, for there was no charge made more seriously than that while cuts were being made, the interest on the War Loan was not being reduced. I am sure that all sections of the House desire to congratulate the Chancellor and hope that his words may find a response in the minds of all investors, and that every investor may convert at the lowered rate of interest.
We have during the last nine months witnessed a most remarkable scene. Some nine months ago we saw British credit ebbing. We witness to-night the rise of British credit by nearly 25 per cent., and I am sure that I echo what is in the mind of every hon. Member when I say that we hope that the Chancellor, having dealt with the War Loan, will deal with the Supply services, so that the Income Taxpayer in the coming year may see his rate reduced and, what is more, the rate of employment increased in this country.