Julyan to Sandford (Assistant Under-Secretary)
Offices of the Crown Agents for the Colonies,
Spring Gardens, London, S.W.
31 January 1870
In reply to your letter of the 9th ultimo, relating to the Public Debt of British Columbia, I have the honor to offer for Earl Granville's information the following observations on the suggestions contained in the enclosures to that letter.
2. There can be no manner of doubt but that the devotion of one third of the revenue of the Colony to the payment of Interest and Principal on the public debt proves a heavy burden on the local Exchequer, but it may fairly be supposed that the re-productive works—as represented at the time of borrowing—upon which themoneyManuscript image money was expended are by this time yielding a portion, if not the whole, of the amount required to meet the annual charge which the debt involves. And if this be so, then there can be but little to object to with regard to the nature of this burden.
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So called reproductive works in Colonies seldom produce anything approaching the estimate on the faith of which they were undertaken.
3. The Debts of the Colony—English and Colonial—and all particulars respecting them, are given in the enclosed Statement marked A.
4. The sums payable annually in respect of those debts are as follows, viz,
For the first 2 1/2 years £32,590
The next 7 1/2 years 25,090
The next 1/2 year 21,090
The next 9 1/4 years 16,090
The final 5 1/4 years 7,840 makingManuscript image making a total sum, to be provided between the present date and 1st January 1895, of £470,187 which, added to the amount already in the Sinking Fund, makes a total of £547,394, which will still be required to meet the interest and pay off the capital when due.
5. The contributions to the Sinking Funds are certainly high, but most of them were I believe originally determined on the understanding that the money was to be invested in Imperial Securities paying about 3 per cent, whereas all investments have for some time past been made in Colonial Debentures yielding on an average at least 5 per cent.
6. Should the latter rate ofInterestManuscript image Interest be maintained throughout, then the liabilities of the Colony in this respect will gradually decline until 1st January 1895, when they will be totally extinguished.
7. The suggestion made by the Acting Colonial Secretary for diminishing the present very heavy annual burden borne by the Colony, by substituting a new Loan which would spread the liability over fifty years, for the several comparatively short Loans now in existence, is in theory perfectly sound, and has been adopted by other Colonies—notably so in the case of New Zealand last year, when the CrownAgentsManuscript image Agents devised a scheme by which £28,500 a year, and the accumulations in the Sinking Funds, were saved to the Colony—but unfortunately the case of British Columbia lacks that one element which forms the very essence of all such schemes, vizt—good public credit! Without this quality who could be expected to exchange a Debenture payable in 1873 for one which would not become due until 1920?
8. As illustrative of the actual state of affairs in this respect, I may observe that during the last month the Crown Agents purchased British Columbia DebenturesdueManuscript image due in 1894 at 95, whereas they found it impossible to buy those falling due in 1873 at 100.
9. The difference in time between these two Loans is 21 years, and that between the maturity of the 1873 Loan, and the proposed 50 years Loan is 47 years.
10. The basis of such an operation would be the Market value of the new 50 years 6 per cent Debentures, and if for example we suppose them to be saleable at 85, it would be necessary to issue 118 of the new (or nearly so) in exchange for 100 of 1873. This process applied to the whole of the existing debt,wouldManuscript image would so increase its amount as to render the operation undesirable.
11. I think it possible however that the debt of the Colony might be dealt with in another manner, which would afford no inconsiderable relief to the debtors, vizt as follows:
1st Pay off the £50,000 due on 1st January 1873 at par, out of the present Sinking Fund—or failing this, then set aside so much of that fund as would produce sufficient to meet the Interest thereon during the three years still unexpired, and pay off the principal at the end of that period.
2nd Devote the balance which would still remain in theSinkingManuscript image Sinking Fund—after paying contingent expenses therefrom—to the extinction of a part of the local Debt. See Statement marked B enclosed.
3rd Create new Debentures to an extent corresponding to those maturing in the years 1883 and 1894, but bearing interest at 6 1/4 instead of 6 per cent, and let these new Debentures be redeemable at par by a 2 per cent cumulative Sinking Fund devoted to annual Drawings, which would spread the operation evenly over 23 years (£190,000/See Statements A and B).
4th Offer the new Debentures in exchange for the old at par, thus holding out the inducementofManuscript image of a 1/4 per cent more Interest, and whatever advantages might be gained from the chance of drawing at par, whenever the Debentures were at a discount in the Market.
5th Issue a further number of these new Debentures sufficient to realize in the London Market enough to pay off the balance of the local Debt (£33,000/Statemt B).
12. The benefit which the Government might reasonably expect to derive from the operation—supposing all the present holders to fall into the scheme, and supposing the new Debentures which it is proposed to sell to pay off the balance of the present local debt could be placed in the Market at oraboutManuscript image about par—would be the immediate reduction of the annual charge from £32,590 to £18,397. And although this difference would be lessened as time elapsed, and instalments of the existing debts were paid off, yet it would continue to be very considerable for the following ten and a half years, and—including provision for extinguishing the local debt—would result finally in the payment of about £47,000 less in the aggregate than will otherwise have to be paid. See Statement A.
13. These calculations arebasedManuscript image based on the supposition that the Sinking Fund of the old Loans will continue to return interest at an average rate of 5 per cent, but should this rate not be maintained throughout, then the difference in favor of the suggested measure would be increased in proportion to the diminished productiveness of the old Funds.
14. On the other hand, in paying off the debt by annual drawings, all uncertainty will be obviated, notwithstanding any fluctuation that might take place in the current rate of interest.
15. To carry out such an operation as I have suggested, it would be necessary to passaManuscript image a new Loan Act authorizing the issue of the 6 1/4 per cent Debentures to an extent not exceeding £223,000. Or to provide against the possibility that Debentures for £33,000 to be sold to pay off local debts, might not realize the estimated price, it would be prudent to authorize the issue of £225,000, limiting the application of the new Loan exclusively to the extinction of existing Debts, and providing a 2 per cent cumulative Sinking Fund payable half yearly.
16. The principal, interest, and contribution to Sinking Fund, should be charged preferentially on the RevenueandManuscript image and Assets of the Colony, reserving always the rights of such holders as may not choose to come into the new scheme.
17. Authority should also be taken in the same Act for appropriating the sums already accumulated in the Sinking Fund of the old Loans, in the manner before described with similar reservations.
18. With regard to the Sinking Fund of the new Loan it will be sufficient to enact that it be applied exclusively to the extinction of the debt, in such manner as the Secretary of State for the Colonies may direct,withoutManuscript image without describing the particular mode in which it shall be used for that purpose.
19. By a cumulative Sinking Fund it is to be understood that the annual charge would continue at £18397 throughout the whole 23 years, and that the drawn Bonds would be vested in the Trustees, who would thenceforward receive the interest thereon and devote it, together with the 2 per cent contributions, to the annual drawings, so that eventually they would become the holders of the whole issue.
I have the honor to be,
Your most obedient Servant,
P.G. Julyan
Minutes by CO staff
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Mr Herbert
It would be a great thing to be able to relieve Columbia from the heavy drain upon its resources which the present annual payments for interest on Loans and Sinking Fund entails. We ought to have the Estimates for 1870 shortly—& I should quite hope to find that they had largely reduced if not paid off the Floating Debt.
We cannot move without Treasury concurrence—& then itManuscript image would remain with the Council to adopt Mr Julyan's plan or leave it alone.
CC 2/2
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Sir F. Rogers
It is of no use now to dwell upon the heavy expenditure out of which this difficulty originated. Mr Julyan's scheme appears to afford relief on a good principle. There can, I think, be no doubt, under all the circumstances, that to pay £18,397 a year for 23 years, in lieu of paying annual sums varying from £32,590 now, (while the Colony is hard pressed) to £7,840 at the end of the 23 years, (the aggregate amount paid during the period being about the same) will practically lighten the burden to a very great extent.
If this scheme should not come into effect, it would at least be very desirable that the temporary loans raised in the Colony at 12% should at once be paid off by the issue in England of bonds at 6 1/4%, or such other rate as the Cr. Agents might at the time recommend.
Shall we send to the Treasury—with or without some such observations as above?
RGWH Feb 5/70
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Mr Herbert
Will not the letter from wh I sent you an extract yesterday (and about wh we had little talk) dispense with Treasy authority—at least when it is answered?
FR [cut off microfilm]
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I certainly think that we need not any longer refer questions of this kind to the Treasury, who very possibly would decline to consider them.
Refer the Crown Agents' Scheme to the Govr of Br Columbia, saying that it appears to Ld Granville to indicate, under all the circumstances of the case, the best practicable mode of lightening the burden of the existing debts, and to deserve the very careful consideration of the Council.
RGWH Feb 10/70
WM 11/2
G 17/2
Documents enclosed with the main document (not transcribed)
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Extract, Treasury to Colonial Office, 5 February 1870, commenting on the "proposed cessation on the part of this Dt of the general supervision which it has hitherto exercised over Colonial Expenditure."
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Statement A, "showing the present Debts of the Government, the Annual charge in respect thereof and the total amount that will be required in addition to the accumulations in Sinking Fund from the present time until the final extinction of the debts to provide Interest and repay the Principal," prepared by Julyan, 31 January 1870.
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Statement B, "showing the result of the proposed Consolidation of the Public Debts of the Government of British Columbia," prepared by Julyan, no date.
Other documents included in the file
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Draft reply, Granville to Musgrave, No. 13, 23 February 1870.