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Funding Of Exchequer Bills

Volume 50: debated on Monday 19 August 1839

The text on this page has been created from Hansard archive content, it may contain typographical errors.

The House in Committee, to take into consideration, a resolution for funding 4,000,000 l. of Exchequer Bills.

I am quite aware that the subject I am about to introduce to the notice of the Committee is one of very great importance, but it is one also which it may not be very practicable to present to the House in a clear and distinct form. At the same time, I shall do my best to make it intelligible. But before I go into the question which forms the immediate subject matter of the resolution I have to propose, I wish to explain both to the House and to the public the exact condition on which I propose that the Exchequer bills market should stand, if this vote should be carried into effect, and also the condition in which—if the subject, which has been already too much, rather than too little discussed, namely, the Bank of Ireland charter, should be passed — would place Exchequer paper. The comparison which I shall institute with former times will not apply to a very remote period. If I were to explain to the House the immense advance of the unfunded debt from the commencement of the war to the return of peace, it would afford no practical result. It is matter of astonishment, when, looking back to that period, that this country should have been able to sustain the enormous amount of unfunded debt in the Exchequer market. But it was not sustained without great inconvenience at various periods. The comparison I propose to institute is between the year 1836 and the present year. In the year 1836, the amount of Exchequer bills constituting the unfunded debt, outstanding on the 5th of April of that year, was 28,504,850l.; in theyearl837,the amount was 25,394,450l.; in the year 1838, the amount was 24,043,850l., and in the present year (1839), the amount outstanding on the 5th of April was 24,025,650l. [Mr. Hume: Does that include Exchequer bills for public works?] For supplies exclusively. The comparison then stands thus; that in the year 1836, the outstanding Exchequer bills for supplies alone was 28,504,850l., whereas in the present year the amount is 24,025,650l., showing a reduction in that class of securities of 4,479,200l. With respect to other classes of Exchequer bills, the reductions have been these. For advances for public works in 1836, the amount was 328,650l., for the same purpose in 1839, the amount is 195,850l, making a diminution of 122,800l. The amount of bills issued for the relief of the West-Indies in 1836 was 156,850l., for advances this year 8,000l., making a diminution of 148,850l. On account of Irish tithes I propose to have funded 900,000l. Exchequer bills, and the resolution which I am now about to propose, and which I trust the House will do me the favour of accepting, will dispose of four millions more. So that, if this operation should be completed, the comparison between the years 1836 and 1839, will present a reduction in favour of the latter year, to the following amount:—

Reduction of Supply Bills£4,479,200
Reduction of Irish Public Works122,800
Reduction of West Indies148,850
Reduction of Irish Tithes (proposed)900,000
Reduction of Funding (proposed)4,000,000
£9,650,850

If I may be allowed, without irregularity, to allude to what has passed in another place, a very great authority has called the attention of the House of Lords and of the public to the expediency of reducing a portion of the unfunded debt. In this House, also, the hon. Member for Kilkenny, more than a month ago, expressed a hope that the present Session would not be allowed to close without reducing the unfunded debt. Undoubtedly, I am quite prepared to have the question put to me—" If this should be done, why have you not earlier made your proposition?" I will tell the House why. Because I did not think it just or expedient to make the proposition at an earlier period. The House is aware, that upon closing the supplies of this year, it became necessary to provide, in consequence of the extra Canadian expenditure, a vote for 25 millions of Exchequer bills, in the place of 24 millions, which was the amount for the last year. This might not have been required to be increased during the Session, nor hereafter, but if I had made a proposition for funding any portion of the unfunded debt, keeping the parties interested in ignorance of the possibility of further advances beyond the one million under this head of public securities, those individuals would have had a right to complain of their being called upon to enter into an engagement with the public without a full knowledge of all the facts affecting their interests. There is another matter which I think quite essential to be noted, for the purpose of fair dealing. I have had the honour of passing through the House in the present year a bill of no common importance—a measure important in itself, and beneficial as I hope it may prove in its consequences in many respects, but a measure also, as I stated when I brought it forward, involving very serious considerations with regard to the revenue of this country. I mean the bill for reducing the rate of postage. That bill affected so large an amount of the public revenue that in the judgment of some— though not in mine

—it might have materially influenced the credit of the country. I did not therefore, think it just, in respect to those who might be called upon in the way of contractors, to require them to enter into any engagements in reference to the funding of Exchequer bills, until it was known that the Postage Bill would be passed into a law. When it was very certain that that measure would become a law, I then made a communication to the gentlemen of the money market in the city. That communication was addressed to them on the 10th of August instant, and the interval of time for making tenders (which was by some considered too short) was limited to Friday, the 16th instant. Before I state the particulars of what has occurred between the Government and the capitalists with whom we have entered into communication, it is necessary I should explain distinctly to the House the former mode of proceeding in respect to loans, and the course which I have now adopted, pointing out how far that course differs from the practice of my predecessors. I shall then endeavour to state the grounds of justification on my part for having taken a course different from the accustomed one on former occasions, leaving it to the House to determine whether I have acted rightly or wrongly in the adoption of it. The ordinary mode of funding Exchequer bills, is, by the minister for the time being, fixing arbitrarily upon a price which he believes just, as between the public and the contractor, and then communicating his terms to the Bank of England, and the gentlemen of the Stock Exchange, who either accept his price and enter into a contract for the loan, or altogether reject it. Now, in these instances, the whole responsibility rests with the Minister in fixing the price. It is fixed purely upon arbitrary grounds. As a matter of reason or opinion it may be suggested that the price fixed is a just one; but upon that point individuals may differ. There can, however, be no test equivalent to that which is found in free and open competition, where the clashing of different interests makes it perfectly certain that the public object has been obtained, and that Exchequer bills have been funded at the cheapest rate. Now, observe the danger to which the funding of Exchequer bills is exposed by the more ordinary course, as compared with the principle which I have adopted. The principle I have adopted is this, the loan being a loan for four millions, the Government invited the capitalists to

a most unreserved competition. It was stated, that a loan limited to 500,000 l. would be received therefore, there was the utmost competition created that the public convenience could require. As long as it was a matter of contract, it was absolutely necessary to fix a limit to the amount to be tendered for. It was impossible to enter into an arrangement with the owner of every 500 l. Exchequer bills that might be presented. However, it was perfectly open to any person to enter into a contract for the whole four millions. I wish to contrast the results, a priori, of taking the one course; namely, the more ordinary course of a fixed price on the responsibility of the Minister, and the other course, namely, that which I have myself taken. It must be the object of every person filling the situation which I have the honour to fill, to propose an operation which may be carried into immediate effect. Therefore, if you cast upon him the fixation of the price, in all probability he will fix such a price as will insure success to the operation; or in other words, he will fix a price so high as will make it perfectly certain that individuals will come in and accept his terms. While, on the other hand, the tendency of my plan being to reduce the profits in proportion as the competition is augmented, the operation of it is not likely to be so immediately completed. Therefore, the conclusion to which I arrive is, that although the fixing of a price, and of a pretty high price, may be more for the convenience of the Government of the day than by inviting competition, yet if the loan be not one of a very large extent, but one for funding a moderate proportion of the full amount of Exchequer-bills outstanding, and, above all, if there be on the part of the money market a demand for stock, a free competition among the capitalists must lead to an advantageous result. That would be the theoretical reasoning upon the subject. How is that reasoning borne out by the result of practice? I will refer to the two last operations that have been made as an answer to this question. In 1825 a funding of three millions of Exchequer-bills took place. It was daring Mr. Canning's administration. The course then taken was to fix a price, and send it to the gentlemen of the Stock Exchange. Now, observe, by the theory the fixing of a price has a tendency to give a high price to the contractors. If that theory be true, a proof of it ought to be shewn in the result of the contract made by Mr. Canning. And

what was that result? Why, it was stated in Parliament on that occasion as a fact, that although the loan was only for three millions, yet individuals actually came forward with tenders who represented eighteen millions of Exchequer-bills. Is not that in itself pretty good evidence that my theoretical argument is correct, and that the price fixed by the Government was disproportionately high? It was stated to amount to a bonus of 2 l. per hundred. I think both the fact and the reasoning equally prove, that that operation was an expensive one. The same result I find stated in respect to the loan made in the year 1829. At that period the Chancellor of the Exchequer stated, that the terms of the proposition made to the city were considered so advantageous, that although the time given for making tenders was three days, the loan was filled up in as many hours—a strong proof that the terms were too favourable. Such, then, is the reasoning upon the subject, a priori, and such is the result of the experiments of 1825 and 1829, fully supporting that reasoning. Now, a word or two on the subject of authority. As I have taken a new course, I beg to say I do not rest it merely either on reasoning or upon the result of the facts to which I have referred. I find that so early as in the year 1801, on the funding of 8,500,000 Exchequer-bills, where there was a gain or bonus given to the parties of four and five per cent., complaint was made in this House of the loss sustained by the public, and it was stated, that if the bargain had been made by competition, there would have been a better chance of the Government obtaining an advantageous offer. But I have a stronger and a much more important authority to adduce in support of the course I have taken on this subject. In 1829 this very question was agitated in the House of Commons, and on that occasion an individual whom I have always looked up to as the highest authority on any question of commerce, and as a very high authority upon questions relating to our general finances—I mean Mr. Huskisson— gave his opinion in favour of the course I have taken, namely, that of allowing the fullest and freest competition the money market could afford, in the place of the Government taking upon itself to name a fixed price upon its own responsibility. On the 8th of May, 1829, Mr. Huskisson stated, that

" He would not now enter into the discussion as to the terms upon which the 3,000,000l. of Exchequer bills had been recently funded. It would have been, on that occasion, perhaps more desirable not to have specified the terms of the contract, but to have let the parties offering for them bid against each other. It appeared that offers were made to the extent of 18,000,000l.; and if the course to which he had just alluded had been adopted, it was more than probable that the competition would have been still greater, and that better terms might have been obtained for the public."*

* Hansard, New Series, Vol. xxi., p. 1228

An authority more distinct, more precise, and more to the purpose, cannot by possibility be adduced. Upon the general principle of competition, I will not say one single word; but I have been anxious to show that in the course I have adopted I am supported by theory, by the result of former funding of Exchequer bills, and by the great authority of Mr. Huskisson. But before I go further, I will take the liberty of adverting to a complaint which I understand has been made against me by reason of the terms of my proposition. It has been said, "Why limit the operation altogether to the funding of Exchequer bills; why not extend it, partially at least, to money?" Now, I beg the House to observe, that this is not an operation for the purpose of obtaining a loan for public purposes generally; it is for the purpose of limiting the number of Exchequer bills in the market. It might have been very convenient to gentlemen who had money funds at their disposal, that I should have contracted for a money loan, and afterwards have applied it to the redemption of Exchequer bills; but how should I have stood with the public? In the first place, I could not contract for money without giving to the parties the ordinary advantages which that operation would produce, besides the advantage which a knowledge of the subsequent use that was to be made of the money would necessarily give them. What would have been the effect of taking four millions out of the money market in August for the purpose of returning it back into the money market at another period? The first effect would have been, that no sooner would the first instalment have been paid, than a pressure would have been made upon the Bank of England to issue not only the amount of the instalment so paid, for the purpose of filling up what would have been called a chasm or deficiency in the money market, but a still larger amount, and then would have come a depreciation of the currency, which might have produced an

*Hansard, New Series, Vol,xxi., p. 1228.

action upon the circulation that might have been productive of the most serious consequences. This is not all. Observe, these parties contend that I ought to have made it a money loan, and then have applied the money to the extinction of Exchequer bills. Now, the first part of this plan, I repeat, could not have been effected without giving to the parties contracting the usual benefits of such operations, which must, of course, have been paid by the public. But what would have been the next effect of this mode of proceeding? The moment the money was applied in the purchasing of Exchequer bills, the price of those bills would have been raised against myself; and thus, in both branches of this proposed operation I should have been enhancing the terms to my own detriment. I trust it is not necessary that I should argue this part of the question further. It is clear to demonstration that no party, except a party personally interested, could think that I should contract for four millions in money for the purpose of applying those four millions in the extinction of Exchequer bills. I come now to the proceedings which took place on the 16th of this month, which was the day fixed for receiving the tenders. The principle of open competition being adopted, the system pursued became necessarily analogous to that of a loan. I did not know up to the morning of that day whether I should have had one or more tenders. I was given to understand that I should have one offer, but I had not up to that morning the slightest knowledge that I should have had any more. I mention this more distinctly, because observations have been made upon this subject, and more especially with respect to the tender made by the Bank of England, and which was put in on that morning. I am speaking in the presence of the Governor of the Bank of England, and I say, that not only was I entirely ignorant of the amount which was about to be tendered for, or the price suggested on the part of the Bank, but that up to that morning I did not know that the Bank of England was about to make any tender at all. It was on the morning of that day when the hon. Member for Dover (Sir J.R. Reid) and his colleague, the deputy governor of the Bank, waited upon Lord Melbourne, that I was for the first time informed that the Bank was about to make an offer. Undoubtedly I had anticipated the possibility of the Bank making an offer, and I think the Bank was perfectly justified in making it. But, again I repeat, that up to

that morning I was not aware that the Bank of England intended to make any tender whatever. With respect to the third offer which was made, the gentleman who made it, I believe, had only arrived from Scotland in the course of the morning of the 16th. The other and the larger offer was made by a very great house, perfectly well known in money operations in this as well as in other countries; and I hope that those who now bear the name of the deceased head of that house, will show the same ability in conducting its operations as he himself displayed. Certainly, in his own operations, there could not be an individual more entitled to respect and regard than the late Mr. Rothschild. There being these three offers, the course pursued was this:—There was a sealed paper prepared by Lord Melbourne and myself, containing the terms of the Government proposal, but which was not to be opened until after the tenders were delivered. The principle, however, which was adopted by us was this—that if the offers made were more favourable than the terms contained in the sealed paper, of course they would be accepted; but if the tenders were not so favourable as the terms in the sealed paper, then the contract was, in the first place, to be made with the party who offered the most advantageous terms, and then in succession with the others, according to their terms. The offer made by the Bank of England was 109 l. 5 s. 10 d.; the offer of Messrs. Rothschild was 110 l. 17 s. 6 d.; and the offer by the Commercial Bank of Scotland was 111 l.; while the proposal on the part of the Government, as expressed in the sealed paper, was 110 l. The House would see, that these offers came very near to the Government proposal, and to each other in many points of comparison. Of course the tender by the Bank of England was received. The value in stock as represented by these tenders stands thus:—the offer of the Bank of England isequal in three per cent, consols to 91 l. 10 s.; the Government proposal is equal to 90 l. 18 s. 2 d.; Messrs. Rothschild's offer is equal to 90 l. 3 s. 10 d.; and the offer of the Commercial Bank of Scotland is equal to 90 l. 1 s. 10 d. The average price of consols on sixty-four transfer days, ending the 16th of August, with the dividend due on that day, was 92 l. 4 s. 3 d½.; the closing price of consols immediately before the loan, was 91 l. 12 s. 6 d.; therefore, the difference between the several proposals and the closing price of Consols will stand thus;—

Bank offer below the closing price£026
Government proposal, ditto0144
Rothschild's offer, ditto188
Commercial Bank of Scotland, do.1108

The difference between the several proposals and the average price of Consols on sixty-four transfer days, including the dividend, is as follows:—

Bank, below the average price£014
Government proposal, ditto16
Rothschild, ditto20
Commercial Bank (Scotland), ditto22

It is certainly curious, that the proposition contained in my sealed paper, should have afforded so near an approximation to the mean rate of the bonus between the highest and the lowest offer. I have now stated what took place at the opening of the papers. A tender was made to the Bank of England first on the terms of my proposal, and then to the others, if they would accept them. That offer was successively declined. The consequence was, that a communication was immediately made to the city, which stated, that Government adhered to their proposal, 110 l., and were ready to receive at the Bank of England any tenders to complete the loan required. The days for the tender were fixed for Monday, Tuesday, Wednesday, Thursday and Friday, and I am now authorised to state the fact of tenders coming in, and that a very considerable amount has been taken at the Government price. 600,000 l. have been taken this morning in addition to the 500,000 l. [Sir John Rae Reid: Nearer 700,000 l.] This is satisfactory, as showing that the Government has not attempted any unfair, improper, or unreasonable terms in the contract, and I feel every reason for stating my opinion, that before this bill shall have passed through all its stages, the operation will be brought to a successful issue. There may be a difference of opinion as to the bonus which the various tenders may afford to the parties, and it is impossible to reason upon them with certainty, since uncertain data must be taken. The closing premium on Exchequer bills was 18 s., and there was to be set against that, the discount allowed on immediate payment. If, then, the amount of the bonus of 12 s. 3 d. be set against the premium on Exchequer bills, I shall not be far from right, when I state that the bonus on the operation which I propose will be 15 s. 9 d, or from 15 s. to 16 s. The offer of Messrs. Rothschild would, have given a bonus of 1 l. 11 s. 9 d.

or 10 d., and the offer of the Scotch Bank would have given a bonus of about 1 l. 14 s. That is the view I take of the matter. From these circumstances, coupled with the amount of subscription which has been opened only for one day, I feel every reasonable hope that at the Government price of 110 l., the operation will be carried into effect. If that be the case, I feel that I am fully justified in the course that I have taken, of inviting public competition. I confess, that notwithstanding the great authorities which I had in my favour, I entertained some distrust. I felt that by departing from the accustomed course, I was involving myself in some responsibility but I felt also, that if I could safely give to the public the fullest amount of competition, I was bound to take that course; and I am gratified if I have succeeded. The resolutions which I shall propose are three. The first embraces the realization of the contract with the bank. That has been entered into, and on terms more reasonable than the Government felt justified in imposing on the contractors. The second resolution provides with respect to all parties who were under terms or engagements to deliver up Exchequer bills, on or before Friday, to be cancelled at the Government price of 110 l., that they shall receive three per cent, consols. To the third resolution, I will direct the particular attention of the House. In order to make it intelligible I must assume some sums which are purely hypothetical, and which I hope will turn out to be nonexistent. Already we have contracted with the Bank for 500,000 l.; I exclude for the moment the subscription entered into this day, and assume that the further sum of 2,500,000 l. will be subscribed before Friday, that will account for three millions of Exchequer bills; there will remain one million, which I suppose I shall not get. I propose, therefore, a resolution to the effect that clauses of this bill shall state that all parties, who subsequently to the passing of this bill shall deliver the amount of Exchequer bills for which, after the payment of the 500,000 l. and the 2,500,000 l., I assume there will be a deficiency of one million, shall receive three per cent, consols, calculating the stock at the average price of the quarter immediately preceding the transaction. This is engrafting on this bill, as to this supposed deficiency loan, the principle incorporated in the Irish Bank Charter Bill. I have now endeavoured to explain my proposal. I have been long, but I have pre-

ferred being tedious rather than leave anything unexplained or not being clear. I may before sitting down, be allowed to anticipate a possible objection which may be raised against my plan. I may be asked "Why do you fund in the three per cents, and not in any stock of higher amount" I will tell the House why I take this course. In the first place, to make my reasoning intelligible, we must discriminate between the interest of money on a temporary loan, and the interest of money on a public security. If I take the temporary interest of money as general, undoubtedly the proposed loan ought not to have been in the three per cents., but in a higher amount of stock. If the interest were higher on permanent than on passing securities, I ought to have funded in a higher priced stock, and have taken the chance of any subsequent reduction. But the argument is different if I find by the price of the public securities that the permanent rate of interest on money so invested is lower. I believe that I shall be able to effect the present funding in stock at a price not much exceeding 3 l. 6 s. per cent. It is a sufficient answer to such a complaint that I have been enabled to effect my operation at such a reasonable charge. Such an operation, so easily effected, ought not to create in the mind of any person any distrust of the resources of the country. In the first place, we are within a year of the commencement of that reduction of a series of annuities which year by year we may expect. I will not go to the halcyon and to the golden days of 1860: it is not probable that those who are advanced in life will see the expectations realised, of the country being then relieved from a considerable danger and evil; but a considerable amount of reduction will take place in the public debt by the falling in of about four millions of what are now terminable annuities. Undoubtedly I did consider, in proposing my plan, whether it were possible to effect it by long annuities in preference to a perpetual charge, and I wish to tell the House one of the facts which led me to give up my first opinion. My noble Friend, Lord Spencer, when he was Chancellor of the Exchequer, undoubtedly felt strongly the benefit which would accrue to the country, by converting perpetual into terminable annuities; my noble Friend proposed the conversion of permanent annuities into terminable annuities of 100 years. Now hon. Gentlemen know very well that the difference of the money value between the two

classes is very small; but the House will scarcely believe, when I tell it, how the public, which has the power of making this conversion, has exercised that power? I believe that there has been only one single annuity, and that annuity of 20 l., of 100 years' duration, taken by any individual under Lord Spencer's Act. That single individual purchased a hundred years' annuity to meet a hundred years' rent-charge. If, then, such be the result of the experiment made by Lord Spencer, should I not have been over sanguine if I had expected that I could have obtained terms very favourable to the public if I had adopted such a plan? I should, Sir, wish to call the attention of the House to the observation of a person of high authority upon this question. It is, Sir, the observation of Mr. Adam Smith, who was favourable to terminable annuities, and who has stated strongly the evils of funding in permanent annuities. He says—

" An annuity for ninety-eight or ninety-nine years is worth nearly as much money as a perpetuity and should therefore, one might think, be a fund for borrowing nearly as much. But those who, in order to make family settlements, and to provide for remote futurity, buy into the public stocks, would not care to purchase into one, of which the value was continually diminishing —and such people make a very considerable proportion both of the proprietors and purchasers of stock. An annuity for a long term of years, therefore, though its intrinsic value may be very nearly the same with that of a perpetual annuity, will not find nearly the same number of purchasers."

That is actually the fact, and even if annuities are of the same value, there are many reasons why persons will not take them. But then it may be said, "although annuities may not answer, why do you not take stock of a higher amount?" If I had taken a new stock specifically for this loan, if I had created a stock of six or seven per cent., hon. Gentlemen must be aware that such peculiar stock would not find favour in the market; the stock that is preferred is that of the largest description, which is easiest of sale. Observe the South Sea Stock and other securities; is not the South Sea Stock the same security as the other? But because it is of smaller amount, although practically it is equally valuable, it bears a different price—it is of less value, and possesses disadvantages in the market. There is another test, and that a practical one. I will compare the prices of the 3½ per cents., and of the 3 per cents for the purpose of argument. Now,

the difference in the price ought to be exactly the difference of the value of an annuity of 10 s. per cent., subject to the possibility of the reduction of that annuity. We have the Long Annuities terminable in themselves in twenty-one years. Now, if we compare these Long Annuities absolutely terminable in twenty-one years with the annuity of 10 s., the supposed difference between the 3½ per cents and the Consols, we shall have the measure of the expectation of the public of the reduction of the 3½ per cents, and if the price of the 3½ per cents, be greater than the annuity, then the contingency is not worth the purchase of twenty-one years; and a higher interest will be payable on the Long Annuities, which will not be terminated for twenty-one years, than the difference of the price between the 3 per cents, and the 3½ per cents. Does not this afford evidence—is it not a demonstration of the opinion of those who deal in the money market? Having now endeavoured to explain the course I have taken, having endeavoured to explain the proceedings in reference to the loan, having explained as clearly and as distinctly as I could, the pecuniary results which I anticipate, I have only to thank the House for the patient hearing it has afforded to me on a very dry and uninteresting subject, which I have endeavoured to make clear, thinking that I should thus best consult my duty both with respect to the Bank, and to the time of the House. The right hon. Gentleman concluded by moving the first of the following resolutions which was agreed to. On the second resolution.

"1. That the several persons who have engaged to subscribe the sum of 500,000l. in Exchequer Bills dated in March and June 1839, and charged on aids or supplies, and to make deposits of 20l. per centum on the amount of their respective subscriptions at the Bank of England on the 20th day of August 1839, shall be entitled upon the completion of their subscriptions for every 100l. so subscribed in Exchequer Bills, to 109l 5s. 10d. Capital Stock in Consolidated Annuities, bearing interest at the rate of 3l. per centum per annum, the said interest to commence from the 5th day of July 1839, and to be payable by half yearly dividends on the 5th day of January, and the 5th day of July in every year.
"That the several subscribers shall complete their respective subscriptions at the Bank of England by instalments, in the proportions and at the times undermentioned; that is to say,
" 20l. per centum on or before the 27th day of September.
" 20l. per centum on or before the 8th day of November.
" 20l. per centum on or before the 20th day of December.
" 20l. per centum on or before the 31st day of January 1840.
"That interest shall be allowed upon all Exchequer Bills deposited in payment of each instalment, up to the date of such instalment.
" That subscribers shall be at liberty to pay the said instalments in advance, and shall, in such case, be entitled to interest 'thereupon, for the first instalment from the date of the bill up to the 16th day of August instant, and upon the amount of the bills for each subsequent instalment from the date of the bills up to the day of instalment would have become due.
"That all the Exchequer Bills so to be deposited with the Governor and Company of the Bank of England, shall be delivered over to the Paymasters of Exchequer Bills to be cancelled.
" 2. That every person or persons who shall on or before the 23d day of August next, subscribe Exchequer Bills to an amount not exceeding in the whole 3,500,000l. of Exchequer Bills dated in March and June 1839, and charged on aids or supplies, shall be entitled upon the completion of their respective subscriptions, in manner before provided, for every 100l. so subscribed in Exchequer Bills, to 110l. Capital Stock in Consolidated Annuities, bearing interest at the rate of 3l. per centum per annum upon the terms and conditions before mentioned,
" 3. That every person or persons who shall, after the 23rd day of August next, deliver in Exchequer Bills to be cancelled in sums of not less than 1,000l., to an amount not exceeding in the whole a sum which together with the Exchequer Bills subscribed in manner before provided, shall not exceed 4,000,000l. of Exchequer Bills dated in March and June 1839, and charged on aids or supplies, shall be entitled for every 100l. so delivered in to such an amount of Capital Stock in Consolidated Annuities, bearing interest at the rate of 3l. per centum per annum, as every 100l. of the said Exchequer Bills would have purchased if the same had been applied in the purchase of Consolidated Annuities, estimating the same at the quarterly average price thereof, for the quarter ending the 5th day of January, 5th day of April, 5th day of July, or 10th day of October, as the case may be, immediately preceding the delivering in of such Exchequer Bills, such average price to be ascertained according to the daily returns thereof made up pursuant to law at the Bank of England,"

said, in reference to the remarks of the right hon. Gentleman, as to the offer of competition, he was satisfied that the course which had been adopted was the best, both as regarded the public, and the holders of Exchequer bills. Although it was true that, in the last transaction, the public mind, with regard to Exchequer bills, was different from what it was now, yet he must think that, in the last transaction, the public had an unfair bargain. The only observation which he had to make, was on a point to which the right hon. Gentleman had alluded—the denomination of stock. He had hoped, that they would never again borrow in a stock of small amount. Looking at the reduction in the rate of interest on the higher stock, he thought that, with peace, and with the country well governed, it ought to be in a position to make such a reduction. He was not able to say, whether the statement as to the difference between the value of the terminable annuities and the 3½ per cents, was correct, or whether it justified the right hon. Gentleman's conclusions; but he had been of opinion, up to the time of a late transaction, when fifteen millions were borrowed, and he was still of the same opinion, that the highest denomination of stock was always the stock in which loans should be made; for the country ought to have the advantage of the reduction of the rate of interest, when such an operation should become practicable. Already, he had seen 3,500,000l. saved by the reduction of the interest on the debt. Therefore, he had hoped that an attempt would have been made some time since, to borrow at 3½ per cent., but he admitted, that to do that at the present moment would not be prudent. Then he blamed the Chancellor of the Exchequer for not having made this loan before. He had repeatedly asked, months ago, whether such an operation was intended; he had not done so from any fear as to the credit of the country; in that he had the fullest confidence; but when he saw the Bank allowing the constant drain of bullion, he was sure that they would be driven to what had now taken place. He was sorry that the Bank had given any ground for complaint, but the blame was partly with the Bank, and partly with the Chancellor of the Exchequer, because if the Chancellor of the Exchequer had acquiesced in the inquiry which he urged last year, he was confident that he would have been able to prove the errors on which the Bank had acted on former occasions, and, by pointing out the evils which had existed, he would have been able to prevent their recurrence. The country had materially suffered by what took place in 1837. So long as any body of men were able to assist themselves, regardless of the interests of all others, the country would always be liable to this. Seeing, however, the situation to which the Chancellor of the Exchequer was now driven, he was not aware that he could have done better than to make the offer for tenders as he had done, although he thought, that the right hon. Gentleman was to blame, for not bringing the subject before the House prior to the budget, and the statement of the pecuniary affairs of the country. The right hon. Gentleman ought, long before this, to have taken steps to reduce the amount of the unfunded debt; at the beginning of 1837, he saw the state to which the Exchequer bill market was reduced, and when he discovered, on the introduction of his budget, that an additional million was required, he ought to have been prepared to fund, Exchequer bills, and he was wrong not to have done so. He was sorry that the Bank of England was not in a condition to take the whole of the loan; he had expected that they would have taken it, seeing the buoyant state of the 3 per cents, the week before. He hoped, that the present proceedings would make the Bank more circumspect, and that they would not again be obliged to have recourse for assistance to a foreign country; and he trusted, that the Government would turn its attention to the possibility of obtaining loans in stock of a higher amount.

was quite satisfied that the conduct pursued by the Bank on this occasion would meet with general approbation, perhaps with the approbation of every man in that House except the hon. Member for Kilkenny. He had no hesitation in declaring that he thought their conduct had been most liberal. With respect to a point adverted to by the Chancellor of the Exchequer, he availed himself of this opportunity of stating distinctly what had been already said by the right hon. Gentleman, that no communication whatever, private or otherwise, had passed between that right hon. Gentleman and any members of the Bank of England. The decision of the Bank had been come to without any communication with the right hon. Gentleman. He wished this to be clearly understood, as he would take the present opportunity of reading a few words from a very influential journal that was in the habit almost every day of running down the conduct of the Bank. The article he alluded to appeared in The Times a day or two ago. It commenced by some of the usual abuse, to which he had now grown so accustomed, that he confessed he did not feel it in the way he had originally felt it. The Chancellor of the Exchequer, if he might be allowed so to say, was his brother in affliction; indeed, there were not two men in the country who had worked harder, or had received a greater quantity of abuse in return, than the right hon. Gentleman and himself. The individual who wrote the paragraph he did not pretend to know, but the words were as follow:—

"The part taken by the Governor and Deputy Governor of the Bank of England during the meeting at the Treasury, has not escaped notice and animadversion in the city. They made an offer on the part of that corporation, towards which they stand in the character of trustees as well as managers, which was altogether an improvident one with regard to the slate of the market at the time when the offer was made, and may take their choice of being supposed negligent of, or incompetent to, that trust, or of acting in subservience to a Ministry whose good will they imagine it essential to cultivate, with a view to the renewal of the charter. They even went, in their zeal, beyond what was necessary for that time-serving spirit."
He totally denied, that he had ever been subservient to any Government, more particularly to a Government like the present. He declared most solemnly, and he did it before that House and before the country, that upon no occasion whatever, had the Bank directors been subservient to the right hon. Gentleman; and he threw back this imputation with all the scorn in his power. (The hon. Baronet threw the paper from which he read on the floor.) When he was accused of improper motives by a paper of such great influence, he should not have done his duty if he had submitted tamely to the imputation. As long as he retained his present situation, he would endeavour faithfully and honestly to discharge his duty as Governor of the Bank without fear, favour, or affection. His anxious wish always had been, and would be so long as he had the honour of filling that post, to promote by all means in his power the prosperity of the country, and the prosperity of the Bank, which he knew to be interwoven with each other. With respect to the present operation which the Chancellor of the Exchequer was conducting, he had no hesitation in declaring it to be his opinion, when he looked to the sum already subscribed, the state of the money-market and foreign exchanges, and the improvement of trade, that the Chancellor of the Exchequer would obtain the money he required on the terms he had proposed.

expressed his regret that the Chancellor of the Exchequer had not brought forward this very important subject at an earlier period of the Session, when a greater number of Members would have been present, and the subject might have been discussed with more effect. He did not think, that the reasons assigned by the right hon. Gentleman for not reducing the unfunded debt at an earlier period of the Session were satisfactory. He had no objection to the terms declared by the Chancellor of the Exchequer on this occasion, nor to the mode of competition he had adopted. He regretted most sincerely, that the Chancellor of the Exchequer had not met with more success, but hoped that the termination of the experiment would be more favourable. He thought the right hon. Gentleman should have told the House something of the means by which he proposed to meet this addition to the permanent debt of the country. It was true, that there was on the Table an account, by which it appeared that the Chancellor of the Exchequer, from the calculates then made, estimated a surplus of 139,000l. But it ought to be observed, that this estimate, which bore date the 9th of August, was precisely the same as that made by the right hon. Gentleman in his financial statement of the 5th of July. Between these dates, however, an actual expenditure had been incurred, to the amount, in all, of 85,000l., so that a deduction to that extent ought to have been made from the estimated surplus of 139,000l., and without such deduction the paper was merely delusive. From what he had stated, he thought it was perfectly clear, that the House and the public were entitled to some information of the provision to be made for meeting this addition to the national debt. On a full view of the question, looking at the present state of the revenue, at the possible deficiency from the alteration of the rates of postage, and at the actual deficiency at present existing, he must say, he thought it was very strange, that the right hon. Gentleman had not acquainted the House with his views as to how these deficiencies were to be made good; and he could not help warning the House to look well to the consequences of the course they were about to pursue—to consider deeply the vast importance of the subject, and the dangers to which the country might be exposed, if, superadded to the embarrassments arising from the disturbed state of the labouring population, they should have also to contend with financial distress.

said, that when the hon. Member for Kilkenny intimated that with the present prices of the funds, they might have funded Exchequer-bills more advantageously than was proposed, he had not adverted to the prices of Exchequer-bills; but now he had an advantage by the depreciation of Exchequer-bills, which he should not have had when they were at 60s. and 70s. The right hon. Gentleman (Mr. Herries) had called a paper on the table a delusive paper; but what were the facts? That paper was moved for in another place by a noble Lord in opposition to Government, immediately after his statement of the finances, for the purpose of bringing that statement regularly before the other House. In course of a discussion in the House, the hon. Member for Bridport had made use of this paper, and afterwards moved that it be laid on the Table. This was accordingly done, not obviously at the instance of Government, or of any Member connected with Government, and therefore the paper could not have been intended to mystify or delude, as was assumed by the right hon. Gentleman. With respect to the question of provision for the increase of debt, he begged to assure the House, that it had not been forgotten; and if this morning he had been enabled to have made more progress with the Bank of Ireland Bill, he should have been in circumstances to have given a better answer; for that bill, if it passed into a law, would effect a saving of 20,000l. or 30,000l. per annum on the interest of the debt due from the public to the Bank of Ireland—a sum which would have gone some way towards the provision which the right hon. Gentleman referred to.

however unwillingly, felt it his duty to express his deep regret, that a subject of such immense importance should have been brought forward so late in the Session. He regretted that the right hon. Gentleman had not been suc- cessful in carrying his object into effect; for after operating during four days, an order to fund 4,000,000l. of Exchequer-bills, they heard that he had only contracted for 500,000l. He understood that to-day in the city, persons were willing to subscribe 700,000l. of Exchequer-bills. Whether the right hon. Gentleman would get the amount of Exchequer-bills funded or not, seemed to him to be highly problematical. The right hon. Gentleman expressed great confidence that he would get the amount; but it appeared that for this miserable sum of 4,000,000l. of Exchequer-bills, the Chancellor of the Exchequer was obliged to resort to three expedients to get it. He first made a bargain with the Bank of England, and a very good bargain he (Sir T. Fremantle) had no doubt it was; he then made another bargain with other parties, and then wished to make a bargain with parties willing to take stock. If the proposed plan should fail between now and next Friday, the right hon. Gentleman would be reduced to the necessity of funding Exchequer-bills at the average price of stock. The right hon. Gentleman had taken a higher responsibility on himself in his proposal last Friday. If he had been successful, he would have received great praise from them all; but that was not the case. He thought the right hon. Gentleman's plan better in principle than in practice, and that the old plan was not so objectionable in practice. The right hon. Gentleman having practised on one principle, was obliged to adopt another—the old principle of naming his terms. It had been stated that the public credit of this country stood as high as ever: he believed that; but he thought this statement ought not to be made public without some warning, that if they were to go on for some years longer as at present, public credit could not be sustained. The paper put in showed a deficiency in one year's income of 1,800,000l. Hon. Members seemed to treat this statement with great indifference: whether they were prepared to support the Chancellor of the Exchequer in laying on taxes, he knew not, but it would be extremely difficult to find proper subjects for taxation. A tax on property was the only one available for producing a large amount of income, and that ought only to be used in time of war. If another year was allowed to pass over with an acknowledged deficiency, without any steps being taken to meet that, the difficulty would be very great.

thought, it was impolitic to fund Exchequer-bills in perpetual annuities. The difference between a perpetual annuity, and an annuity for ninety-nine years was so small, that it would not amount in its marketable value to more than one-half per cent. He did think, that adding to our national debt as they were year after year, there must come an end of this course of proceeding. It was for hon. Members to say whether such a system ought to be proceeded in. Had a contrary system been adopted, of granting annuities for shorter periods, they would have seen the termination of annuities every eight or ten years, and they would not fix generation after generation with the burdens which we now had to bear.

Resolutions agreed to, and ordered to be reported.

House resumed.