Stop Of The Exchequer
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The Great Stop of the Exchequer or Stop of the Exchequer was a repudiation of state debt that occurred in
England England is a Countries of the United Kingdom, country that is part of the United Kingdom. It is located on the island of Great Britain, of which it covers about 62%, and List of islands of England, more than 100 smaller adjacent islands. It ...
in 1672 under the reign of
Charles II of England Charles II (29 May 1630 – 6 February 1685) was King of Scotland from 1649 until 1651 and King of England, Scotland, and King of Ireland, Ireland from the 1660 Restoration of the monarchy until his death in 1685. Charles II was the eldest su ...
.


The stop and its causes

Under Charles II the state finances were in such a grievous condition that the Crown found itself no longer able to honour its debts. Throughout the 1660s, state expenditure had been running ahead of the taxation and revenue that Parliament was prepared to authorise. To bridge the gap, the Crown departments increasingly sold more and more debt to the leading London
goldsmith banker A goldsmith banker was a business role that emerged in seventeenth century London from the London goldsmiths where they gradually expanded their services to include storage of wealth, providing loans, transferring money and providing bill of excha ...
s, secured against first call on the following two years' revenues. This was an attractive investment for a gilded circle of preferred bankers, who could make annualised returns of 8 to 10% or more by buying the debt at a discount, at a time when interest payments were capped by law at 6%. The debt was also readily assignable, making it relatively liquid, so bankers could trade it between themselves, or sell it on to private investors. But as a larger and larger proportion of the state's anticipated revenue became pre-committed in this way, its room for independent manoeuvre became narrower and narrower. The stop came suddenly and unexpectedly on Tuesday 2 January 1672. Payments were suspended upon: The period of the stop was to be one year, ending on 31 December 1672. In the interim the king intended that interest would be paid to all those who were owed payment of outstanding bonds that had become due "at the rate of six pounds per cent". A letter from Richard Langhorne to Lord Hatton on January 6 gives additional background on the causes and effects of the stop: *A total 82 ships were to be prepared for sail "in the cause of national defense", i.e. to attack the
Dutch Republic The United Provinces of the Netherlands, commonly referred to in historiography as the Dutch Republic, was a confederation that existed from 1579 until the Batavian Revolution in 1795. It was a predecessor state of the present-day Netherlands ...
in the
Third Anglo-Dutch War The Third Anglo-Dutch War, began on 27 March 1672, and concluded on 19 February 1674. A naval conflict between the Dutch Republic and England, in alliance with France, it is considered a related conflict of the wider 1672 to 1678 Franco-Dutch W ...
. *The bankers of Lombard Street were asked for an 'advance' (loan) to the king to finance the fleet, they refused to make the loan. *Due to the pressing need for money the king and his council resolved to find the money for the fleet by cutting other parts of the treasury's budget – money that had been allocated for the repayment of bonds and securities were to be spent on the fleet and only interest paid with no repayment of principal that year. *There was great disruption and damage to the financial markets: "I believe it certain that the trade of bankers is totally destroyed by this accident". The outstanding obligations in all were later estimated to come to £1,211,065. This was similar in magnitude to the king's entire ordinary revenue for 1671–2, including
customs Customs is an authority or Government agency, agency in a country responsible for collecting tariffs and for controlling International trade, the flow of goods, including animals, transports, personal effects, and hazardous items, into and out ...
,
excise file:Lincoln Beer Stamp 1871.JPG, upright=1.2, 1871 U.S. Revenue stamp for 1/6 barrel of beer. Brewers would receive the stamp sheets, cut them into individual stamps, cancel them, and paste them over the Bunghole, bung of the beer barrel so when ...
, and
hearth tax A hearth tax was a property tax in certain countries during the medieval and early modern period, levied on each hearth, thus by proxy on wealth. It was calculated based on the number of hearths, or fireplaces, within a municipal area and is con ...
(but excluding additional special revenues granted by Parliament: £378,000 in 1671–2).


Subsequent developments

Despite the original intention that the stop would be limited to one year, two requests from Charles II to Parliament for new money to pay off the debts gained no support, so the stop was extended, first to May 1673, and then to January 1674. By that time all the anticipated income that had been security for the debts, that the creditors had assignments upon, had both flowed into the Treasury and flowed away again, so effectively the stop became indefinite. Under a new
Lord Treasurer The Lord High Treasurer was an English government position and has been a British government position since the Acts of Union of 1707. A holder of the post would be the third-highest-ranked Great Officer of State in England, below the Lord ...
, Thomas Osborne, Earl of Danby, for whom ordered management of the royal finances was a priority (as well as the raising of new finance), the first payments of the promised 6% interest finally started to be made in March 1675, three years in arrears. After a detailed audit, payments were revised in 1677 to take account of the total gross amount (including the unpaid interest to that point) by then outstanding. These payments continued to be made regularly so long as Danby was Lord Treasurer. However, from 1680 they became much more erratic. Between April 1680 and March 1685 only 56% of the expected amount was paid, and between April 1685 and March 1688 during the reign of James II, this fell to only 21%. Finally, after the accession of
William William is a masculine given name of Germanic languages, Germanic origin. It became popular in England after the Norman Conquest, Norman conquest in 1066,All Things William"Meaning & Origin of the Name"/ref> and remained so throughout the Middle ...
and
Mary Mary may refer to: People * Mary (name), a female given name (includes a list of people with the name) Religion * New Testament people named Mary, overview article linking to many of those below * Mary, mother of Jesus, also called the Blesse ...
, Parliament reallocated the earmarked revenue completely, to new debts arising from the
Nine Years' War The Nine Years' War was a European great power conflict from 1688 to 1697 between Kingdom of France, France and the Grand Alliance (League of Augsburg), Grand Alliance. Although largely concentrated in Europe, fighting spread to colonial poss ...
against France, and payments dried up altogether. In response the creditors sued, leading to a lawsuit, ''The Goldsmith Bankers case'', of almost unheard-of length, raising constitutional questions of just what obligations courts could enforce against the Crown. The Court of Exchequer gave judgment in 1692 in favour of the bankers, but the government immediately appealed to the
Court of Exchequer Chamber The Court of Exchequer Chamber was an English appellate court for common law civil actions before the reforms of the Judicature Acts of 1873–1875. It originated in the fourteenth century, established in its final form by the Error From Queen ...
, where in 1696
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, shortly afterwards to become
Lord Chancellor The Lord Chancellor, formally titled Lord High Chancellor of Great Britain, is a senior minister of the Crown within the Government of the United Kingdom. The lord chancellor is the minister of justice for England and Wales and the highest-ra ...
, reversed the judgment on technical grounds which left a general feeling that an injustice had been done. The case was appealed to the
House of Lords The House of Lords is the upper house of the Parliament of the United Kingdom. Like the lower house, the House of Commons of the United Kingdom, House of Commons, it meets in the Palace of Westminster in London, England. One of the oldest ext ...
, which heard it in January 1700, and found for the bankers. However the warrant for payment then issued by the
Barons of the Exchequer The Barons of the Exchequer, or ''barones scaccarii'', were the judges of the English court known as the Exchequer of Pleas. The Barons consisted of a Chief Baron of the Exchequer and several puisne (''inferior'') barons. When Robert Shute was a ...
limited payment to revenues from the hereditary excise "not otherwise disposed of or applied by Act of Parliament", and the Commons then allocated all of the hereditary excise to current spending. Facing an "avalanche" of renewed demands, in 1701 Parliament legislated a definitive settlement "in lieu and discharge of certain perpetual annual payments and of all arrears thereof" in the Appropriation of Revenue Act 1700 ( 12 & 13 Will. 3 c. 12). Appropriation of Revenue Act 1700 ( 12 & 13 Will. 3 c. 12), section XV. Reproduced in
Danby Pickering Danby Pickering ( fl. 1769) was an English legal writer. Biography Born circa 1716 (christened 17 March that year),Parish records the son of Danby Pickering of Hatton Garden, Middlesex by his wife Mary (née Horson), Pickering was admitted, on 28 ...
(1764), ''
Statutes at Large ''The Statutes at Large'' is the name given to published collections or series of legislative Acts in a number of jurisdictions. The expression "statutes at large" was first used in the edition of Barker published in 1587. England and Great Bri ...
'', vol 10
pp.395-6
Emphasis added, following
Interest would thereafter be paid annually at 3% (the generally prevailing rate by that time) – but only from December 1705, and then only on the principal sums as calculated at the end of 1676 (assessed at £1,328,526). For all the missed interest payments from 1680 onwards, including the interest from 1701 to 1704, there was to be no compensation. The rate was later cut to 2.5% by the National Debt Act 1716 ( 3 Geo. 1. c. 9), which absorbed the debt into the general British national debt.''National Debt Act 1716'' (3 George I c.9), ss. I and XII. Reproduced in
Danby Pickering Danby Pickering ( fl. 1769) was an English legal writer. Biography Born circa 1716 (christened 17 March that year),Parish records the son of Danby Pickering of Hatton Garden, Middlesex by his wife Mary (née Horson), Pickering was admitted, on 28 ...
(1764), ''
Statutes at Large ''The Statutes at Large'' is the name given to published collections or series of legislative Acts in a number of jurisdictions. The expression "statutes at large" was first used in the edition of Barker published in 1587. England and Great Bri ...
'', vol 13
p.385
an
pp.393-4
Technically the principal was converted into 5% annuities at the rate of 1 for 2.


Effects

The short-term consequences of the stop were disastrous.
Gilbert Burnet Gilbert Burnet (18 September 1643 – 17 March 1715) was a Scottish people, Scottish philosopher and historian, and Bishop of Salisbury. He was fluent in Dutch language, Dutch, French language, French, Latin language, Latin, Greek language, Gree ...
wrote that "the bankers were broken, and multitudes who had put their money in their hands were ruined by this dishonourable and perfidious action". This seems to have been only a slight exaggeration: the goldsmith bankers were heavily hit, and some of the most prominent, including Edward Backwell and Robert Vyner, went bankrupt. Danby, the
Lord Treasurer The Lord High Treasurer was an English government position and has been a British government position since the Acts of Union of 1707. A holder of the post would be the third-highest-ranked Great Officer of State in England, below the Lord ...
, promised them compensation, but this was never forthcoming, One important legacy of the Great Stop of Exchequer was the founding of the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker and debt manager, and still one ...
in 1694. The primary purpose of the bank was to raise and lend money to the state: a loan of £1.2 million was made to the government; in return, the subscribers would be incorporated as ''The Governor and Company of the Bank of England'' with long-term banking privileges including the issue of notes. The
royal charter A royal charter is a formal grant issued by a monarch under royal prerogative as letters patent. Historically, they have been used to promulgate public laws, the most famous example being the English Magna Carta (great charter) of 1215, but ...
was granted on 27 July through the passage of the
Tonnage Act 1694 The Bank of England Act 1694 ( 5 & 6 Will. & Mar. c. 20), sometimes referred to as the Tonnage Act 1694, is an act of the Parliament of England. It is one of the Bank of England Acts 1694 to 1892.The Short Titles Act 1896, section 2(1) and sc ...
. Public finances were in so dire a condition at the time that the terms of the loan were that it was to be serviced at a rate of 8% per annum, and there was also a service charge of £4,000 per annum for the management of the loan. The founding of the Bank of England put an end to defaults such as the Great Stop of the Exchequer. From now on, the British government would never fail to repay its creditors. Ferguson, Niall (2008) ''The Ascent of Money - A Financial History of the World''. London: Penguin Books, p.76 Kenyon argues that the stop was a failure simply because it had never been tried in England before. The French and Spanish governments periodically repudiated their debts without undue difficulty; but from the time of
Elizabeth I Elizabeth I (7 September 153324 March 1603) was List of English monarchs, Queen of England and List of Irish monarchs, Ireland from 17 November 1558 until her death in 1603. She was the last and longest reigning monarch of the House of Tudo ...
the English Crown had earned a reputation for paying its debts, and in spite of Charles II's notorious extravagance and carelessness about money, the
City of London The City of London, also known as ''the City'', is a Ceremonial counties of England, ceremonial county and Districts of England, local government district with City status in the United Kingdom, city status in England. It is the Old town, his ...
was quite unprepared for the stop. The king himself came to regret it as a "false step".


Further reading

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References

{{English Exchequer Charles II of England Economy of Stuart England 1672 in England 1672 in economic history History of government debt Third Anglo-Dutch War