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Cheap Money Policy

Volume 436: debated on Tuesday 15 April 1947

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I have heard some criticism from time to time of my cheap money policy, in defence of which therefore, I now ask leave to say a few words. The steady and progressive reduction in the rates of Government borrowing over the last 18 months has brought great and solid benefit, not to one section only, but to the nation as a whole. I am convinced of that. Let me give reasons for that opinion. First and foremost comes the relief to the taxpayer, on whom falls the burden of servicing the National Debt, now grown to gigantic proportions as a consequence of two great wars. Since His Majesty's present Government took office we have issued more than £1,300 million of 2½ per cent. long dated and irredeemable securities—some long-dated and some irredeemable. Before our cheap money drive began, these issues would have had to be raised at 3 per cent. or higher. If we assume only 3 per cent. the long-term interest burden on the taxpayer has been lightened by at least £6,500,000 a year in respect of these long-term issues. In addition, the Floating Debt now carries interest at only one half of I per cent. If this Debt had had to be raised on the terms current before my first Budget, the taxpayer would have had to pay £31 million a year more in interest on the Floating Debt alone. Adding these two figures together, it is clear that, on direct Government borrowing alone, the taxpayer has been saved nearly £40 million a year since October, 1945.

So much for the central Government. But cheap money benefits not only the central Government. It benefits the local authorities; it benefits the great public boards; it benefits private industry at large; and indeed it benefits other members of the British Commonwealth of Nations. Let me take the last point first. The Government of Australia—who are very good friends of ours; none better in the world—in June, 1946, converted £16 million of 3 per cent. stock into a new issue carrying interest at 2i per cent. Last January they converted to a 2½ per cent. basis another £18 million of stock—of which million was 4 per cent. and million 3½ per cent. These operations were carried out by the Australian Government in their full sovereignty, and in the light of the advice of their financial advisers in the City of London. But they were made possible by the financial policy of His Majesty's Government in the United Kingdom. We can claim that that policy has saved His Majesty's Government in Australia, on these two operations, more than £300,000 a year in interest charges. That is a striking example of Mutual Aid in the Commonwealth, and, of how one British Labour Government can help another.