_ FINANCE
PUBLIC AND PRIVATE
[By OUR CITY EDITOR.]
DEBT REDEMPTION
o a Editor of the SPECTATOR.] Sin,—Although the Government conversion operation announced during the past week is not a large one, it has excited a good deal of interest in the City. Nor is this surprising, because, as is well known in financial circles, and as the general public will recognize more clearly by and by, our greatest hope of an ultimate remission of taxation is to be found, first, in further economies in Supply Expenditure, and, second, in the reduction in the annual charges involved in the service on the Debt. That there is abundant room for a further cutting down of expenditure, and especially of Civil Service outlays, there can be no doubt at all, and the City is looking to Mr. Winston Churchill to display courage in that respect. Nevertheless, it can also be admitted that there must come a point where economy an go no further And over a long period it will then be to a reduction in our debt charges that we must look for a curtailment of the National outlays as a whole.
At the present moment more than the whole of Income and Super Tax Revenue, amounting to about £326,000,000, is absorbed in the National Debt services, the estimated total of which for the current year is £350,000,000. This represents the service of a total debt of nearly £7,700,000,000, and on very much of this debt we arc still paying as much as 5 per cent. interest. It will readily be seen, therefore, how much would be involved in the reduction of our Debt charge even of only 1 per cent.
The operation of the past week is, it is true, concerned with only an amount of Debt maturing next February to the extent of £133,000,000, but the bonds maturing carry 5t per cent. interest, and that it should be possible now to offer in exchange a 4i per cent. bond shows that we have gone some way at all events to improving the National Credit. Inasmuch as the terms of the Con- version have been given fully in many directions, it is not necessary that I should labour the details, in thii letter. Briefly, holders have the right to exchange either into a 4ir per cent. loan running till 1944, or redeem- able at the Government's option four years earlier, or else into ten years bonds with the option reserved to Govern- ment and holders alike of maturity after two years in February of any year on notice being given in the January of the preceding year. To those who are unacquainted with the matter, it may be useful to explain why certain holders should have the opportunity of exchanging into so short a dated security as the two-year bond. A moment's thought will show that when a Government bond gets so near maturity as is the case of these Exchequer bonds expiring next February, they become a very acceptable holding to bankers and the discount market where they rank for all purposes as a short .dated Treasury Bill. Allowing, therefore, for the extent to which these bonds have finally come to be held by the Money Market, as well as by the genuine investor, it is clear that if conversion is desired by the Government an offer has to be made likely to be sufficiently attractive to both classes of holders. On the whole, it is felt that the new Chancellor of the Exchequer has complied with these requirements, while, at the same time, he has been careful not to make the terms so generous as to affect adversely the National Credit.
This is, of course, the wise method of procedure. We are only at the beginnings of conversion operations, and while Government maturities during next year, apart from the Exchequer Bonds now provided for, are small, the amount of debt redeemable in 1927 is fairly large. Moreover, I suggest that the Government will probably have to arrange future conversions well ahead of time. In the first place, as already explained, there is a danger if the matter is left too late, of the maturing obligations passing out of the hands of the investor into the Money Market ; while, in the second place, if during the next few years we should get the much needed trade revival on a large scale; dearer money rates might easily interfere with the terms on which the Government would be able to convert.—I am, Sir, yours faithfully,
ARTHUR W. KIDDY.
The City, November 19th.
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