I warmly congratulate my right hon. Friend the Chancellor of the Exchequer on the most able statement he made in his speech yesterday. One cannot but regard the whole scheme, which is of a most comprehensive character and which he, with such admirable lucidity, expounded to the House yesterday, as one which reflects the highest credit upon the Chancellor of the Exchequer, and not only upon him, but also upon his advisers, whether in the Treasury or out of the Treasury, who have assisted in placing before the country this most admirable scheme of finance. There is no question that the huge Loan which it is contemplated to raise under that scheme will very seriously depreciate the ordinary investor's securities, but, having regard to the financial needs of the country arising from the enormous expenditure which must necessarily be made in the prosecution of the War, the reduction in value of securities we must submit to with as good grace as possible. The terms of the new Loan are certainly generous, but in my judgment not too generous when we know that it is absolutely necessary that this huge sum of money should be raised. To give liberal terms in connection with this Loan is much better than to have had a forced Loan. The cost of the conversion of Consols and of the old War Loan into the new Loan means, of course, a substantial charge in the shape of extra interest paid by the National Exchequer, and that was estimated by the hon. Member for the City (Sir F. Banbury) yesterday, to amount to 3½ millions. Therefore, we must bear in mind that we are going to have to pay for the fresh money got for this Loan not 4½ per cent., but something nearer 5 per cent. But in my opinion it was necessary that this Loan should be placed on lines so as to give a higher return to investors than was given in the old War Loan, as otherwise there would clearly have been no inducement whatever to the holders of the old War Loan to double their subscription by taking an equal amount of the new War Loan.

I congratulate my right hon. Friend on the excellent facilities which he gives in connection with this great National Loan to small investors. I believe that those provisions will be much appreciated, and I trust that there will be an astonishingly good response on the part of small investors, and that they will in large numbers and to large amounts take advantage of the facilities offered for obtaining 4½ per cent. for their money instead of 2½ per cent. in the Post Office Savings Bank. Personally I feel that the Chancellor of the Exchequer has need to very seriously consider the question of raising more money from taxation. There is one sort of revenue which I hope he will not fail to tax to the very fullest extent. Personally I hold that no one in any trade or business in this Kingdom ought to make increased profits owing to the War—

There is no question of taxation in this Loan, and the hon. Member must reserve his remarks till we get to the Finance Bill.

I apologise. I was misled by references on this subject in the course of yesterday's Debate which appeared to be admissible on the First Reading of the Bill.

Would it not be in order to point out that taxation would be a preferable way of meeting the deficit than the methods proposed in this Bill?

It would be in order to point out that it is desirable to levy the money which is required by taxation rather than by borrowing; but it would not be in order to select particular subjects for taxation and say, "Why do you not tax this," or "Why do you not tax the other?" The proper time to do that is when we reach a taxing Bill.

I do not know whether I shall be in order in saying how much I appreciated the strong references made yesterday by the Chancellor of the Exchequer to the necessity for national economy and thrift. The whole country ought to turn its attention to the necessity of leading the simple life, of cutting down household expenditure, and of avoiding all waste in food and otherwise, in order to strengthen our financial resources and enable us to meet the enormous expenditure on the War.

That would be in order in every discussion.

I am glad to know that on the saving side I shall always be in order. I am never intentionally out of order. All that I can say in conclusion, as other questions are not admissible, is that we do congratulate the Chancellor of the Exchequer on his very strong references to the need of economy and thrift, and I trust that His Majesty's Government will continue to press that necessity strongly upon the attention of the country.

We are asked this afternoon to discuss the terms of the new War Loan, and to consider whether those terms meet with the approval of the House. But in the daily Press this morning the terms of the Loan have already been made public, and the War Loan is now being offered to the public. Therefore, it seems to me unnecessary for this House to consider the terms of the Loan this afternoon. We are, however, asked to consider the terms of the War Loan. Personally, I should have preferred the Government to have brought in a Revenue Bill to increase the revenue, and then later to have brought in a War Loan Bill. By that time the country would have realised exactly what it would be required to pay in taxation, and then, perhaps, it might more readily have scrutinised the details of the War Loan. The Chancellor of the Exchequer argued yesterday afternoon that this War Loan would have a tendency—he did not put it higher than that—to reduce expenditure. I think it might well be argued that if men invest their money in this War Loan and get this high rate of interest it might be an inducement to them, not to economise, but to continue their expenditure on a high level. I desire to refer again to the powers to convert Consols and the War Loan issued in November last. I pointed out yesterday afternoon that every holder of £75 of Consols, if he subscribed £100 to the new War Loan, would get, instead of his £75 stock, £50 new War Loan Stock. In other words, if he puts down £100 tomorrow, the Government will pay the fortunate holder of Consols interest on that £100 not at the rate of 4½ per cent., which other persons will receive, but at the rate of £4 17s. 6d. per cent. Take, again, the case of a man who subscribed to the War Loan in November last. That Loan was issued at the rate of £95 at 3½ per cent. It was practically a 4 per cent. Loan. If a man who owns £100 of that stock puts down £100 for this new War Loan and an additional £5, the Government will hand him instead scrip to the value of £200 in the new War Loan. In other words, for the extra £105 which he is asked to find to-day, the Government will give him, in effect, interest at the rate of over 5 per cent. per annum.

If these figures are correct—and I shall be glad to be interrupted by the Chancellor of the Exchequer if I am wrong—it seems to me uncalled-for generosity by the State. The State borrows the money from men and comes under an obligation to pay them a yearly interest—nothing more, nothing less. When Consols stood at over £100 the State of that day did not step in and ask the fortunate holders of Consols to hand back to the Treasury the premium at which Consols then stood. These powers to convert the old stock are extremely favourable to the financial interest. But take the case of the small investor who invested, say, £500 in the War Loan last November—all his savings Unless he can find more money to-day he cannot get that stock converted. The Chancellor of the Exchequer stated yesterday that the policy of the Government was to remember the interest of the people who lent money in the past. I am bound to say, if my figures are correct, and I believe they are, that the Government by this War Loan are remembering the rich who lent money in other days and are able to lend money to-day, but they are forgetting the poor who lent money in November last and are unable to find further money to take up new stock to-day. Not only that, but by the issue of this Loan at 4½ per cent. the Government are depreciating the value of the stock held by these people. I can well imagine the intense opposition which, under different conditions in this House, would be raised to such a proposal if brought forward by the Government of the day. I wish to ask the Chancellor of the Exchequer two questions. The first is, Does he intend to raise the rate of interest allowed to depositors in the Post Office Savings Bank? They are getting only 2½ per cent. interest, and unless the rate is raised I think they will be very quick to take their money out of the Post Office Savings Bank and put it into the new War Loan. The other questions is, Docs he intend to take steps to restrict the present method of buying and selling Consols? Men who live in the North and many stockbrokers in Glasgow have often spoken to me on this subject. They have considerable difficulty under the present arrangement in buying and selling Consols. Does the right hon. Gentleman intend to take steps to remove those restrictions, and to put provincial centres on the same level as the London Stock Exchange.

My hon. Friend who has just sat down, as well as many of those who spoke yesterday, criticised adversely the terms upon which this Loan is to be issued because of their generosity. They imagine that too much consideration has been shown to the lenders and too little to the public. I do not think that they have really adequately estimated the stupendous character of this transaction. It is absolutely unexampled. All our old maxims, and all our old rules fail to apply a guide to the issue of a Loan upon this scale. What would apply to a £50,000,000 Loan will not apply to a £500,000,000 Loan, and the difficulties of the Chancellor of the Exchequer are added to by the condition of the markets of the world. He is appealing, first of all, to an investment market already depleted. It has been drained and drained to a great extent by the former Loan, which was of no small dimensions. He is appealing to a depleted money market, which is a different market. It has been half-drained, at any rate, by the large issue of Treasury Bills. Of course, the Money Market is not the market to which he is appealing at present to any great extent. The Money Market is a market like any other market—the boot or the cotton market, say; it has a stock-in-trade; and the stock-in-trade of the Money Market is the loose, free money which the bankers, for the most part, control.

He has already taken in the form of Treasury Bills at least half of that portion of the stock of the Money Market which is usually employed in financing trade—that is, the trade of the world. The loans given to the London Stock Exchange must also be added. So that my right hon. Friend has a task of stupendous magnitude before him. The questions he has to ask himself are: Where is the money? Where does it exist? Who has got it? He cannot appeal to the accumulated wealth of the country—to the capital of, say, £15,000,000,000 or £18,000,000,000. People cannot bring houses, ships, mines, farms, mills, and fling them against the enemy. The capital of the country is almost useless for the purpose needed. People cannot sell and liquefy their assets. They cannot borrow. There are neither purchasers nor lenders in the world to-day, because all the markets are closed. [An HON. MEMBER: "The United States."] For this purpose the United States cannot be taken into very much consideration. There is only one way in which this money can be got in a liquid form, and in which it must be got, and that is out of the income of the country—I mean the actual year's income of this country. If you consider the War expenditure, it comes out of the year's production of this country. Everything which is expended for the War, the time of the men at the front, and the time of those working behind—it is this year's time; the munitions, the food, the transport, and everything else has, for the most part, to be produced this year, and it is only this year's resources which are available at once and in the first instance.

It follows, therefore, that if half the production of this year is to be absorbed by the War we have almost to live upon the other half. Instead of saving one-sixth of our annual income we shall have to save three-sixths, or near it, in one form or another, but it does not follow from what I say that capital should not in the end—though it cannot in the beginning—be made to pay. The burden can be made to fall upon it, but it can only be made to fall upon it later. The only liquid available sources for the Chancellor of the Exchequer to get his money from at first is as I have stated. For this reason I am rather averse to proposals to get too much by present taxation upon revenue, because it would be upon this year's income. It would be futile, it would be unfair, and I think it would be almost suicidal. But, after all, the question of raising the money by taxes or by loan is something of a bookkeeping question; indeed, very much of a book-keeping question. It is something like the question which comes before the limited company which has made a loss: whether they shall cut the loss and reduce their capital, or whether the capital shall remain as it is—for the most part watered. If the money is raised by loan instead of taxes, the expenses and the weight of that Loan may be made to fall upon the people upon whom it should fall. It may then be made to fall upon property and upon the owners of property, if this House and if the Government of the day think that is the proper form.

How must he tap the resources of this year? That is the great question for the Chancellor of the Exchequer. He has offered terms which are good, but not too good, to attract the thrifty—that is to say, the people who do save, who know how to save, are habituated to saving. Perhaps it will attract them to save more, to economise more. In my opinion, however, the right hon. Gentleman will have to go a little further. He must tap the resources of the incomes of the unthrifty, of the non-investing classes, of the people who never think of saving, but who always spend. Therefore, as taxation is always compulsory, and as the resources of taxation of the Chancellor of the Exchequer are limited, I think he will in the end have to make his thrift compulsory. People must be made to subscribe to the War Loan as they are made to pay their taxes. A week ago I ventured to foreshadow some little scheme, and made some little suggestion, with that object. I will not repeat them now. I am very glad to see in the proposals made by the Chancellor of the Exchequer that though he does not adopt either of the suggestions, or even the principle, he does not exclude them. In fact, I see with some satisfaction that his scheme admits of a perfectly convenient method of applying this principle of raising money in this great national emergency.

I regret that I have again to trouble the House on this Bill. I But one or two points have been brought to my notice which I think are worthy of the attention of the Chancellor of the Exchequer. The first is a point which concerns the friendly societies. Some years ago the principal of them invested part of their funds in Consols. Some of the societies have also invested a part of their money in the old War Loan. When it comes to inviting these societies now to contribute additional sums they are faced immediately with a great difficulty. Take a society which has £10,000 invested in Consols. If I understand the Bill correctly, before that society can take advantage of the option to convert £100 of Consols it must find another £133⅓ in cash. The House will see the difficulty of the friendly societies and the trade unions, being unable at the moment to find so large a sum to convert from Consols. Therefore I want to suggest to the Chancellor of the Exchequer an easier way of converting Consols which would not create such a grave difficulty for friendly societies and similar bodies. The suggestion I have to make is that those holding Consols shall be allowed to bring, say, £100 of stock, to be counted as equivalent to £66⅔ in cash, and to find £33⅓, and then be allowed to take £100 of the new War Loan to the extent of £100 of Consols, and £33⅓ of cash. If in addition they were allowed a little longer time in which to exercise their option, they would be able, with the funds which are coming in by weekly and monthly instalments, to contribute a considerable amount to the War Loan which at present they are not in a position to do. That is the point of view of those who hold Consols, so far as some of the friendly societies are concerned. That is the point of view, too, of the small investor mentioned by the hon. Member for Windsor (Mr. James Mason). There I do think that the persons who invested in Consols to a small amount some time ago are not being treated in quite the same satisfactory way as the persons who are in a considerable position financially to convert their Consols.

Take the case of the person who by saving, through the Post Office it may be, has been able to accumulate a small amount of Consols by a display of thrift. He is not in the position at all of being able to find £100 or £200 immediately to take advantage of this option, and, therefore, I say that the people who will benefit under this scheme of option are the people in a large way of business; but the small investor, the person, who has used the Post Office, is absolutely put out of it altogether, and will not be—cannot be—in a position to take advantage of this option. Therefore, I think the point made by the hon. Member for Greenock (Mr. G. Collins) is altogether sound, that the larger financial interests are better served under this system of option than the small investor or the friendly societies or trade unions, who might be able to take advantage of conversion if given a little longer time, and if the terms were made a little more favourable.

There is one other point I want to bring to the attention of the Chancellor of the Exchequer. It is a difficulty with regard to some of the friendly societies who have the money of their members in the form of deposits. Some of them in their provident branches have deposits held on behalf of their members. The friendly society I have in my mind would be very glad to have the opportunity of putting £20,000 into this War Loan, but it is in the difficult position of not knowing, and it cannot know, until 31st October how many of its members will come along and take their small deposits, and thus deplete the available and liquid assets of the trade union for the moment, thus preventing them putting their money in the War Loan. 10th July is the last date on which they could take up a lump sum, but by 10th July they will not know, and they cannot know in many cases until towards the end of October, how much their funds are to be depleted by the withdrawal of the small amounts of their members.

They will be able to buy in the market.

They will be able to buy in the market, it is true, but for the moment, at least, the Treasury will be in the difficulty of not knowing how much it will be able to get from the Loan, and the Treasury are shutting out the opportunity of easily getting lump sums from societies which have them in liquid form, because their members may be withdrawing small amounts of £5, £10, or £15 from their deposit accounts. I nope the Treasury will consider this point, and also whether it would not be possible to extend the date of 10th July, and whether, again, 31st October is absolutely the final date they have in mind for the conversion.

I should like to join in the congratulations to the Chancellor of the Exchequer for the bold scheme which he has put forward, and the fair manner in which it was introduced yesterday. There is one point to which reference has already been made, which I think should rather be pressed. That is the extent to which this House really has any control over a big transaction of this kind. This, I suppose, is the largest financial transaction the world has ever known. I do not say there is no precedent, but here is the simple fact that we were told yesterday what was going to be done, and before this House rose the prospectuses were issued in the City, and practically our discussion of it was a dry formality. We had no voice—no control whatever over what was being done. It may be customary, but it does seem to indicate to me that this Assembly, which desires to have, and io supposed to have, supreme and complete control of the financial proceedings of this country, has practically no voice whatever in the decision of the terms under which the largest transaction the world has ever known should be undertaken. It does seem to indicate somewhat a weak place. Sometimes, no doubt, it is desirable that an issue of this kind should be made immediately, but I do not think there is any immediate need, say, for two or three days, in this particuar instance. I do not think three or four days would have made any difference whatever to the reception of this Loan. I do not think there was any room for much speculation after the announcement was made, and, after the announcement of what was contemplated, without making it binding, I think it would have been an advantage if this House had had an opportunity of discussing the matter rather more fully.

I ventured yesterday to put to my right hon. Friend, as did also the hon. Member for Windsor, a question as to the Treasury Bills. I hope to-day he may be able to say something on that matter. I do think it would be an advantage to the nation to secure as much of that money as it could as a permanent Loan. These bills are payable six, nine, or twelve months from the time they were issued. Some are payable in October. Under the conditions which will prevail under this Loan the holders will desire to have that money back. So much of that money as belongs to the bankers and others, and is used in the Money Market, might not I think be used in the War Loan; but I do know as a matter of fact that very considerable sums of money have been put by for other people into Treasury Bills, and they would put that money into the War Loan if they could do so. It may be said they can buy the War Loan afterwards.

They will be paid 4½ per cent.

That is so for a few months, but what would the Government get in return? They would get that money for at least ten years, and now they will have to pay it back. It may be said that when the bills run out the holders can invest their money in the War Loan, but the issue of the War Loan will have been closed, and they will only buy in the market from somebody else, and that will not be an addition to the War Loan. If you can get it in now it is additional money, and, therefore, I suggest that the Government should get as much as they can now. They must not ask them to double the subscription; if they do that, they cannot get the money. I suggest that they should accept these Treasury Bills on terms as subscriptions to the War Loan. With regard to the remarks which have been made about Consols, I cannot get the impression out of my mind that the transaction is rather too generous for the holders of Consols. We have committed ourselves, and it is all in the prospectus; but I hope it will not go any further than is absolutely necessary. At the time of the issue of this War Loan £100 of Consols were quoted at 66½, at 2½ per cent., and that meant a yield of £3 15s. per cent. They are to convert those and get £4 10s., and that means a gain of 15s. per cent. Those are better conditions than they are giving to the holders of what we call the old War Loan issued last year. The holders of that Loan have no such offer. They have a security, which, taking into account the redemption of the old War Loan, would yield them 4 per cent., and they now get 4½ per cent., which is a ½ per cent. more for ten years certain, but they have to pay £5 to get it, and £5 for ten years is just a ½ per cent.

But they get their £5 back.

They only pay it originally.

They are entitled to their £5 on redemption, but they are going to lose that. (HON. MEMBERS: "No!"] They were to get £5 as a bonus, so to speak, on redemption, and they are not going to get that now. I think the terms are better for the holders of Consols than to the holders of the old War Loan. I would like to suggest that the reason which is given for this transaction should not be that there is any moral obligation or moral right about it. It is suggested that the Government cannot leave British creditors in the lurch, but they are not doing that if they are paying them all the interest they have promised to pay. It was said that we must give the investor an opportunity to retrieve his position, but the opportunity of doing that is only given to the man who can double his investment, and that means that the weakest and the smaller people, to whom it was most necessary that they should have an opportunity of retrieving their position, are not able to do it. As a matter of fact they cannot do it, and therefore it must not be put on the ground of a moral obligation, because it is not being carried out with regard to those who cannot find the additional money. If it is to be put on the ground of moral obligation, and if it is suggested that if the Government did not give to the old holders of the bonds this privilege they would be leaving them in the lurch, that seems to me that it is a very far-reaching doctrine. If it is a moral obligation, it does not apply only to Governments. What about municipalities? They borrowed money at 2½ per cent. I know they have recently borrowed and have since had to pay a much higher rate, but is it to be a moral obligation on them that they are to put their old borrowings in the same position as the new ones? If not, why is it a moral obligation on the Government? This kind of thing will not end with the municipalities. Moral obligations apply to railway companies and to everybody else, and if this is to be the doctrine it means a complete revolution. Therefore I suggest that it should not be put on any ground suggestive of a moral obligation.

If it is done at all, it should be done on the grounds of expediency, and as a matter of business. That is the only ground, and not because you will not leave your creditors in the lurch. It is suggested (hat it is expedient to reduce your capital account, and that is a very substantial reason. By converting your Consols, you will reduce your capital account to one-third, and in years to come, when it will be easier to repay, you will have one-third less to repay, and that is a very substantial reason. A second substantial reason is that it will make it a condition that you are to subscribe for an equal amount of the Loan. You are going to get a very considerable amount of subscriptions that you would not otherwise have got, because you give them this inducement. You are also going to get the opportunity of paying all these Loans off at a much earlier date. Those are substantial businesslike reasons, although I am not so sure that they quite justify such generous terms. I think they are more generous than they need have been, but they justify some scheme of conversion, and they offer an inducement to convert. We should not admit, or even suggest, that there is any moral obligation about it. The right hon. Gentleman the Member for South Shields (Mr. Russell Rea) suggested that we can only provide this Loan out of the year's income, but he did not define what he meant by income. We could provide a good deal of it out of the year's production, if production is to be counted income, and that is getting nearer the mark. If the right hon. Gentleman means by income—wages, salaries, profits, and interests, it is not quite correct. We can provide some of this money out of the production of the year. Further, you can provide it by selling securities abroad.

At what price?

That does not matter, but securities can be sold abroad, and thereby you can get money out of capital in this country to put into the Loan.

To what extent?

It is not coming out of income. Part of this Loan will be expended in paying for imports, and you can pay for some of those imports by the export of securities from this country, The United States are making large profits out of the business done in this War, and their willingness to invest will increase, and some part of this demand can be met out of capital. It was suggested that taxes and loans are practically merely a matter of book-keeping. That is not so, because you pay interest on loans and you do not pay interest on taxes, and that is a very substantial difference. When you raise money by taxes you have got it once and for all, and you have no more to pay for it; therefore it is somthing more than a mere matter of book-keeping. It is suggested that you may raise too much by taxes. That is quite true; but the point really is, what is too much? I am not sure that we have got to that point. It was suggested that thrift should be made compulsory, and that we should compel subscriptions to the War Loan. Possibly the time may come when it will be necessary to do that, but you will not be able to compel subscriptions to the War Loan from the same class of people that you could obtain money from by taxation. Taxation will compel thrift, because you are bound to save to pay the taxes. You not only compel thrift, but you get for the nation the money that is saved by taxation. You cannot otherwise compel subscriptions to loans, and you cannot compel people of the smaller class to subscribe to loans. It is not possible to get the money from them in that way, although you can get it by taxation. I think you will have to tax all classes of the community more. As the Chancellor of the Exchequer said yesterday, it will never do for us to borrow money to pay interest.

The right hon. Gentleman who has just spoken began by saying that he regretted very much that this House had such little control over the financial affairs of the country. The right hon. Gentleman has, during the last few days, taken the opportunity of addressing us, sometimes from the Government side of the House and sometimes from the Opposition side. Now he has gone back again behind the Treasury Bench, and there he has discovered that this House at the present moment has very little control over the financial affairs of the country, and he wants to know what to do. I will give him a word of advice, and it is, trust the Government. The right hon. Gentleman went on to say that he saw no hurry for the issue of the prospectus, and he thought after the Resolution was passed it would have been better for the House to have considered for three or four days the actual terms of the prospectus. The right hon. Gentleman has had considerable experience in financial matters in the City, but I think, on reflection, he will see that in every Loan that I have ever heard of during the last forty years the terms have been discussed in private, and not in public until the day the prospectus has been issued. If that very wise principle is departed from, there would be tremendous speculation in the Loan, and it might be a failure, because all sorts of people would come up and discover little defects here and there, and all that would be discounted before the Loan would be issued.

It is evident, if you are going to have a Loan, you must allow a small number of experts to make up their mind what is the right thing, and then issue it to the public. If later on it turns out that it has been done in a bad way, then the right hon. Gentleman can come down and criticise the Minister. I think he will agree with me, on reflection, that he really must support the Government. The prospectus has been issued. I have spent twenty-three years in this House, generally in promoting discussion and opposing legislation. I am going to take a new rôle this afternoon. I want to ask the House what they think they really gain by discussing all sorts of small details and small points after the issue of a prospectus which cannot possibly be altered. I would venture to suggest, until we see what the actual result has been, that we all say that we trust the Government and that we pass the Second Reading of the Bill without any further delay. I am sure that is best in the interests of the nation which everybody on whatever side of the House he sits really desires.

I should have thought that the problem which the hon. Baronet (Sir F. Banbury) put to the right hon. Gentleman (Sir T. Whittaker) could have been solved in this way. We all of us sit on both sides of the House at the present time. [Laughter.] I do not mean at one and the same time, but every Member of the House is ubiquitous so far as sitting accommodation is concerned. I must confess that I have in my mind the same point as my right hon. Friend made with regard to the Loan. I could not understand personally what was the use of this House discussing these points which were beyond our control. I can understand the point made by the hon. Baronet opposite that we should not discuss the larger parts of the Loan, but surely there are small details on which the opinion of this House ought to be considered. I want to deal with the small investor and with the patriotic investor who put his money into the first War Loan. The right hon. Gentleman who sits for South Shields (Mr. Russell Rea) said that the Money Market was drained by the first Loan, and that we therefore required to offer better terms to get money now. I do not believe that. I do not believe that the Money Market was drained, and I do not believe that the facts bear out that conclusion. I believe that a great many people were waiting for better terms, and the proof of that is that the Chancellor of the Exchequer has put no limit to the amount of this Loan. He is going to take all the money he can get at 4½ per cent. in order possibly to try to prevent the necessity of coming again to the public and asking for money at a higher percentage. I do not agree with that point of view, and therefore, I think, that it is harder upon the poor investor and the patriotic investor who put in all the loose money he had into the first Loan, because mark what that investor has got to do now if he wants to secure equal terms with those investing in this new Loan. He has got to put up fresh money.

I want to ask the Chancellor of the Exchequer why the small investor who put all the loose money he had into the first Loan should be disentitled to the advantages of this new Loan unless he puts up sufficient capital. Why should he not get that advantage if he makes up the difference between his original subscription and the subscription required for this Loan? Take, for instance, a man who put in a few hundred pounds. That man would require to bring the equivalent of that subscription in order to get the benefits of the new Loan. Why should he not get the benefits of the nen Loan if he brings the marginal difference required to bring it up to that limit? Surely that is fair to a very large number of people who are not in the City. I believe I was guilty of the indiscretion myself of putting a small sum into the first Loan, and of being in the position now of not being able to put down any fresh cash for the new Loan. Why should I be put to a disability because I lent the State all the money I had?

You are not.

I would point out that I must bring fresh capital before I can get the advantages. I am suggesting that the right hon. Gentleman ought to have entitled us to make up the difference in the subscription between the first Loan and the second Loan to get the advantages of the terms of the second Loan. My right hon. Friend the Member for Spen Valley (Sir T. Whittaker) shakes his head, but he shakes the head of a big insurance company. I am pleading now for the small investor, and this Loan has been so constructed as to reach the smallest investor. You want the patriotic help of every man who has money in the Kingdom, and I am suggesting a way in which you will help yourself to get the money.

I should like to hear further reasons why the principle is laid down that it is to be possible at any future time to convert holdings in Consols and Annuities and War Loan into fresh Loan at what may be a higher rate of interest. We are paying 4½ per cent. for the money for which we are now asking. I do not know what the success of the Loan will be, and I suppose that nobody knows how long the War may last. It is conceivable that some time the Chancellor of the Exchequer may have to offer better terms than 4½ per cent. If everybody is going to have the right to convert, that saddles the burden of providing the interest on the shoulders of the taxpayers of this country. It is throwing the whole burden upon the community to the advantage of the financial interests. That does not seem to me to be quite fair, and I should like to know the reasons of the Chancellor of the Exchequer for the step he has taken. Supposing the War stops very much sooner than any of us anticipate—every one of us would be very glad to see it—and supposing we complete the task we have set out upon and achieve victory before we have spent all this money, then you are saddling the community for the next thirty years with a fixed charge which I do not think you have any right to do. I do not think that it is fair to throw that burden upon the backs of the community.

Of course, I may be wrong—I am not a financial expert—but these things have occurred to me as an ordinary Member of the House, and an explanation of them would help one to understand why the Loan is put in this way. Does not this fixing of a rate of interest at 4½ per cent. penalise industrial capital in this country? I have been reading the financial papers—I read them very closely, but I do not know that I always understand them, though I try to do so—and I notice that our export trade is declining. So far as I can gather, the balance of trade in this country is putting us into the position of a debtor nation. It may not be serious at the present moment, but we are approaching the stage at which we are becoming a debtor nation. One thing that would prevent us becoming a debtor nation sooner than we otherwise might is surely the maintenance of our export trade and the maintenance of our industrial activity in this country, and the maintenance of our industrial activity depends upon the capital that can be attracted to industry. If capital can find a better return in Government Stock at 4½ per cent., it will not go to our industries, and our industries will be to that extent stopped. It seems to me that is a point worth considering, and I hope that my right hon. Friend will deal with it.

I would like to deal quite briefly with the objection which was taken by my right hon. Friend (Sir T. Wnittaker), that by this procedure of producing the Loan after the Resolution and before the Bill we are depriving the House of any opportunity of criticising the Bill itself. I would suggest to my right hon. Friend and to the House that white it is unavoidable, as was explained so admirably by the hon. Baronet opposite (Sir F. Banbury), in the case of the issue of a Loan that the prospectus should come out immediately after the announcement of the terms, yet, notwithstanding, the Debate in the House, subsequent enough it may be, is not wasted. I would remind my right hon. Friend of what has already taken place in the course of the last few months in this House with regard to a Loan. Last November my predecessor asked the consent of the House to a Loan which had been issued as soon as the terms were published, and the House debated it. What did the House complain of? What was the whole course of the Debate? I remember the hon. Baronet opposite objected to the issue of a Loan below par. He said that he thought 3½ per cent. at £95 would not take with the public as well as a 4 per cent. Loan at par. That was the general view of the House. What has happened? The new Loan is issued at par. The Debate was not wasted. It is quite true that it cannot take place in relation to this particular Loan, which must be issued as soon as the terms are published, but the Debate is not wasted.

There was one other topic which was very fully discussed, and great emphasis was laid upon it, on the occasion of the last Loan. It was that the next Loan should not be limited to the minimum, amount of £100, but that opportunity should be given to the small investor. What have we done? We have endeavoured to meet that point and give an opportunity to the small investor. If this Debate discloses any new principle on which a Loan should be issued to the public the House may be quite confident that in the next Loan we shall learn wisdom from the advice which we receive now. I cannot say more than that, because it is perfectly apparent to anyone who really considers the business proceedings that once the terms are published the Loan must be issued.

No, no!

My right hon. Friend asks, What would it matter if you had two or three days' debate and deferred the issue? What does he mean by that? Does he mean that in the course of these two or three days' debate the terms may be varied and that the speculator is to watch the course of the Debate in the House of Commons and see whether A's arguments are more successful than B's and operate according to the success of a speech? My right hon. Friend knows that could not be, and he knows that once the terms are announced there can be no alteration. All that it would mean would be that we should be merely pretending, while the whole world would know that the terms were definite as soon as they were published. With regard to the actual issue last night, I would like to remind my right hon. Friend that no prospectus was issued until the Vote was taken in this House. It is true that the terms were announced by me before four o'clock, but the prospectus was not issued until the Resolution has been accepted by the House and the Bill had been introduced, and in following that procedure we were following the procedure which is time-honoured in the case of all taxes and loans. Questions have been put to me as to whether we are not treating rather hardly the investor who put up all the money he had in the old War Loan. Of course he is in exactly the same position as anyone else; he has to invest more money. He is neither better off nor worse off. Supposing a man has subscribed £100 of old War Loan, for which he paid £95. He must invest more money. My hon. Friend asks wiry not give him the benefit of conversion. Of course he can have it. He only has to sell half of his existing holding.

At a discount.

And with the proceeds of the sale he buys new stock, while the unsold portion is converted. The effect of the issue of this Loan has already been to send up the prices of the old War Loan Stock, and therefore, so far as selling a part of the stock is concerned, he is better off than before. With the money he gets from the sale of the War Stock he can apply for the new War Loan, and he can also convert the other half of his holding into new War Loan Stock. It is quite true at the end of the proceeding he will only have £100 of stock as before, but it will be in the new War Loan instead of the old War Loan. He will have had to pay an additional £5 in cash, because for every £100 of stock in the open market cash was subscribed, whereas for the old War Loan he only subscribed £95 for each £100. All he has to do is to sell a proportionate amount of Consols or War Loan Stock and to invest the amount in the new War loan, while the remainder of the stock can be converted as well.

But would that be possible for the small investor?

I should think it would be well worth his while to write a letter—it would only take him three minutes—to someone who would do the whole business for him at a small remuneration, and then he will have the advantage of a 4½ per cent. stock, instead of 4 per cent. I do not think there is the slightest doubt about that. My right hon. Friend the Member for the Spen Valley thinks that in this conversion the holder of Consols is treated better than the holder of old War Loan Stock. It is impossible to do mental arithmetic standing at this box, to the satisfaction of those that are listening, but I can assure my right hon. Friend if he will take a pencil and piece of paper and work the figures out for himself he will find that the rate of interest which the holder of old War Loan Stock gets upon the money which he has put up for the purposes of conversion is precisely the same as the rate of interest which the holder of Consols has to pay for the purpose of converting a like amount. The advantages to the two classes of holders are identical. I do not think it will be found that the rate of interest varies a sixpence; at any rate, what difference there is merely arises from the difficulty of getting an exact sum. The intention has been to treat both holders, so far as advantage is concerned, in exactly the same way.

My right hon. Friend objected to the use by me of the phrase that the British Government would not leave its creditors in the lurch. He argued that I had implied there was a moral obligation on the part of the Government to convert all stock whenever a new issue is made. No such argument should be deduced from the words I used. There is no moral obligation on a debtor who wants to borrow a second time to renew the old Loan at the rate he has to pay for the new Loan. There is no moral obligation of any sort or kind. But I am now wanting to borrow money, and the State, in borrowing, has to offer terms which will be acceptable to the new creditor. There can be nothing so acceptable, either now or at any time, to a new creditor as the knowledge that the money advanced to the British Government will be money invested in a good security, and the knowledge that considerations of this kind are borne in mind has a very favourable effect when we have to go into the Money Market to borrow afresh. I do not put it any higher than that. Subscribers are much more likely to lend their money with the knowledge that they will not be left in the lurch. My hon. Friend the Member for East Edinburgh (Mr. Hogge) has put three questions to me. He said he did not like our proposal to exchange, in the event of any future Loan, the stock issued under this Loan at par for the new stock. He thinks that is a benefit which should not be offered to the investor. A little earlier in his speech—

I agree I was inconsistent.

There is the difference between us. My hon. Friend in the course of Debate scores a point, and when it is shown to him that he is inconsistent he shakes his head and says, "I was inconsistent." But suppose in the issue of the Loan the Government made a mistake. It is no good nodding its head and saying it has made a mistake. What we have to do is to get the money. What does my hon. Friend say? He says, "Think of the position of those War Loan holders who were so patriotic as to invest all their money, while other people waited to invest their money until there should be better terms." It is true a great many did so. But I want to tell people it is no good waiting; there are no better terms available. There never can be better terms. I want the money. My hon. Friend may make a mistake. It does not matter in his case; he does not want the money. The Government do. They want it, and must have it, and this is one of their ways of getting it. Then my hon. Friend asks, "Why not allow the holder to convert by merely putting up the stock? He paid £95 for £100; why not let him convert on payment of the other £5?" But we are not converting for the sake of converting. We are converting because we want to make the person who converts subscribe.

Not a moral obligation.

Of course not. But I look upon it as an asset that the British Government will consider its debtors. It is an asset that the people should know that when they lend to the British Government they are lending on a security which is very favourable. Now that we want more money we offer conversion terms which are favourable to both the holder of the old stock and of Consols. They are also favourable to us, because they cannot convert without subscribing more money. That is why we will not take the other £5 to make up the £100, or £33 in order to make up the Consols. If a man wants to convert his Consols he must pay up £100 for every £75. It is no good offering to pay £33 for every £66; we want much more than that, and the only terms on which conversion can be made is that we get a very large public subscription. If the hon. Gentleman thinks that on easier terms the money could be got, then we have made a mistake. It would always be a mistake to issue a loan on more favourable terms than you need issue it. If an hon. Member has sufficient confidence in his opinion to be satisfied that we could have raised the money at once—if he thinks so without having made much more inquiry—if he thinks we could have done it on less favourable terms as to interest, or without including the right of conversion, all I can say is that I congratulate him upon being able to form a competent opinion upon very little data. The amount that we require is very large. There is no experience to guide us. All we can do is to form the best opinion possible in the circumstances and to use such inducements as we have, I will not say to compel but, to drive people to invest all their available money in the new Loan.

My hon. Friend also asks whether we are not penalising industrial capital. How can we help it? If we are not to penalise what he describes as industrial capital, how can we get the money that we require? Of course, the issue of any large Loan at a higher rate of interest forces up the general rate of interest, and the question obviously is, could we get the money at a less rate of interest? As I said yesterday, the investor in old War Loan Stock gets 4¼ per cent. How could we hope to get a large new issue floated at a less rate of interest? Then my hon. Friend says, "Suppose the War ended sooner than appears to be probable, shall we not be saddling the interest of this huge debt upon the country for thirty years?" No, we shall be entitled to repay this Loan at the end of ten years. But there is no reasonable prospect of that. We have already incurred very heavy liabilities on Treasury Bills. We have other liabilities which I mentioned yesterday, and to-day the excess of expenditure over revenue is such that it cannot be a very long while before we exhaust this Loan. For these reasons I do not think we have taken any imprudent step.

I trust I have answered all the points put to me. I sympathise with the House. If I had been sitting opposite I should have felt very strongly, as the House must feel, that a Debate of this kind, so far as it affects this Loan, must be to a considerable extent barren. I personally welcome the opportunity of being able to answer any questions that may be put with regard to the issue I was asked about Treasury Bills, and whether they will be taken in exchange for the War Loan. The Bank of England will be prepared, if the holder cannot do better in the market, to rediscount Treasury Bills at 4½ per cent. for the purpose of paying up calls, or full subscriptions to the War Loan, and the holder of Treasury Bills will be put in the position of exchanging his Bills subject to that discount for the War Loan. He will get 4½ per cent. on the War Loan, and therefore he will have to pay 4½ per cent. discount on the Treasury Bill. Only for that purpose will the Bank of England be willing to discount the Bill.

As I did not catch the eye of the Chairman yesterday, I should like to put one or two questions to the Chancellor of the Exchequer. I am very much indebted to the right hon. Gentleman for repudiating the suggestion that we should say nothing in this matter. I can quite understand the hon. Baronet the Member for the City of London (Sir F. Banbury) being desirous that little discussion should take place, on the principle of not looking a gift horse in the mouth because he, representing the City of London, no doubt represents some hundreds of millions of Consols, and as these Consol holders are to receive a free gift of £100,000,000, I can quite understand that he should not be anxious to discuss the matter fully or that it should be looked into too closely.

I do not represent any Consols, I represent thirty thousand most intelligent people.

They must include a large number of holders of Consols, because the Chancellor of the Exchequer told us that £400,000,000 Consols are held by Government Departments, therefore £400,000,000 are free, and no doubt the hon. Baronet represents a great portion of the £400,000,000 which is held in the City of London. I felt yesterday and feel today, that the Chancellor of the Exchequer has not made it quite clear why this provision has been extended to Consols holders. The right hon. Gentleman told us to-day that there was no moral obligation, but I do not understand the principle of selection. Consols, after all, were introduced many years ago, before most of us were born; but there are other obligations about which the same things might be said as are said about Consols and which have more or less a guarantee of the State, but which have not been selected. Some of them have been created in recent years. I refer in particular to Irish Land Stock. I cannot understand why Irish Land Stock is left out. If this is a great refunding measure, I do not see why Irish Land Stock, which has been issued since 1902–3, should not come within the purview of the same arrangement. Inasmuch as what is said to-day is going to be borne in mind in future, from that point of view I think it would be very dangerous if we are going to have other stocks included in this system of moral obligation. To what does it amount? Really to this: That the country is making a free gift of, or at any rate that the country will lose £100,000,000 on a transaction in regard to Consols. Let me make that perfectly clear. Every £75 of Consols may be exchanged for £50 of the new Loan. The revenue from that £50 of the new Loan will be 7s. 6d. more than from the old £75 of Consols; therefore, if we take £100 Consols, the revenue will be increased by 10s. by this transaction. If you capitalise this 10s. at twenty-five years, that is £12 10s., which is a free gift to the holders of Consols. There are £800,000,000 of Consols.

No, no!

Every Member can calculate the matter for himself. If my figures are correct there is a free gift of £100,000,000 to Consol holders.

I think my hon. Friend ought to correct one point. He must not take it that the gift is by the State. So far as the State is the holder of Consols it is only making a gift to itself. £300,000,000 is practically all that is left to convert.

Whether the balance held by the Government is £300,000,000 or £400,000,000, as I said at the outset, it is a present which will cost the State £100,000,000. Let me make that good. Say, for the sake of simplicity, that the public holds half, and on that 12½ per cent. is paid. On that basis 12½ per cent. of £400,000,000 is £50,000,000. What about the rest? If the Government Departments do not convert the Consols which they hold, is the value of the Consols which they hold going to be what it is to-day—£66? Nothing of the kind. The value of the Consols is going to fall to something like £55, or from 10 to 12 per cent. There, again you have a loss of between £40,000,000 and £50,000,000, and if you add that to the £50,000,000 which is a present, you get the cost to the State of £100,000,000. I do not agree with the hon. Member for East Edinburgh (Mr. Hogge) that the Chancellor of the Exchequer should get no reward for his generosity. The hon. Member suggested that the amount might be made up and that you should get conversion by repaying the balance that is due. I do not agree with that at all. If the Chancellor is so generous he should get something for his generosity. But I do sympathise with the hon. Member when he suggests that he would like a subscriber to this Loan to get the benefit of this vast gift by the State. Had the Chancellor of the Exchequer not included Consols he would not have had to pay this vast sum of £100,000,000, and he could have used the £100,000,000 to make terms with the subscribers to the new Loan which would be more favourable than they are to-day. I may be mistaken, but that is the way the thing represents itself to me. It was quite wise for the hon. Baronet the Member for the City of London not to go too closely into details of a transaction of this kind. I may be mistaken. I was very anxious to put the point yesterday, but I had not the opportunity, and I put it now only because the Chancellor of the Exchequer has himself encouraged us to bring out points which may be of service in the future. I entirely agree with the hon. Gentleman the Member for the Spen Valley (Sir T. Whittaker) that there is no moral obligation whatever to make these payments, that the cost to the state of £100,000,000 is a very serious one, and that the £100,000,000 might have been used in making the terms to the present subscribers more favourable.

I desire to ask the Chancellor of the Exchequer one question. It is highly desirable that he should get all the industrial capital he can at the present time. There are many companies and corporations who will give him all the available cash they have for the purposes of this Loan. Can he give an assurance to those companies that they will not be called upon to subscribe to any forced Loan for at least twelvemonths if they subscribe a fixed proportion of their assets? The reason why I ask that question is that many of us have seen that the War is going to last a very considerable time and have accumulated large balances in the companies with which we are associated. We want to give the Chancellor of the Exchequer all those balances. If we give him all our money now, and if we are called upon at a later date to subscribe to a forced Loan, we shall have no money to meet the forced Loan.

We have had some very interesting speeches from highly qualified financial authorities this afternoon. I have no claim to follow them, but I would ask the House to listen for a few minutes to a view of the matter as it strikes an ordinary Member who knows little indeed about high finance. The first thing that occurs to my mind is that we are to appeal to the country to join in this Loan for patriotic reasons. I do not think it is a very patriotic thing to lend money on the very best security in the whole world at a good rate of interest. I do not want investors in this Loan pharisaically to lay credit to themselves for any undue patriotism. My right hon. Friend the Member for the Spen Valley (Sir T. Whittaker) made two or three points which impressed me a good deal. The Chancellor of the Exchequer has no doubt replied to them, but he has not satisfied me that there is nothing in the argument as to the Consols holder getting better terms than the old War Loan holder. However, I will leave that case. The other point made by my right hon. Friend the Member for Spen Valley was that the House of Commons has had nothing whatever to do with this Loan. We have not been consulted about it at all, and it was arranged over our heads. I know that that point was met by the Chancellor of the Exchequer, but it is nevertheless true that the whole thing has been done by the Government. The fact is that the ordinary Member of this House now might almost as well be eliminated. Everything is done by the Government. We have all the wisdom of both sides of the House now concentrated on the Treasury Bench, and the ordinary Member of the House of Commons has nothing to do with it. The Chancellor of the Exchequer said it could not be helped and that it was necessary. No doubt it is, but the fact is there all the same.

I was told that the moment this Loan came out all ordinary securities would fall. I do not know whether or not they have; probably they have. Therefore the Government, by its proposal, has actually had the opportunity of making us all poorer than before their proposals came out, and we have no possible chance of hindering them except by voting against the Second Reading of this Bill, which I, for one, shall not do. It is the growing habit of the Government—indeed, of all Governments—to push out the House of Commons and to let them have less and less control over what they are doing. If this were the proper time I could easily argue that the War itself has been brought about without any individual Member of the House of Commons having any influence whatever over it. The point as to whether taxation is preferable for us is one which I should like to hear discussed by competent people. It seems to me to have great advantages. I know that it is possible to overtax the community, and I am afraid we shall get pretty near the border line before we are very much older. But taxation is really shouldering the burden, and it brings home to the nation the gravity of the situation in which we find ourselves. What are we actually doing now? We are only imposing the duty of paying for this War upon unborn generations.

We are paying 5s. in the £ Income Tax.

I meant by this Loan. I do not say there will be no new taxes. By this Loan we are really handing over the responsibility of paying millions of debt to posterity. I remember that the Prime Minister used to boast very justly that during the time of his Government they had paid off £100,000,000 of debt, and we were all very proud of the fact, but now we are going to put £1,000,000,000 on to the National Debt, and I dare say there will be more. I am wondering what posterity will say to us. I have seen it argued by a very eminent writer, one who used to be called an economist, that if the National Debt gets too big or too old the population may some day rise against it and say, "We had nothing to do with contracting this debt; it was done ages ago by people to whom we owe nothing—our very distant ancestors—and we repudiate it and decline to pay the interest." If you make the Debt big enough that is a likely enough thing to occur some day. [Laughter.] Oh, it is, indeed! So far as possible I want this generation to bear the burden which this generation has brought upon the nation.

I wish to offer a few words of congratulation to the Chancellor of the Exchequer on the reception of his proposal. No doubt the statement yesterday relieved a great many heavy hearts and dispelled some very serious doubts. We are spending about £3,000,000 per day in defence of the broad acres of this country, its City gold-mines, its coal-mines, and all its natural wealth, and there was great fear that the Chancellor of the Exchequer might come to those who have these vast possessions and say, "As a matter of insurance I am going to tax you to the bone, so that the fate of those who have to go to the soup kitchen or the bread line in Belgium shall not be yours." He has dispelled that fear. He has found a better way. He is going to the man of great possessions and he says, "I am going to take nothing from him; I am going to borrow something, and every penny piece of what I borrow I am going to restore, and meanwhile I am going to pay you an unprecedented rate of interest for such a security. Out of the War you are going to make increased riches; you are going to suffer not at all." That is the position that the Chancellor of the Exchequer is putting before the man of wealth. He says, "I will not take your wealth by taxation in order to save it from possible taking by invasion. I am going to borrow your wealth and I am going to pay you an unprecedented rate of interest for it." That is the position which has been created by the proposals of the Chancellor of the Exchequer. I am going by way of loan, he says. He is taking not at all from the rich, but he is making the rich richer than before. He is giving by way of bonus to Consol holders, my hon. Friend (Mr. Molteno) says, £100,000,000 or £50,000,000, but I want to know the exact amount. A vast bonus is going in that direction, and for that reason I think the House should have had more opportunities to discuss this question, because it appears to me that if this huge bonus is going to the City and to Consol holders, the suspicion arises that the Consol holders in the City have blackmailed the Chancellor of the Exchequer in relation to this Loan. They are in a position to say, "If you do not give us this bonus we can make your Loan a failure." I want to know, further, whether it was good business. I cannot see where the good business comes in in the grant of this vast sum to placate Consol holders and induce them to re-subscribe. I merely make these few remarks in order to place on record my views of the significance of these Loan proposals in so far as they obviate as far as possible taxation when taxation should be paid.

I think my hon. Friend can hardly remember that rich men are paying 5s. Income Tax on every sovereign they receive. Rich men have been taxed to a very considerable extent so far. They are paying 5s. in the £, instead of 1s. 2d. I do not know of any great tax upon any article of consumption by which the poor are paying anything like that proportion of taxation. The hon. Member when he gets up to speak always says that the War expenditure is for the benefit of those people who have large estates and large property. The hon. Member, like other good Radicals, has always advocated One Man One Vote, the great argument for which was that the poor man has his all at stake and the rich man cannot have more, and the poor man has a stake in the country as much as the rich man. I have used the argument myself many a time. I think it is a good argument that the poor man has his all at stake and therefore ought to be called upon to pay a fair share of taxation for the benefit of the country. As far as the Loan itself is concerned, I have no data to go upon, but I think myself that with a 4½ per cent. Loan the right hon. Gentleman would have got all the money he required without any of these helps to Consol holders or those who took the old Loan up. The old Loan was issued on fair terms at the time, and I do not see that there is any obligation to help those people who subscribed to it. Most financial people, no doubt, would desire to lend money at a fair quid pro quo, and I think a plain and simple 4½ per cent. Loan without any conditions whatever would have been quite sufficient.

Will the House allow me to take the Committee stage to-day?

I do not wish to stand in the way of the Chancellor of the Exchequer, but he will remember that he had a special Motion yesterday to allow two stages of the Bill to be taken in one day.

I beg to move, "That the Bill be read a second time."

This Bill, which I commend to the House, deals with a very difficult and complicated side of our difficulties, namely, the question of trade passing through neutral countries which may eventually reach an enemy destination, and it is quite obvious from questions which have been put by hon. Members on both sides of the House that they are very well aware that, notwithstanding all that has been hitherto done and the measures which have been taken, there still are a certain number of consignments exported from this country to neutral countries, and particularly those neutral countries which are in contact with enemy countries, which do in one form or another find their way through the neutral country and so reach the enemy. The object we have is to prevent that in every possible way that we can. The whole subject of legislation in regard to trade in war divides itself under two contradictory principles. The first is that we desire, as far as possible, to prevent any goods from reaching the enemy, and the second is that we desire to maintain our own trade as far as possible, but I think the House will agree that during the War the first consideration must over-ride the second, and it is our first business to prevent any goods from reaching the enemy. But I think the House will also agree, subject to that, that we desire to interfere as little as possible, and to extend as much as possible our own trade to all neutral countries. In order to give effect to these principles, the War Trade Department, under Lord Emmott's presidency, has been created, and the method in which that Department works is that under the Acts passed by this House prior to and since the commencement of the War a very large number of articles have been prohibited from being exported, in some cases to any country, and in some cases to particular countries, and particularly the countries which border on Germany or on Austria.

Those articles under the prohibited list can only be exported to those countries under a licence granted by the War Trade Department. I have here a list of twenty-four pages long, showing what a very large number of articles have already been included in the prohibited list, and that involves the issue of licences in respect of all these articles, and the consequence of that is that there is some considerable delay in the exportation of goods, and further than that, the delay involves congestion at the ports, which is a great difficulty at the present time. Therefore it is desirable as far as possible to simplify this trade and at the same time it is necessary to extend this prohibition because we find that even now, with all this list, there are still articles going through neutral countries which eventually find their way into Germany and which it is desirable to prevent. But if we indefinitely add to the prohibited list, it will increase the congestion at the ports, and also overload the Committee which is charged with the issue of licences. The real difficulty comes when these articles have reached the neutral country. It is impossible for us here to control the final destination of these articles when they have once reached the neutral country, and all that the War Trade Department can do is, in regard to each consignment in respect of which they issue a licence, to investigate as far as they possibly can the character and standing of the consignee in the neutral country. That, of course, is a very difficult thing when you come to investigate each individual application for a licence. If we practically add everything to the prohibited list and throw upon the Committee the burden of having to make this investigation in every case, that must cause delay. There has been the development recently that not only have British traders been inconvenienced by this procedure, but the traders in neutral countries are also inconvenienced, and in Holland this inconvenience was particularly felt, and certain merchants and traders in Holland formed themselves into an association which is called the Netherlands Oversea Trust, and that association undertook that they would be responsible to see that neither goods delivered to them under licence by the War Trade Committee, nor any product manufactured from them should reach an enemy destination. That system has been in operation for some considerable time, and has been found so far to work satisfactorily. The whole operations of the Netherlands Oversea Trust are subject to the examination and supervision of the British Consul in Holland. Of course, as the House will understand, it is absolutely impossible for me to stand here and say that even such an arrangement as that is absolutely watertight. I should not make such a claim, that it is necessarily watertight, but from what we know of the character of the Netherlands Oversea Trust, and from the investigations which have been made by the British Consul and the reports which we have had from him, we believe that they have hitherto kept their obligations. What we now desire to do, is to extend this system beyond the prohibited licensed goods, and to extend it to all goods which go to Holland. With that object in view, the Netherlands Oversea Trust were approached and asked whether they would undertake to be responsible for all goods sent to Holland, if they were consigned to them, and they have given the undertaking that they are prepared to accept consignments to them of all goods exported from this country to Holland, and be responsible for seeing that they do not reach an enemy destination.

Therefore, what we do under this Bill is to extend the powers which have already been given by the House, and which, first of all, will enable us to prohibit the export of any goods; and which, secondly, entitle us to confine that prohibition to one or other particular country. We desire to extend that to a third point, namely, that we may not only prohibit any goods going to any particular country, but that we may prohibit them going to any particular country except to a particular consignee. That is really the whole point of the Bill. What we propose to do if the House will assent to pass this Bill is, in regard to Holland, to immediately issue a Proclamation prohibiting the export from this country of any goods to Holland, except such as are consigned to the Netherlands Oversea Trust. When that is done it will mean that no export trade can be carried on from this country to Holland, except under consignment to the Netherlands Oversea Trust, who, under the system which I have already described, will be responsible that that consignment does not, either in the form in which they import it or in any other subsequent form, reach the enemy. The Bill does not deal with the one particular country of Holland, because it must be obvious to the House that the same considerations which apply in the case of Holland apply to other neutral countries. It may be that the importers in other neutral countries will see the advantage of this system and will desire to form similar associations. If that be so, without coming to the House for further authority, we shall be able to make the same kind of arrangement with those associations in other neutral countries that we now have been able to make with the Netherlands Oversea Trust in Holland. It is very desirable, if possible, to issue the Proclamation at the earliest possible date. The Proclamation is ready. I do not know whether it will be the wish of the House to pass the Bill through all its stages to-day, but if they realise the necessity for immediate legislation, perhaps they might give us the Bill in all its stages to-day, and we should be able to get the Royal Assent with a batch of Bills on Thursday, and the Proclamation could be immediately issued. We should then be in a position to stop trade which is now passing through Holland into Germany, and the sooner that is put an end to the better.

The Bill deals only with export trade from this country, and has nothing to do with contraband. The question of contraband, as the House knows, is the question of goods exported from one neutral country to another, which may reach an enemy country. This Bill does not deal with that special case at all. It deals only with the question of exports from this country to a neutral country, which may reach an enemy country. The House will notice that in the Bill there is a heavy penalty imposed. In a former Bill, passed at the end of last Session, dealing with a similar question, the penalty on anybody who infringed the Act and exported goods to an enemy country was as low as £100. I am sure hon. Members will agree as regards a penalty of £100—or, indeed, any purely money penalty—in dealing with such matters where the price in Germany of certain articles, such as rubber, for instance, may be ten or twelve times, or five or six times what they are here, that the amount of money that could be made on a cargo would make such a fine quite ridiculous. Therefore it is proposed in this Bill that the penalty should be a money penalty of £500, with an alternative at the discretion of the Court, of imprisonment up to two years. I hope that that will be sanctioned. There is a further point, and that is: that there is a penalty imposed by this Bill, not only upon the exporter, the consignor, or shipper of the goods, but upon the shipowner, who knowingly carries any such consignment. That is necessary for reasons which I do not need to go into, and which are rather complicated.

That brings me to the last point, namely, that the machiney of this Bill will be worked through the Customs and Excise. The Customs Department has been very fully consulted about the Bill, and as every consignment of goods that leaves this country has to pass through the Customs, it is best that the machinery of the Bill should be carried out by that Department. It would not be wise to discuss the question of that machinery, but it has been fully considered, and as soon as the Proclamation is issued that machinery, under the Customs Department, will be immediately set in operation, and every consignment which goes to Holland and passes through the Customs will, without any delay, be dealt with by the Customs officials. As under existing Acts penalties against shipowners who infringe the Customs regulations, by shipping prohibited goods, are levied under the authority of the Customs, and the prosecution is inaugurated by the Customs authorities, that procedure will be followed under this Bill. That is why the two Clauses are separate. Proceedings against a shipowner will be carried out by the Customs officials, and proceedings against a shipper or consignor will be carried on in the ordinary Court. I believe that if this system is put into operation it will have a very considerable effect in the prevention of trade which is how, I suppose, in nearly all the cases, without the knowledge of the shipper or the desire of the shipper in this country, going through neutral countries into Germany. If the House is good enough to accept the Second Reading of the Bill now, and, I hope, to give the remaining stages to-day, we shall be able to issue the Proclamation on Thursday, when the Royal Assent has been received, and put the machinery into motion at once.

I congratulate the right hon. Gentleman upon the fact that the first speech he has made from that Bench is in introducing a Bill dealing with a matter of such urgent importance as that which he has brought to our notice. He has told us that the Government are now satisfied that we are supplying the enemy, and that it is necessary to provide measures to stop the enemy being supplied; and so urgent is it, that all the stages of this Bill are asked for to-day. As far as I am concerned, I heartily support the Bill, and I am glad that the Government have brought it in. I need hardly say that it would have been more welcome if it had been brought in a long time ago. I am a little doubtful whether the purpose which the right hon. Gentleman has in view will be fully accomplished by the Bill as it stands. In effect, the Bill really does one thing, and one thing only: it simply says that the goods that are to be exported in future are to be exported to an approved consignee. That is, instead of each individual merchant being allowed to make his own separate transaction in regard to exports from this country, the Government will have an approved list, and only the consignees on that approved list will be allowed to receive the goods that are so exported. That, in my opinion, does not completely deal with the difficulty. We practically have that in existence at the present time. In regard to the exports that have been sent to neutral countries—finally going into Germany, as it is now admitted by the Government, although we were told in March last that the whole question had been successfully grappled with—the consignors have, up to the present day, taken upon themselves the responsible obligation which the right hon. Gentleman provides for in this Bill; because they have undertaken that if they are allowed certain cargoes, so far as they are concerned, they will not dispose of them outside the neutral country to which they are sent. How has that been got over? Simply by the person who is getting the goods selling them to another merchant in that particular country, who is in no way under the obligation which the original merchant was under. That is why the whole machinery has been absolutely futile. The thing has been going on openly, and the Germans, to a large extent, have been laughing at us for the statements that have been made over here that practically nothing is going into Germany.

There are many matters which will be covered by this Bill. There is the question of coal, there is the question of sugar, and there is the question of tea. Sugar, I suppose, will not be so much affected, but tea and cocoa will be affected, because, as I have time after time demonstrated in the House, tea and cocoa was going into Germany. I hope something will be done as a result of this Bill to make that impossible. One very important question to which I wish to draw attention is how far this Bill will affect cotton cargoes going to the enemy. I put before the House the other day exports of cotton to neutral countries, which undoubtedly, and it is practically admitted, finds its way into Germany. Not less than threefold in every case has been the increase in the exports. This Bill may do something to deal with that matter. I think there is only one way of dealing with it, and that is to prohibit the export of cotton altogether. I do not think the Government have seriously up to the present time realised the very urgent importance of this matter. Cotton, as the House knows, is the raw material for ammunition, and Germany is supposed at the present time to be using not less than 1,000 tons a day. At the beginning of the War her stock of cotton was estimated at 250,000 tons. Two hundred and fifty thousand tons would practically have been exhausted by this time, but enormous imports of cotton have been allowed to go into Germany, and that has enabled her to make all the ammunition she requires. I am bound to say that the Government have been very slow to deal with this matter. I know there were difficulties; I know the replies we have had from time to time. We have been told Germany had enough cotton, and that therefore we need not interfere. I think that that was a most extraordinary statement, because it presupposed the length of the War, and practically said she could have as much as she required. Then we were told that she would be able to get a substitute for cotton. That has not been proved up to the present time in the making of ammunition. The importance of cotton is its regularity and you cannot get a substitute for it, so far as I know, up to the present time. Why have not the Government stopped the export of cotton, as I hope they will do as a result of this Bill, once for all? It is a matter affecting the position of the enemy, and may have involved thousands of our brave men's lives. I know that probably there are diplomatic considerations in the eyes of the Noble Lord who represents the Foreign Office here, and no doubt he ran tell us that in matters of this kind we are to consider other countries besides the particular countries who are importing the cotton.

What were the imports of cotton into Austria and Germany before the War? Probably about £30,000,000 a year—certainly not more than £40,000,000. What is that in a great war of this kind? Suppose that we have to consider the American cotton grower. All he was concerned with was to get the best price in any possible market. Would the country have refused to pay £30,000,000 to buy up the whole stock which Germany and Austria would take? Nothing of the kind. It would practically represent one week's expense of the War and have prevented any cotton at all from going into Austria or Germany. I believe that if the Government had taken up a very strong course months ago the whole position of the War at this moment would have been entirely changed. That is the opinion not only of myself, but of experts of the highest standing. At the present time, practically, I am told that there are not enough of warehouses in Copenhagen to provide for the bales of cotton there, and that whole streets are filled with bales of cotton on their way to Germany. That is a very serious state of affairs. I would ask the Government to consider with regard to this Bill whether the whole question should not be dealt with by complete prohibition. I believe that American views on the matter could now be reconciled very easily. I think that they could have been reconciled at the beginning of the War simply by the purchase of the whole output, and I would appeal to the Noble Lord who represents the Foreign Office as to whether he cannot give us some assurance to-day that the Government may be willing to go much further even than this Bill in order that they may practically stop the supply of all ammunition to the enemy.

I would like to say that I am in entire agreement with what has fallen from the right hon. Gentleman opposite, as I generally have found myself during the discussions on various matters arising out of the War. I do feel, and I believe that the country feels, extremely strongly about this matter of cotton. I do not believe that I am going the least bit too far in saying that the neglect of the British Government on this matter of cotton has been directly responsible for a prolongation of the War which cannot be measured, and for a loss of life on the part of the Allies which never can be measured, and it is continuing the neglect, as the right hon. Gentleman pointed out, and I hope very much, now that we have a new Government and also perhaps that experience has taught us all that some definite strong action in this respect will be taken, that some Member of the Government will take the opportunity in the Debate on this comparatively small Bill to give us an assurance on the subject which will quiet the apprehensions that are felt both in this House and in the country. When my hon. Friend opened the Debate on the Second Reading he left one matter in considerable doubt in my mind, and perhaps in the minds of others who heard his speech. I understood him to say at the outset of his remarks that the machinery for carrying out this Bill would be in the hands of the War Trade Department. Towards the end of his speech he told us that the machinery would be in the hands of the Customs authority. I hope that whoever speaks at a later stage for the Government will explain to the House exactly the functions of the Customs Department and of the War Trade Department, and how they dovetail into each other, because it seems to me that there is some danger of the various authorities which are being set up, and the various wheels of the great machine which is working these various provisions, lacking in efficiency owing to overlapping or to deficiency in marking out the functions which each has to perform.

My hon. Friend began by saying that the War Trade Department was to be used for the purposes of this Bill. The War Trade Department appears to be a rather mysterious body. I had some curiosity with regard to this Department and its personnel, and some days ago I put down a question on the subject, addressed to the President of the Board of Trade. I received an intimation that my question should have been addressed not to the Board of Trade but to the Secretary to the Treasury. Thereupon I addressed my question to the Secretary to the Treasury and put it down for yesterday. The question was to relieve my curiosity on this point: who were the persons in charge of the duties of this Department? What were their ages, and what were their business qualifications? The reply I got from the Secretary to the Treasury was:

"I am sending the hon. Member a copy of the notice issued to the Press on the formation of the Department."

Of course, when I got that reply, knowing nothing as to what the notice to the Press was, I had no opportunity of seeing how far it was an answer to my question, but I have now got the notice to which the right hon. Gentleman refers, and it is no reply whatever to the main part of the question which I addressed to him. I hope in the course of this Debate that as this Department is involved we shall be told who are the persons who are carrying out these very onerous and very important duties in connection with this subject, and what are their qualifications.

The notice which the Secretary to the Treasury sent to me as an answer to my question begins by saying that the Treasury announce—not the Board of Trade—that in view of the complexity and volume of work involved in dealing with export and import licences, and so on, showing that they quite recognise, as we all recognise, that it is a work of great complexity and volume dealing with a subject which, as the speech which we heard on the introduction of the Second Reading to-day shows, I the Government recognise as one of very great importance and which the country, I think, recognise as being even more important than the Government consider. In answer to my question as to the personnel, I am told that Lord Emmott has consented to act as director of this Department, and that Sir Nathaniel Highmore, K.C.B., will be the secretary. Nothing is said about their qualifications or their ages. Later on we are told that the work relating to the movement of funds and other questions with which the Treasury is mainly concerned will be transferred to the Treasury and will be performed by Sir Arthur Thring, K.C.B., Parliamentary counsel, and his staff. So far as this information goes and I cannot think it is a full answer to my question as to the personnel of this Department, but if it is, and the Secretary to the Treasury tells me that these duties fall upon Lord Emmott, Sir Nathaniel Highmore, and Sir Arthur Thring, I would like to know whether or not Sir James Harrison is concerned with this Department, and, if not, is there anyone else?

I have nothing in the world—none of us have—to say against Lord Emmott. I have no doubt that he is a most amiable and worthy peer, but I would like very much to know what are his qualifications for being, in time of war, head of a great Department, dealing with the most intricate and critical matters of the commerce of this Empire. I am quite open to instruction on that point. Then as to the secretary, Sir Nathaniel Highmore, I have nothing in the world to say against him, but I should have thought that the secretary to this Department should have been a man who would have been described by the Minister of Munitions as a man of push and go. I should have thought that it would be well to find youth and vigour in this Department, yet I am informed—I do not know whether my information is correct or not—that the secretary has the misfortune to be a man of over seventy years of age. Then we have Sir Arthur Thring, a most excellent and able man; but here we have this Trade and Commercial Department, dealing with these intricate and critical matters of the export and the import into this country during the War, consisting of a peer, a politician, and two lawyers, and possibly an ex Civil servant. Not one single man in that Department has any knowledge, training, or experience in commerce or trade.

Surely that is a very extraordinary state of affairs for a Department of this sort. I do not know whether the Government can possibly give any explanation of that. I think that it is a very serious matter. If the Government is seriously intending to carry out the business which this Bill gives power them the power to do through the machinery of a War Trade Department, it is perfectly ludicrous and futile to have such a personnel as that which I have described upon the information given to me yesterday by the Secretary to the Treasury, and I think that the House and the country will expect that the Government, if they are going to show seriousness in this matter, will entirely reconstruct this Department. If my hon. Friend likes to have a Gentleman from the other end of the Corridor, wearing a coronet on his head, to preside over the Department, I do not know that anybody will object, but, in the name of common sense and of all that is serious, let us have a Department or a Board which shows youth, vigour, experience, and training in the duties which that Department has to perform, and do not let us have the futile absurdities of putting together two or three old men whose only qualifications are a half obsolete knowledge of law and a recollection of some services rendered in a Civil Service Department.

(indistinctly heard): I have had some intimate connection with the War Trade Department, and I am bound to say that in the little which I have had to do with regard to the licences I seldom came on anything quite so chaotic. That is the very great danger which the Government have got to meet. I admit that it is a difficult subject. There are certain things which, in my humble opinion, the export of which ought to be stopped. Among these are lead, nickel, antimony, high-speed steel, and castor oil. Castor oil is very largely used in aeroplane work. Tons go forward to Sweden under licence, while Sweden hardly uses any of it. It is the same in regard to high-speed steel. I admit that in regard to ore there is a very great difficulty in regard to Sweden, because we import a great deal of Swedish, steel, and they cannot produce that Swedish steel without a certain mixture of ferro-manganese. But there is no doubt that a tremendous quantity of ore has reached Germany through Sweden and Holland and some from this country. Thousands of tons of ore have gone through Holland. There is not a blast furnace in all Holland, so that that ore must have gone through to Germany. There is no pretence for saying that it goes to Holland, for there are no blast furnaces in Holland in which they could use it to make steel. I would recommend my right hon. Friend that this Department should get some smart men in the City who know Scandinavian business, who know the merchants in Scandinavia, and the sort of things they deal in. I believe that such men would prove very valuable, and it is all the more necessary that such appointments should be made when it is recollected that in Scandinavia there are only four British Consuls who are British subjects. Those four Consuls are at four different places, including Stockholm, Malmo, Christiania, and Gothenburg. These are the only four Englishmen who hold those posts, and therefore when licences are applied for by dealers there is reference to the Netherlands Overseas Trust and the Government.

It would be all very well if the Govern-were responsible, and would hold themselves responsible, to see that goods were not exported again. What happens? The enormous profits which can be made are a great temptation, and food-stuffs, metals and ores have been passing through to Germany. That will never be put a stop to until you get attached to the War Trade Department men in the City, who, familiar with the Scandinavian, Danish, and Dutch Trade, have some home knowledge of the various dealers and merchants, the extent of their trade, and their usual manner of carrying on their trade. To appoint a very old Civil servant as secretary, though he is a very charming man—I know him very well—is unsuitable. What knowledge has he of Scandinavian business? What does he know about it? It is the old story. People apply for a licence for some goods to be supplied and the application is kept hanging about for weeks until someone takes the bull by the horns. A few days, or a week or a fortnight at the outside, ought to be sufficient. Every assistance should be given where goods are being sent bonâ fide, and which cannot by any possibility reach the enemy, and the licence should be granted promptly.

In the case of the War Risk Department, which has been a very great success, the Government placed the offices in the City, where it was in touch with the merchants. Instead of being at a distance from the City, this War Trade Department should be nearer the Custom House, through which all the licences go in the first instance. We have had some prosecutions for trading with the enemy. I am not sure that something might not be done in that direction. I know of a firm resident in Boulogne, who have their transmitting agents in London, and an agent in Sweden. Observe what is done. Ore is shipped to Holland, and to facilitate operations this firm has an agent in Sweden, who draws upon a London house, and the London house makes the money arrangements for this shipment of ore to Holland. As I have pointed out already, Holland uses none of that ore, and it goes up the Rhine to Essen, or elsewhere. If a London firm, no matter who they are, have financed or assisted in financing a shipment to the enemy, they come under the Defence of the Realm Act, and ought to be prosecuted. With regard to food supplies, we have shipped something like £4,000,000 worth in one month to Holland and Scandinavia, and with regard to high-speed steel very large quantities of it have gone forward. I am glad to think that a shipment of ferro-manganese was stopped. It comes back to this, that you will never get this War Trade Department to work this Bill with any satisfaction to the country until you get associated with it some men who really know Scandinavia, who know the trade, and who know the various traders, or can immediately decide what to do. Until this is done you will have no satisfaction. The whole country is seething with discontent at the ridiculous way in which licences have been held up. Men who have no notion of this business cannot protect you; they must have men who know the inside ropes of the various countries, and have the means of finding out who the people are and what is the character of their transactions.

This is an effort to meet the difficulty which we have encountered of supplies getting through to the enemy. In regard to the Netherlands Overseas Trust it apparently consists of a number of firms in Holland, and gives a guarantee. I do not know whether the firms who compose that trust are individually responsible, or whether the trust as a whole is responsible in regard to the guarantee. The Netherlands Overseas Trust may perfectly well agree to promise that the goods that are sent out shall not be sent to the enemy; but how are we possibly to assure ourselves that the goods sent out will not after all get into the enemy's country. There is a considerable amount of goods at present in Holland, and if these goods are retained in Holland they can be sent forward into Germany for the benefit of that country when a similar amount of goods is shipped into Holland, and, therefore, Germany would benefit exactly as much as if we had sent the goods, not to Holland, but direct into Germany. If there is not some provision that these people will not forward similar goods into Germany, then they might as well be sent direct to Germany. I hope, if such a thing can take place, steps will be taken to prevent it. I merely point out this danger, and I hope it may be avoided.

I desire to say a few words in support of the contention put forward by the right hon. Gentleman (Sir H. Dalziel). In regard to cotton, I urge the Government to prohibit its export entirely; they have the power to do that under the Act. Everyone knows the importance of cotton to a country engaged in war. It is a notorious fact that Germany had not an enormous stock of cotton when the War broke out; she had only a stock to last 250 days, having made her arrangements on the basis that the War would be short. If the export of cotton had been prohibited, and Germany had been precluded from obtaining supplies of cotton, her stock would have run out. Though ten months have elapsed since the beginning of the War, I think it would still be well to prohibit the export of cotton entirely than not at all. The right hon. Gentleman constantly urged the Government to take action in regard to cotton, and again and again they have deferred it. If they remedy the matter now they will have acted in a wiser manner than if they continue the policy which has hitherto been adopted. It is the duty of the Government to stop hereafter cotton going into Germany.

I had not the opportunity of hearing the whole of this Debate, but I would like to make a protest respectfully against one remark which fell from my hon. Friend (Mr. J. M. Henderson). Although I think in some respects the War Trade Department is open to criticism, yet it is dealing with most difficult questions, and the heavy duties it has to discharge are necessarily of an embarrassing character. My hon. Friend appeared to visit the defects which lie in the nature of the work on the head of the very able official in charge of the Department, Sir Nathaniel Highmore. I think it is rather unfortunate that an attack of that kind should be made.

I made no attack on Sir Nathaniel Highmore, who has only been appointed quite recently.

I think my hon. Friend did say something about an old Civil servant in charge of this Department.

I said he was a very able Civil servant and I know he is a very able Civil servant. But what does the nicest or the best or the noblest Civil servant know about Scandinavian trade?

My hon. Friend has confirmed the point I made. I would be the last to say that it would not be an advantage to have a business man in connection with these matters. To that extent I agree with the general observation, but if we are to have Civil servants, I think there could be no more capable or able man than he who is at the head of this Department.

Hear, hear!

I am glad my hon. Friend agrees with me. I had correspondence with him and I found him display the greatest courtesy and an endeavour to get to the bottom of matters difficult to unravel. The head of a Department must depend a good deal on the evidence that is laid before him with regard to the granting of licences. I think every effort should be made to discharge the duty which the whole country wishes the Department to carry out, namely, to prevent any goods reaching the enemy and at the same time without interfering with the legitimate trade of the country. I do not think sufficient importance has been attached in this Debate to the question of the legitimate trade which the country should carry on. The House ought to realise the great opening which exists for trade in neutral countries. I believe a great opportunity is presented through the shutting up of Germany, which is no longer a rival of this country. We can carry on trade where we like, and our great trade opponent was Germany. If trade can be carried on on safe lines so as to give no help by any goods reaching the enemy, then a golden opportunity is presented of seizing the trade of Germany, which I believe would be as important as defeating her arms or seizing her Colonies. There are two sides to this question, namely, allowing the country to carry on trade where it can safely do so and the preventing of trade with the enemy. We heard in recent Debates about the difficulty of paying for our imports. Of course the reason we do not pay for them is because of the cheek to our exports. If exports can be allowed in legitimate channels it would be the greatest relief to the country and would greatly facilitate those financial operations which we are engaged in at present. I hope that the Board of Trade will not interfere with legitimate trades more than it possibly can, while at the same time making every effort to prevent goods reaching enemy countries. Then there is the question of penalties, and I rather think that the object of this Bill seems to be to increase the penalty on the shipper for an act over which he might not have control. Goods might be delivered to the wrong place in spite of the shipper taking every effort to prevent that occurring. The fine is very heavily increased and there is an alternative of imprisonment. Perhaps the hon. Gentleman the Parliamentary Secretary can give us an assurance that every precaution will be taken to secure that innocent persons will not suffer in the carrying out of this very complicated law.

I explained the question of the penalties previously, but if the right hon. Gentleman will look again at the Bill, he will see that the penalty of £500 or imprisonment does not apply to the shipowner at all. Sub-section (2), Section 1, applies to the shipowner, and the penalty which is imposed upon him is, the same which is always imposed upon shipowners under the Customs Act for shipping prohibited goods. The penalty of £500, or the alternative of imprisonment, is against a person who consigns goods contrary to the Regulations to be issued after this Bill is passed. I am quite sure the right hon. Gentleman will agree to that as a maximum penalty, in view of the enormous profits which might be made by shipping a cargo of goods to an enemy country under present conditions. I think my right hon. Friend will agree that the penalty of £100 which previously existed was ridiculous, and I think even a penalty of £500 would be equally ridiculous if there were not the alternative of substituting imprisonment if the Court thought proper. It is, however, only a maximum penalty, and I do not think any less maximum penalty would meet the case of those who knowingly trade with the enemy to the detriment of the country at a time like this. In answer to questions by the hon. Member of West Aberdeenshire (Mr. J. M. Henderson) and the hon. Member for the St. Augustine's Division of Kent (Mr. R. McNeill) about the War Trade Committee, there seems to be a misapprehension about the work of that Committee. It is not the business of that Department to settle what are prohibited goods; the responsibility for settling that lies with the Government. The Board of Trade and the Admiralty and the War Office have considered what it is desirable to prohibit, and they have settled what is prohibited. The function of the War Trade Department is to grant licences for the export of prohibited goods where they are satisfied that those prohibited goods are going to persons who may be trusted not to pass them on to an enemy country. So far from that Department consisting only of its Chairman (Lord Emmott) and a Civil servant, the Department works mainly through Committees. As the House knows, there is no greater authority on matters of coal than the hon. Member for South Shields (Mr. Russell Rea), who is Chairman of the Coal Committee of the War Trade Department, and which Committee has full knowledge of the coal trade. Then, again, Lord Balfour of Burleigh is Chairman of the Committee which deals with tin and rubber.

The War Trade Committee is only really the nucleus of the War Trade Department which collates all the work of the committees and deals with those questions. There is then the general Committee which deals with the goods on the Schedules which I have already referred to and which is presided over by Lord Emmott. The Board of Trade has a representative on it, and there are other expert Members who are fully competent to deal with these questions. There is the article which has been referred to by the right hon. Member for Kirkcaldy Burghs (Sir H. Dalziel) namely, cotton. I am not competent to deal with the question, but I may tell him that I think before many days are past he will be informed that another Committee with full expert knowledge of cotton will be dealing with licences for cotton, and all cotton products will be on the prohibited list. I would add to that, that so far from this Bill increasing the responsibility of the War Trade Department the exact contrary is the case. The War Trade Department are not to carry out the machiney of this Bill at all. This Bill deals with articles which are not prohibited, and which therefore do not require licences and do not come before the War Trade Department whose business it is to grant licences. This Bill enables the ordinary Customs authority in every port to prohibit the export of any article whatever, whether it is a prohibited article or not, unless it is consigned in this case to the Netherlands Oversea Trust, or to an approved consignee. There was the question raised by the right hon. Gentleman (Mr. Lough) and by the hon. Member for West Aberdeenshire, namely, the great desirability of facilitating trade as much as possible. We quite recognise that subject to the major consideration of stopping trade with the enemy, we want to facilitate legitimate trade in every possible way, but we must first of all do everything we can to seal up all those sources from which the enemy is supplied.

The object of this Bill is a double one. It will, in the first instance, stop all trade, whether prohibited or not, which may reach an enemy country, and it will restrict the routine of licences in respect of those articles, and enable the ordinary Customs authorities to deal with those consignees without them having to go through the form of obtaining licences at all from the War Trade Committee. Therefore I think that on both counts this Bill will work for good. The War Trade Department will themselves admit that there was originally considerable delay. The reason is that given by the right hon. Gentleman opposite, namely, that the work is of enormous complexity, of great magnitude, and entirely new. Obviously, when you have a huge schedule of articles in respect of which licences have to be obtained, and you have to secure information as to the ultimate destination of those articles, a certain amount of delay would necessarily occur before the Committee could get its machinery into thorough working order. There is now very little delay, and I believe the Committee claim that no decision as to a licence is ever delayed for more than seven days. I will certainly convey to my right hon. Friend the suggestion that the Committees of this Department should be strengthened by the addition of experts having particular knowledge of the trade and of the personnel of the traders in the countries with which the Committees are dealing. The question raised by the hon. Member for Yarmouth (Mr. Fell), that while the consignment of goods from this country might be safeguarded, they yet might release other goods which could be sent to Germany, has been very fully considered in the drafting of this Bill. The only way in which that point can be met is by having as full a knowledge as possible of the imports, both before and since the outbreak of war, of the particular articles in question into a particular country, and having also a knowledge of the home consumption in that country. It is proposed not only to regulate the particular consignment, but to keep a careful watch on the total quantity of any article which goes under this or any other of these Acts into particular countries, and to stop the export of any article where it appears that more is going into the country than that country would naturally and normally consume. I am afraid that there is nothing further that we can do in that particular.

I beg to move, in Sub-section (2), to leave out the word "consignee" ["delivered to any consignee"], and to insert instead thereof the word "person."

I think that this Amendment will decidedly strengthen the Bill. The Clause states that, "if any article to which any such Proclamation applies is delivered to any consignee other than an authorised consignee" certain results shall follow. I think that that is a loophole by which fraud may be committed, because an article may be delivered to some person who is not a consignee. Under this Bill there can be no consignee, except an authorised consignee. What seems to me possible is that by collusion the captain of a vessel might deliver some article to a person who was not the consignee. If the shipowner delivers the goods to any person other than the authorised consignee he will be liable to a penalty under my Amendment, and it will be no defence to raise the technical point that the person to whom the goods were delivered was not a consignee.

The Amendment on the face of it appears to strengthen the Bill, but I do not think it will be wise to accept it, because the word "consignee" has a particular meaning. It means a person to whom goods are consigned by the shipper. In this case, as the Clause now stands, the Sub-section inflicts a penalty on any shipowner who delivers goods to any consignee, other than an authorise consignee. That means, or who accepts goods from a shipper to a consignee except from a shipper to a consignee as authorised by this Act. If you put in the word "person" you get a different meaning. You might render a shipowner liable in respect to the delivery of goods to some person subsequently to their arrival at their destination. I think the draughtsman had that point in mind, and on the whole it will be wiser to retain the word "consignee."

I should like to ask whether, after all, something on the line of my hon. Friend's Amendment might not be acceptable. It is commonly known to everybody in trade that a bill of lading issued, as this would be, with the further document of a licence to trade, might be endorsed and the goods dealt with while in course of transit. In that case the original consignee would be able to get rid of his liability. The person named in the bill of lading is undoubtedly the consignee, but the person who takes the goods out of the ship, having bought them from the consignee, may not be covered by the terms of this proposal. I am a little dubious on the point; perhaps my hon. Friend can enlighten me.

My hon. Friend has just dealt with a difficult point. Every ship has two sets of papers—the Customs papers and the commercial papers. The bill of lading is the commercial paper, which does not go to the Customs at all. It is the Customs papers which will be dealt with in this case, and no consignment will be allowed to pass except the Customs papers contain the certificate that will be required. My hon. Friend suggests that it might be possible to have a bill of lading which did not agree with the Customs paper, and under which the articles might be delivered to a different consignee. That is really the reason why this Sub-section was introduced, to make the shipowner responsible for seeing that the bill of lading really coincides with the Customs paper, and that the delivery actually takes place to the person to whom the Customs paper applies The point has been most carefully considered, but I do not think it would be wise to give full details of the methods by which we hope to prevent any evasion of this provision. The Sub-section has been drafted with great care to deal with the very point raised by my hon. Friend, who evidently understands the trade.

I wish to ask the Government whether they could not give us a stronger assurance in regard to the matter which I raised just now. The hon. Gentleman was good enough to say that I might anticipate with some confidence the appointment of a Committee shortly. He will remember that, when we had these matters up before, his leader on the other side of the House did not express much confidence in committees. At this stage, ten months after the outbreak of war, when the Government themselves the other day admitted that we were supplying our enemies—that is urged as a reason for passing this Bill—we cannot get anything more than an assurance that a Committee is about to be set up! That is entirely unsatisfactory, and it is very disappointing to me, as one of the first efforts of the new Coalition Government. I hope the Noble Lord the Under-Secretary for Foreign Affairs will be able to say something which will not disappoint us entirely on this matter. I hope also that the Leader of the Opposition, whom I see in his place, will give us his very valuable support. In any case I hope the Government will treat this matter with much more seriousness than they have done up to the present.

My right hon. Friend is under a complete misapprehension if he thinks that the Government do not treat this question of cotton with the utmost possible seriousness. When he reflected on the suggestion that a Committee should be appointed, I think he rather misapprehended what my hon. Friend meant. The Committee which it is proposed to appoint is a purely executive Committee. It is a Committee, not to consider the question of cotton at all, but merely to carry out the measures which are being adopted to prevent trading with the enemy altogther in reference to cotton, just the same as the Coal Committee deals with the special question of coal going to Germany. There is no dispute, so far as I know, as to what our object should be. Our object is to prevent cotton from reaching the hands of Germans. We are all agreed about that. The other thing that we are anxious to do is to protect the legitimate rights of neutrals. It would ill become this country, after the history of the last ten months, to do anything which was unfair or unjust to neutral nations. That is an important matter for us to consider. The question really is, How can both these objects be achieved? Two proposals have been made. One which has been made and pressed very strongly by a number of people inside and outside this House is that cotton should be declared absolute contraband. The other proposal is the one adopted by the Government and embodied in their Order in Council of the 11th March, the effect of which is to prohibit all trade with Germany.

I think there is a little misapprehension about the effect of the declaration of cotton as contraband. If you declare cotton to be contraband, that does not give you a right to arrest cotton going anywhere; it only gives you a right to arrest cotton if you have a real reason to suppose it is going to the enemy. For a long time now it has been established that until the ultimate destination is manifested you can arrest contraband at any part of its voyage—that is to say, if you find cotton going to a neutral country, and have reason to suppose that it is afterwards to be transferred to an enemy country, you can take it on its way to the neutral country. That is equally true of a blockade or of the Order in Council. Any article which there is reasonable ground to believe is really going to an enemy destination can be arrested on the seas and brought in, even though its immediate destination may be that of a neutral country.

There is no distinction—I want to make that as clear as I can—in the procedure and method of arrest, whether you declare the article contraband or whether you deal with it as the Government have dealt with it, by means of an Order in Council forbidding trading with the enemy. To declare cotton contraband would make no difference in your right and power to stop cotton on the seas or in any other way if it is going to a neutral country. The real difficulty arises in finding out what is the ultimate destination of the goods, whether they are contraband or the trade is carried on under the Order in Council. The same difficulty arises in both cases. That is the difficulty the Government have to face, and it is a very considerable difficulty. Obviously it would not be right to arrest cotton, or anything else, which was going to be dealt with and consumed in a neutral country. That would be wrong. It would cause great difficulty to this country, would be unfair to neutrals, and in itself indefensible from any point of view.

The real thing is to devise some test. That is not a simple matter. My right hon. Friend has pointed out one criterion that would apply; that is that a larger quantity than usual of a particular article is being imported into a neutral country. My right hon. Friend will see immediately that that is not quite conclusive, because the neutral consumer might justly say that to some extent he is cut off altogether from the countries with which he used to deal in time of peace. The neutral country may say, Our imports have necessarily been bigger than they would have been in time of peace. I do not wish to go further—I have no authority to go further—than to say that the matter is treated with the utmost seriousness by the Government. They believe that their system, when properly and effectively applied, as they have reason to think it is being now, will prevent the import of cotton into the enemy country; and they do not believe that the declaration of cotton as contraband in this respect would be of any assistance, taking all the circumstances of the case into consideration. They are determined to carry out what is the object of all parties in this House—to put the utmost pressure on our enemy, by commercial, as well as by strictly military measures, in order to bring the War to the earliest possible conclusion.

We are obliged to the Noble Lord for his very interesting exposition as to the meaning of "contraband," but the right hon. Gentleman opposite who put the question to him did not want to know the exact meaning and effect of the word "contraband." What the right hon. Gentleman wanted to know was whether the Government did or did not mean to do certain things. My Noble Friend opposite will agree that on many occasions, in company with some of us on this side of the House, he has objected to the appointment of a Committee. What I understand the right hon. Gentleman opposite to suggest, and what I am perfectly well prepared to do, is, if the Government have made up their minds, to leave the whole question in their hands. If they have not made up their minds as to what they are going to do on this question, I hope they will do so quickly. Let them appoint one man to do the work. If they appoint a Committee the Members will discuss the matter, the Chairman will speak, and then the Committee will adjourn to consider what will be done.

Is the hon. Baronet speaking from the experience of his own Committee?

Mine is the exception that proves the rule, but I think many matters would be better carried out by a single man than by a Committee.

The real danger is concerned with the consignee. The danger, let me assure hon. Members, in these Scandinavian countries is with the merchant and the dealer who buy the goods. Notwithstanding all the affidavits they make, they know you cannot get at them. Stop authorising any goods to be sent to the merchant who deals in these goods. Ask him who is the purchaser. If it is a corporation or any other consumer, let that consumer be the consignee in the bill of lading.

The Noble Lord has made an interesting speech, but I agree for once with the hon. Baronet above the Gangway (Sir F. Banbury) in thinking that what the House wants to know is what is the policy of the Government? That is the real question. It is-common knowledge that more cotton goes to Germany than ought to go there. It is common knowledge, too, that more cotton goes to neutral countries than used to go before the War. I submit to the Noble Lord and to the right hon. Gentleman on his right (Captain Pretyman) that the real policy of the Government should be this: to find out how much cotton went to Germany from particular neutral countries, for the twelve months before the War; or to find out, if you like, how much cotton went into the neutral countries, leaving Germany alone. Let it be so much. There may be, and there probably was, cotton going into Germany from other countries. Give a liberal allowance in respect of cotton from all directions going into neutral countries. Let that be the standard and let us stick to it. Add 10 per cent., if you like, to the amount I have suggested, and let that be the quantity the Government will allow to go to any particular neutral country. The moment that quantity is reached let the Government stop all cotton going. Do not let them put their trust in any consignee. You may have a consignee guarantee by this, that, or the other person, but you do not know what becomes of the cotton after it goes into the neutral country. Nobody can tell. I would like the Government to say clearly, once the pre-war limit is reached, "That is the standard, and that standard must not be exceeded during the twelve months of the War." If they arrive at some policy like that I really think that the House of Commons and the country generally will have much more confidence. I do not understand quite what is meant by an Executive Committee. An Executive Committee, as I understand it, has to carry out the decisions of somebody else. Who is that somebody else? Is it the Cabinet or the Government as a whole?

Yes.

Very well, if it is the decision of the Government as a whole, I am bound to say that I am more than ever with the hon. Baronet. Why do we want an Executive Committee?

When I referred to the Executive Committee I was merely dealing with the War Trade Department as a whole. We have three Committees acting merely for the granting of licences. There are three because you cannot concentrate in one individual all the experience required to enable the Committee's functions to be performed in deciding whether licences should or should not be granted. The Committee I referred to is shortly to be appointed to deal merely with the question of issuing licences, and to deal with the applications on their merits.

The right hon. Gentleman says there is some difficulty in concentrating wisdom in one man than in many, but it might be easier to dissipate the wisdom of one man in many. What, however, I want to say is this: let us have some principle. The Government ought, I submit, to come to a decision and say, as regards this or that netral country, we know how much cotton you received before the War, we shall allow so much for the first twelve months of the War. Let the Government stick to such a decision and allow no certificate or exemption to alter it. Nothing short of that will be satisfactory to the House or to the country.

I desire to thank the Noble Lord for the statement he has been good enough to make. I cannot pretend that I am satisfied with the length to which he went. I recognise that obviously this must be a Cabinet matter, and possibly he has not had an opportunity of putting the matter before the Cabinet. But I do hope he will use his influence at the Foreign Office, and bring it to bear upon the Government to deal with this most vital matter. The facts are not in dispute. We have for ten months been supplying the essential things for making ammunition by the enemy. Without our assistance, the whole war, I believe, would have been in a different position to-day. After ten months of war it is not too early to ask that we should have a decision from the new Government as to what their policy is in regard to cotton. I fully understand what the Committee intends to do. Like the other Committees, it is to consider the individual applications for getting cotton. The Committee will consider and give a decision upon the consignee, but they have no further dealing with the cotton. I pointed this out before. In my opinion this importation ought to be absolutely prohibited—and that is the whole point!

made some remarks inaudible in the Reporters' Gallery.

I did not say prohibited to all neutral countries, but prohibited to Sweden, Norway, Denmark, and the Netherlands.