That any sums required to fulfil the undertaking contained in the prospectus of the Three per cent. Funding Loan, 1959–69, to set aside certain sums for sinking fund purposes shall be charged on the Consolidated Fund, and that the whole or any part of the sums so required in the current financial year may be provided out of moneys to be borrowed for the purpose under section one of the War Loan Act, 1919.
I understand that the object of the Resolution is that we may capitalise the Sinking Fund of the Funding Loan, 1959–69, by issuing a fresh loan in order to meet it, and I think it is as well that people in the country generally should realise that this is an orthodox financial operation carried through by a great National Government with a large surplus at its disposal. There was a time when a suggestion of this sort was made by a Labour Government or by Members who had been in a Labour Government, and they were generally denounced and looked upon as being very unorthodox in their financial views when they suggested that one might abolish the Sinking Fund or else raise fresh capital in order to meet the Sinking Fund in a condition of crisis. Therefore, it is as well that the House and the country should know that that extremely orthodox financier the present Chancellor of the Exchequer is bringing forward the proposal himself to-day, and I hope that when on future occasions, perhaps as regards larger sums, similar provisions are made, he will not object to them.
I raised this question of statutory sinking funds during the Budget Debate, but I was unable to get an answer. The Financial Secretary to the Treasury had a number of points to deal with, and probably he overlooked this question. As the last speaker has said, it seems rather extra-
ordinary that an orthodox financier like the Chancellor of the Exchequer should come forward to ask us to agree to this statutory Sinking Fund. During the wartime I frequently protested against this unsound and wasteful expedient. During the Debate last week I quoted in support of my arguments the Colwyn Report, and I referred the Financial Secretary to the Treasury to that report to show how unsound were these statutory Sinking Funds. I do not know whether he has had time to refer to it, but I would like to quote one or two sentences from it to show how unsound and wasteful these statutory Sinking Funds are. That committee, presided over by Lord Colwyn, had among its members some very distinguished bankers of that day and reported on the 20th March, 1924. Among the members of the committee were men like Sir Charles Addis, Mr. Henry Bell, and Sir Josiah Stamp, some of them Directors of the Bank of England. The committee was appointed for the purpose of going into the question of the National Debt and conversions of the National Debt and Sinking Fund, and it is more particularly with reference to the Sinking Fund that I would ask the House to give me their attention. The committee said:
The record of the earliest efforts to establish a fund for the redemption of debt in this country shows one long series of failures. It was not until after the enunciation by Dr. Hamilton in 1814 of the principle 'that the excess of revenue over expenditure is the only real sinking fund by which public debt can be discharged' and the endorsement of this principle by a Select Committee of the House of Commons in 1820 that any real attempt was made to place the Sinking Fund upon a sound basis.
They go on to show the unsoundness of these proposals. I argued during the Budget Debate that if you have a statutory Sinking Fund, as I showed from experience, you have to borrow at a higher rate of interest. This Sinking Fund to which we are asked to subscribe to-night goes on from 20 to 25 years, and while at present we may be enjoying cheap money there may come a time when we shall be faced with a deficit, and under statutory law we are bound to borrow. When you are working for a deficit and have to borrow for the purposes of the Sinking Fund, the effect of borrowing £2,000,000, £3,000,000 or £5,000,000 is to depreciate Government
stocks. It merely means that bankers and others profit by this, and it increases the burdens on the taxpayer and is most unsound. Let me quote one more extract from the Colwyn Report in which they say:
We are, however, inclined to think that definite attachment to particular loans tends to be disadvantageous. The present specific Sinking Funds are in the main attached to the longer term loans, and in one case to funded debt; that means that upon the maturity of short issues reborrowing (or conversion) has to be pro tanto greater than if the whole Sinking Fund had been free and available for such payments.
I hope I have said sufficient. While I, of course, understand that you cannot question the prospectus issued for this last loan, and we are bound to the subscribers to it to carry through these obligations to-night, I do hope that the Chancellor of the Exchequer, who is very courteous and willing to listen to any points from any part of the House, will bear in mind, if there should be any further refunding operations, the passages I have quoted from the report, even if he is not impressed by the arguments I have submitted.
I am a little surprised that the observations which have been made should have been made on this particular Resolution rather than on the one which preceded it, and on which I should have supposed exactly the same points would have arisen. This is a Resolution which applies to one particular loan, but the previous Resolution applied in the same way to other loans. The hon. Member for East Edinburgh (Mr. D. Mason), as I understand him, has been putting his views on the undesirability of attaching a statutory Sinking Fund to the loan, but what we are discussing on this Resolution is not whether there should be a statutory Sinking Fund to a loan, but whether the Government should be given power to borrow to provide for the statutory Sinking Fund. That is the whole question of this Resolution. The question of the existence of a statutory fund is really not in dispute, and, in spite of the authority the hon. Member has quoted, and which, of course, I recognise, the advice which the Chancellor of the Exchequer receives on these occasions has regard to the best and cheapest method of raising money, and the attachment of a statutory Sinking Fund in this particular case, I was advised, would have a steadying effect on the market, and would have the effect of checking market fluctuations. In fact, I think it has been welcomed in the City of London as a wise provision, and I think one may say that it has enabled me to borrow more cheaply than I should have done.
As to the general point of the advisability of borrowing, I must agree that this is merely transferring one form of debt to another, and I am not one to advocate that as an ordinary practice, but there are circumstances which alter cases, and the circumstances of the present time to which I alluded in my Budget statement make it not unreasonable that I should ask the House to give me this power for another year. If the hon. Member comes forward again with similar proposals, I shall have to judge whether the circumstances are similar.