§ Considered in Committee.
§ (In the Committee.)
§ [Mr. GRANT LAWSON (Yorkshire, N.R., Thirsk) in the Chair].
§ Clause 1:—
§ *MR. McKENNA (Monmouthshire, N.)
moved to reduce the amount authorised to be borrowed under the Bill by £2,000,000, which would leave the amount to be raised £3,835,000. He pointed out that his proposal would not affect any works which were intended to be carried out in the current financial year. Out of the £5,000,000 it was proposed to borrow, only £1,250,000 would be spent in the current financial year, leaving the balance to be spent in the year 1906–7. The effect of his Amendment would be that in next year's Naval Estimates it would be necessary to include an additional £2,000,000 on Vote 10 in order to make up the money required for the works authorised by Parliament. The Amendment did not touch the works themselves, but only the way in which the money was to be provided. Not a single man would be thrown out of employment, and not a single one of the works would be stopped. Prior to 1895 the whole cost of these and similar works was placed upon the Estimates, but during the last ten years it had been found necessary to resort to large borrowings, and that at the very time the revenue 441 was going up by leaps and bounds, so much so that to day our revenue was very nearly double what it was ten years ago.
In 1895 there was a reasonable case for raising money on loan for the purpose of naval works. The very fact that they had been in the habit of putting all the cost of naval works on revenue had rendered successive Chancellors somewhat unwilling to find the necessary money, and consequently permanent works had fallen into arrears. The Bill then introduced authorised the expenditure of £8,500,000, and it was quite reasonable that these arrears should not be thrown upon the Estimates of one year, but should be spread over a long period. But it was no longer a total expenditure of £8,500,000; they were now dealing with a total capital expenditure of no less than £32,000,000, and he would ask the Civil Lord whether that in any proper sense represented arrears. He thought he would agree with, him that it represented not only arrears, but practically the whole of the present and future permanent works that might be necessary for the proper provision of the Navy. Was it reasonable that they should borrow in the way they were doing in order to provide for these works? That part of his case was very easy to establish, because both the Chancellor of the Exchequer and the Secretary to the Treasury had in turn declared that the policy ought to be abandoned. There was no quarrel on either side of the House on that point. They were all agreed that the borrowings must come to an end; the only point on which they were not agreed was when they should come to an end. They on that said of the House said they ought to take that step now and that they ought at once to make provision out of the revenue for so much of the capital expenditure as they could reasonably meet.
Anyone who took the trouble to go through the schedule would find that it contained a great number and variety of works. Twelve years ago, similar works, or such of them as were then undertaken, would, as a matter of course have been included under Vote 10. Would anyone suggest that they ought not properly to be included under Vote 10 now? He had turned to 442 the Estimates for 1893–4, and he found a list exactly similar to that in the schedule of this Bill. He found Gibraltar, Portsmouth, Chatham, and Bermuda all provided for under Vote 10 then. Why were they not under that Vote now? That Vote had not in any way increased in the same proportion as the general expenditure on the Navy. He knew it was to-day very much larger than in 1893–4 and 1894–5, but that was because they had had to bear under Vote 10 such a very large charge in respect of annuities in order to repay their borrowings. Vote 10 in 1903–4 amounted to £1,000,000, in respect of works, and £502,000 in respect of annuities, in 1904–5 it likewise amounted to £1,000,000 in respect of works and to £634,000 in respect of annuities. But in 1905–6 the works had fallen to £900,000 and the annuities had risen to £1,015,000, whilst next year the charge on annuities would be larger, and in the course of the next six years he understood they would amount to no less than £1,500,000. It might be asked if it was reasonable, while Vote 10 was so swollen by the charge for annuities, to increase it in the next year by throwing upon it, as he proposed, an extra £2,000,000. Sooner or later they would have to pay for their extravagance, and, if they did not begin next year, or the year after, or the year after that, the result would be that in 1910 they would have to pay £1,500.000 under Vote 10 for annuities, in addition to the whole cost of any works undertaken in the year.
It was true his proposal would increase Vote 10 next year by £2,000,000, but the effect would be to decrease the Vote in the year after. He would ask the hon. Gentleman to tell the Committee whether, if they did what he asked them to do, it would have any effect upon the carrying out of the works, whether it would not leave him perfectly free to carry on the works already undertaken without the least hindrance, and he would ask him whether it would do anything but entail an additional charge of £2,000,000 next year on Vote 10. If on those points they were agreed, he would ask him further whether the additional charge on Vote 10 would not be compensated for by an economy on the Vote in subsequent years, when they would otherwise have to pay interest and 443 sinking fund in respect of the £2,000,000 which he now proposed to borrow, and which as he (Mr. McKenna) proposed should be paid out of the revenue. Under the authorised borrowing Acts in connection with military, naval, and public works they proposed this year to raise a sum of no less than £9,000,000. At the same time the Chancellor of the Exchequer was paying off out of annuities on those works about £1,500,000, and he would also be repaying by means of the Sinking Fund something like £8,000,000. The net result, therefore, would be that, so far as borrowing and repayments were concerned, at the end of the year their debt would practically remain where it now stood. They would have paid off a few hundred thousands, but no more. Was it reasonable, when the national credit stood so low as it did, when Consols were at 90, when the Chancellor of the Exchequer with great difficulty was going to the market to borrow, that they should go on borrowing for these works and not make an effort to pay as they went along and so restore the British credit? It would be a great economy in the long run.
Quite apart from naval works, the Chancellor of the Exchequer would have to be a borrower in the market for years for the Irish Land Act, and it was therefore essential that he should borrow as cheaply as possible. With Consols at £90 the right hon. Gentleman was borrowing at 3 per cent., but put Consols up to £100 and he Would be able to borrow at 2½ per cent. It was in the interests of the strictest economy that he asked the right hon. Gentleman to accept his Motion to cut down the borrowing by £2,000,000. Let the House remember that the Admiralty was not infallible, and that so long as the House placed in the hands of that Department an abundant supply of borrowed money, so long would it find it necessary to go on spending. If the First Lord of the Admiralty found it difficult to extract money from the Chancellor of the Exchequer he would be much more likely to cut down his Estimates. He did not question that all these works were good works. He was quite prepared to admit that every one of them could be shown to be a good work in 444 itself, but it might not be so easy to show that it was a necessary work at the present time or a work out of which they would get full value for the money expended. He had not the slightest doubt that if the Admiralty were given £100,000,000 at this moment they would know how to spend that money in putting up docks and piers at every seaport in the country, but whether it would be a wise expenditure was another matter. So far as the proposed works were essential let them be paid for out of revenue, but it was far more necessary to restore British credit than to spend borrowed money on them, and that being so, he begged to move to reduce the Vote by £2,000,000.
In page 1, line 8, to leave out the word 'five' and insert the word 'three.'"—(Mr. McKenna.)
§ Question proposed, "That the word 'five' stand part of the clause."
§ *SIR JOHN COLOMB (Great Yarmouth)
said he did not know how long the hon. Member was speaking before he came in, but he (Sir John) had heard enough to convince him that the hon. Member's arguments were not based on sound principles. All he had heard was that it was better not to do what was necessary for the Navy either in armaments or works—that it was very much more important to restore the credit of the country. That was a doctrine, which no sane man would advocate. He saw no danger to our credit either by a Naval or any other Works Bill. The point of view from which he regarded these Bills was, were they essentially necessary, and had they been thoroughly well thought out? Were they based on a policy fully explained to the House? If so, let the House deliberately give its judgment, and having done so let the House and country be bound by it. He must again remark upon the impropriety of introducing Naval Works Bills at the end of the session. One Party was just as bad as the other in this matter; but it was an absolutely wrong practice. A Naval Works Bill ought to be founded on a well-thought-out and deliberately considered policy, 445 and the House should have an opportunity of discussing what that policy was and why it was necessary. In such a way only was it possible to come to a reasonable and sound conclusion.
Turning to the Bill itself, he must say that the explanation of the Civil Lord had for the first time alarmed him in regard to a change in Admiralty policy.
said that the hon. and gallant Member would not be entitled to go into the whole question of naval policy on this Amendment.
§ *SIR JOHN COLOMB
said that he would resume his remarks on the policy of the Bill when the whole clause came up for discussion.
§ MR. EDMUND ROBERTSON (Dundee)
said he usually found him self in agreement with the hon. and gallant Member opposite, but on this occasion he thought the hon. and gallant Member had done some injustice to his hon. friend below the gangway, whose contention was that it was more important to restore the national credit than to proceed with Naval Works Bills under this system. He quite agreed that these Bills were brought in too late in the session, but he did not agree that both sides of the House were to blame in the matter. The present Government had been in power ten years and had had the management of all these Bills except the first, for which he was responsible, and which he succeeded in passing through Committee before the Government were defeated in the middle of June. The Amendment proposed to reduce the sum asked for in the Bill by £2,000,000, but as the Government had an unused balance and borrowing powers amounting to nearly that sum, its effect would be simpiy to limit the borrowing power to the amount named in the Bill. The Amendment might be taken in several ways. It might be a proposal to limit the time during which the Admiralty could go on without coming to Parliament, to limit the works they were to go on with, or, without impugning any of the works mentioned, to say that some of them ought to be taken out of the schedule and placed on the Esti- 446 mates, or to declare that the proposed expenditure during the two years should be reduced and the works retarded. The Amendment might be taken in any one of those senses, so peculiar were these Bills, the only limit being one, not of time, but of money.
The original Act was based on the principle that the expenditure should be assimilated as far as possible to expenditure under the Estimates: the intention as to have annual Bills, so that Parliament would have the same opportunity of discussing the works as would be provided under the Estimates. All that was changed directly the Party opposite came into power. His hon. friend had made the most serious attack upon the whole system that had been delivered since its introduction. At various times, notably during the South African War, there had fallen to his lot the individual task of objecting to new works on the ground that they were not urgent, and he had received little support even from his own side. He was glad, therefore, to recognise that at last there was a disposition to criticise severely the whole scheme of these Acts. He should vote for the Amendment on the broad and general ground that it was a protest against the continuance of the policy of borrowing, not only for naval, but also for military and other works. There had been some mystification about the policy of the Government. He and many others held they were justified by a statement of the Civil Lord in believing that the Government intended to drop entirely the system of Naval Works Bills. The Chancellor of the Exchequer had dissipated that belief, and had announced that the system was to come to an end only when all the items in the present schedule were completed; in other words, there were to be no new items. But if the system was condemned by the Chancellor of the Exchequer and by both sides of the House, as it had been, why should not the change be made here and now. The amount would not necessarily have the effect of putting the £2,000,000 on the next year's Estimates; if the present Government were in charge of the finances of the country he was confident it would not be so charged.
One reason why he supported this Amendment was the enormous extension which 447 had been given to this system of borrowing during recent years. Unquestionably a former Liberal Government committed themselves to this same principle years ago, but it was in relation to a much smaller scheme, and was comparatively small when placed side by side with the scheme which the House was now considering. Not only had there been a great extension of this principle in regard to naval works, but the same principle had been extended to other works. The system which a former Government began in order to remedy the unsafe state of the Navy had now been spread over six or seven other matters, and the magnitude which these loans had now reached made the problem a very difficult one, and quite justified him in giving his support to his hon. friend's Amendment. What never seemed to have been properly avowed by the Admiralty was that these vast works at home and abroad ought to be taken into account in estimating the strength of our Navy. These works gave them an advantage over all their competitors which could hardly be estimated by the Power-standard. He objected to continuing this system because it had grown so greatly in regard to naval works and because it had grown greater still in regard to its extension to other works. In spite of this vast expenditure by loan upon naval works, Vote 10 had grown to a sum which was twice as large as it was before this system of naval works loans was adopted. He thought it was time to call a halt. Since they began this system of borrowing for naval works their national credit had fallen, and Consols, which then stood at 110, had fallen to the present low figure. He thought it was a great mistake to issue loans at a time when their national credit was low. They were supposed to have a Sinking Fund, but, as a matter of fact, in the current year the actual reduction of the National Debt would be a very small sum indeed. In spite of the co-operation of the so-called Sinking Fund he had calculated that our national liabilities this year would be £2,500,000 more than they were the year before. He did not see why the Government should not have proceeded upon the; same principle as was adopted in the earlier years of the Naval Works Act, when the old Sinking Fund was suspended and applied to naval and other works. In the 448 words of the right hon. Gentleman the Member for Bristol, what was the use of paying off debt with one hand and increasing it with the other. He was afraid that the public had been led to believe that a large sum of money was being applied every year to paying off debt, when, as a matter of fact, last year nothing at all was paid off. For these reasons he intended to vote for the Amendment.
§ *THE CIVIL LORD OF THE ADMIRALTY (Mr. ARTHUR LEE,) Hampshire, Fareham
said he sympathised with the hon. Member for Dundee in the position in which he found himself when attacking the principle of these Bills, inasmuch as he was the original culprit in these matters.
§ *MR. ARTHUR LEE
said the hon. Member repudiated the word "culprit." He agreed with him and did not think there was any reason why the hon. Member's Government or the present Government should be ashamed of the principle which underlaid these Bills. The hon. Member who moved the Amendment half admitted that the necessity for these loans arose originally through the neglect of the essential business of providing proper works for the Navy by their predecessors. He did not mean their immediate political predecessors, but their predecessors during the last generation. The Amendment was one which he did not think the hon. Member for North, Monmouthshire would expect the Government to accept, because it struck at the principle of the Bill—a principle which the hon. Member stated that he took exception to. But he would remind the Committee that there were no new items in this Bill at all, and that what the Government was asking the Committee to do was merely to provide for the continuance of the policy which the House had already sanctioned with reference to the items contained in the schedule. These items had all been approved by the House in previous years, and all the Government asked the Committee to do was to continue the provision necessary to carry on these works for the next two years.
449 They all admitted that it was desirable to bring this system of borrowing to an end as soon as it could conveniently be done. A beginning had been made in that direction this year. It was a modest beginning, but from the point of view of the Committee he hoped it showed signs of grace. The Government had carried the beginning of the new system as far as they thought it would be safe or convenient to carry it with justice to the present generation of taxpayers. The hon. Gentleman opposite said they ought to begin the end of this system "here and now." They had begun here and now in this Bill. They considered that it would not be fair to the taxpayers of this generation to pay out of the revenues of the year the whole of the large sums required to be raised, but that, following the contention put forward by Sir William Harcourt when Chancellor of the Exchequer, the expenditure ought to be equalised as far as possible over a number of years in view of the fact that these were permanent works for the benefit not only of this generation but of the next as well.
The hon. Member said that in the old days we used to pay our way out of revenue. We certainly paid for what works were constructed, but all the time we were letting the estate run down and letting arrears accumulate. That was not paying out of revenue. It was the falsest kind of economy. The hon. Member for North Monmouthshire admitted that there had been arrears to a certain extent, and he endeavoured to contend that the late Liberal Government provided in 1895 for the whole of the arrears amounting to £8,500,000. He did not propose to contest the point with the hon. Member as to what was the exact amount of arrears at that date, beyond saying that it was very much more than that. But the hon. Member must remember that the Navy had greatly increased since those days, and that there must also be an increase in the works and dock accommodation which were absolutely necessary to keep it in an efficient condition. In the case of works which were not seriously advanced they proposed to transfer the expenditure on them to the Navy Esti- 450 mates. They had made a beginning, which they thought was substantial, in transferring certain items to the Estimates of next and subsequent years. They had gone as far as they had thought it wise or fair to go in that direction, and it was therefore impossible for the Government to accept the Amendment.
§ MR. WHITLEY (Halifax)
, said that in supporting the Amendment the only doubt he had was whether the amount of the reduction was large enough. As a matter of fact, hon. Gentlemen on the other side were not now in a fit condition to sign a cheque for £5,835,000. When they remembered the circumstances of terrorism under which the Government came there he doubted whether any Court would hold that their signature was valid. Imagine their reading what was said by the Daily Telegraph and considering that hey were in a fit condition to sign the cheque! Surely his hon. friend was a little too modest in only asking a reduction of £2,000,000. He noticed that a Cabinet Minister was ordered peremptorily to be in his place on this occasion. Were members of the Committee aware that his system of expenditure meant that for every £1,000,000 worth of work done the nation had to pay £1,500,000 before getting finished with it? By paying in this way, as compared with putting these sums on the annual Estimates, it meant that they were actually paying 50 per cent. more than value received. If they took the thirty years sinking fund and reckoned the interest at 3 per cent. they would readily see that this system of loans meant a large extra cost, quite apart from the question of the necessity, or otherwise, of the particular items which appeared in the schedule. Of course, it was a well-known fact that if they were put on the annual Estimates there was certain to be more care in the spending of the money. The very terms of the Bill enabled the Admiralty to levy a demand on the Treasury, and the Treasury parted with almost its whole control. The Bill said that the Treasury "shall issue" the money required by the Admiralty under the Act; and he hoped that that would be altered in the future. He was sorry that the Chancellor of the Exchequer had not favoured the Committee with his presence at all during these proceedings, 451 and that even the Financial Secretary to the Treasury had been present for only a few moments. He thought his hon. friend's Amendment demanding the reduction of £2,000,000 was an extremely modest one.
§ MR. McCRAE (Edinburgh, E.)
said he supported the Amendment for a reason which had not yet been given, and that was that the present Government, in his opinion, should not be granted any more borrowing powers in regard to naval works until they had settled the policy which they meant to pursue. They had not a continuity of policy in regard to either the Army or naval works, and he thought the Civil Lord of the Admiralty had made a very perfunctory reply to the speech of his hon. friend. In 1903, in one of these Naval Works Acts, the Government got power to spend £4,500,000 at Chatham, and the other day they were told that these Chatham extensions were not to be proceeded with.
Order, order! The question of the Chatham extensions is not at present before the Committee.
§ MR. McCRAE
said that, with all due deference to the Chairman, he was using an argument why the amount of money authorised in the Bill to be borrowed should be reduced by £2,000,000. He was going to show that this money was not required because the Government had already power to borrow £4,500,000 for the Chatham extensions, which they were not going to exercise. Apart from the question of the expense of the system of borrowing, it had a bad effect on national finance, and he maintained that this Government could not be trusted with those borrowing powers until they had definitely made up their minds what they were going to do. He hoped that before the Amendment was put, some more definite reply would be obtained from he Civil Lord as to why he should come to the House in the closing days of the session and ask for such a large sum of money as was in this Bill—money which was not actually required. Moreover, the expenditure authorised by the schedule was revenue 452 and not capital expenditure. The responsibility for that expenditure would fall on those who would follow the hon. Gentlemen opposite in office, while they would not be responsible for the methods by which the money was to be raised.
§ *MR. BRIGHT (Shropshire, Oswestry)
said it seemed to him that the £5,835,000 to be borrowed under this Bill ought to be charged to Vote 10 of the Estimates. To put this money down to capital account was bad finance. Expenditure on docks, moles, etc., should be debited every year to revenue, and not to capital account. They might as well borrow £1,000,000 to build a battleship, and then charge £100,000 every year for repayment. Municipal borrowing had been quoted in defence of this system of borrowing for naval works; but there was all the difference in the world between the two. Municipal works, like electric lighting, gas, and waterworks, were productive, and gave an interest on the capital invested. There was nothing productive about these naval works. Again, even in the case of municipal expenditure on public parks, it was, if not directly, indirectly productive, because these parks promoted the health and comfort of the community. The expenditure on these naval works had been compared to fire insurance, but whoever heard of any business man charging fire insurance to capital instead of against revenue? Then it was said that there were assets for this expenditure; but could those assets be realised? Besides, these borrowings led to a bad system. There was now a Funded Debt, an Unfunded Debt, and a semi-secret or side-track debt; and all that system was hindering the prosperity of the community at the present moment. What had been the result of this system on finance? In 1897, Consols stood at 114, they were now at 90¼, and local loans, which stood at 115, were now only 100¼.
And, it being half-past Seven of the clock, the Chairman left the Chair to make his Report to the House.
Committee report Progress; to sit again this evening.