Page:EB1922 - Volume 31.djvu/1115

 ₤215,200,000. At the same time the Government sold 4% Victory Bonds at 85%, subject to drawings at par almost immediately and acceptable at par in payment of death duties. These bonds produced ₤216,900,000. The failure of this operation compelled the Government to defer the question of funding any further portion of the floating debt (which rose to about 1,300 millions) for an indefinite period, especially as the demand for capital was exceedingly active, and funding could only be effected at a high cost, the Bank Rate being for over a year (from April 15 1920 to April 28 1921) 7 per cent. The approaching maturity of the short-term bonds issued during the war period, however, began to be a pressing problem in 1921, for the bonds, as they became very short, found their way to the banks and became potential floating debt. In April 1921 the Government decided to invite holders of 5% National War Bonds maturing in the years 1922 to 1925 to exchange their holdings for 3$1⁄2$% conversion stock. Holders were offered ₤160 to ₤163 of new stock for every ₤100 bond, giving a yield in interest of ₤5 12s. od. to ₤5 14s. od. per cent., against ₤5 7s. 6d. on the bonds held. About ₤632,000,- 000 of bonds were affected by the offer, and if the whole had been converted the addition to the State's liabilities would have amounted to about 400 millions, and the addition to interest charges about 4 millions per annum. Applications for conversion amounted, however, to only about 160 millions. In July 1921 a further effort was made to convert the very short term bonds into eight-year Treasury Bonds bearing 5$1⁄2$% interest. These bonds were offered at 97%. When the British 5% Loan was issued in 1917 a 4% “tax compounded loan” was coupled with it. It was an effort to meet an insistent public demand for a Government security exempt from the heavy rate of income tax. Another way of meeting this same demand was attempted in some degree by a departure from the practice of paying dividends less tax. The 5% War Loan, National War Bonds, and the Funding Loan all contained a provision that dividends should be paid without deduction, and that tax should be collected upon it in the holder’s annual return. The 4% Loan was not really a tax-free security. It was an issue, the interest on which was reduced to a figure which represented a compounding of income tax at the then maximum rate, namely, 5s. in the ₤1. The interest on the loan was not exempt from super-tax, and for the purpose of calculating liability to it, and also for the purpose of computing total income for purposes of exemption and abatement, it had to be assumed that the 4% interest was the net income after the deduction of income tax at the full normal rate of income tax prevailing. This meant that the holders of the 4% Loan were placed in about the same position as regards super-tax as holders of the 5% Loan, and in a worse position as regards exemption and abatement, for