I beg to move, in page 21, line 33, at the end, to insert,
always provided that no statutory sinking fund shall be attached to the issue of such securities.
I had this Amendment on the Order Paper for the Committee stage, and it was suggested that I might postpone it to the Report stage in order that hon. Members might go home. Precisely the same position has arisen to-night. I cannot postpone the Amendment any further, but I will endeavour to be as brief as possible in explaining it. The Amendment relates to Clause 27 which provides for the conversion, if deemed advisable, of Local Loans stock, and I suggest that the words of my Amendment should be added. My object in asking the Chancellor if he will accept these words—or alternatively if he will give an undertaking that this will be borne in mind if the question of funding the Local Loans stock arises—is that because unless one makes a protest now it is useless to make a protest when the prospectus of the loan is issued. I suggest to the House that these statutory sinking funds are useless, costly and futile. That opinion is borne out by the Report of the Colwyn Committee.
Perhaps the most flagrant case of a sinking fund was the Depreciation Fund attached to the 5 per cent. War Loan. That provided for a sinking fund of one-eighth of 1 per cent. per month being set aside—say £3,000,000 per annum—and it was provided that should the Loan go below the issue price of the stock this Depreciation Fund should be brought into play, and should be used for the support of the Loan. I remember that at the time I protested. Mr. Bonar Law was Chancellor of the Exchequer then, and I asked him why he had put this Clause into the prospectus. He informed me that it was with the object of inducing people to subscribe. It is very questionable whether by doing that the inducement is
not offered under false pretences, because the Sinking Fund has no effect on the price of the Loan, and it has led precisely to the sort of thing which, I submit to the House, we do not want to see repeated. When the Loan went to a discount of 90 or 91 we had the spectacle of the Government of the day borrowing at a higher rate to pay off debt bearing a lower rate of interest. I will suggest to the Chancellor of the Exchequer that if he proposes again to restore the New Sinking Fund—and I should like to see a reasonable reduction of the National Debt—that this should be done through a free sinking fund. The only real sinking fund is where you have a surplus of revenue over expenditure out of which public debt can be discharged. If you are to have a statutory sinking fund you may be placed in the position to which I referred. The Colwyn Committee, on page 72 of their report, say:
We are of opinion that in the disturbed circumstances under which the loans had to be raised during and immediately after the war period, the attachment of specific Sinking Funds (including the Depreciation Fund) in certain cases proved to be of distinct advantage in securing the success of the loans …
That was during the War, when there might have been some advantage in having these specific sinking funds, but they go on to say:
we are however inclined to think that definite attachment to particular loans tends to be disadvantageous. Nor can it be foreseen with any certainty that the stock to which a sinking fund is attached will prove to be that which over a long period it is most desirable to support. The ends in view can be equally secured by a judicious use of a free sinking fund. On the whole we do not therefore favour any extension of the earmarking of the sinking fund to particular securities.
With that authority—perhaps one of the most distinguished of authorities—against this pernicious practice, I think that I might ask the right hon. Gentleman to bear this point in mind. Again, on page 67 of the Colwyn Report, it is stated:
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 1828 that any real attempt was made to place the sinking fund upon a sound basis.
I hope that has made an impression on the Chancellor of the Exchequer and that he will give us an undertaking that this most costly, futile and wasteful habit will not be persisted in; and that, if he is fortunate enough to be able to convert these local loans, he will not include in his prospectus a statutory sinking fund.
I regret that in spite of the powerful advocacy of the hon. Member I cannot accept the Amendment. I do not question the authority of the Colwyn Committee or dispute the value of the general proposition which they advance, but in this case I do not think it is desirable that the Treasury should be fettered in any way in the exercise of their discretion in the future. The Committee themselves admitted that the hypothecation of a special sinking fund to a particular loan is a stronger guarantee to the creditor than the operation of a general sinking fund fixed by Statute but variable by Parliament, and it cannot be denied that it is conceivable that the Treasury may get better terms where a specific sinking fund is attached than without. The hon. Member will understand I am not suggesting that it is the policy of the Treasury to attach a specific sinking fund; it may never wish to do so. Yet I cannot accept a limitation which makes it impossible for them, if they wished at some future date, to do so, if they thought it was in the best interests of the country.