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Stop of the Exchequer

The Great Stop of the Exchequer or Stop of the Exchequer was a repudiation of state debt that occurred in England in 1672 under the reign of Charles II of England.

Contents

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 bankers, 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:

any warrant, securities or orders, whether registered or not registered therein, and payable within that time, excepting only such payments as shall grow due upon orders on the subsidy, according to the Act of Parliament, and orders and securities upon the fee farm rents, both which are to be proceeded upon as if such a stop had never been made.

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 in the Third Anglo-Dutch War.
  • 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, excise, and hearth tax (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, 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 and Mary, Parliament reallocated the earmarked revenue completely, to new debts arising from the Nine Years' War 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, where in 1696 Lord Somers, shortly afterwards to become Lord Chancellor, 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, which heard it in January 1700, and found for the bankers. However the warrant for payment then issued by the Barons of the Exchequer 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". 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, which absorbed the debt into the general British national debt.

The short-term consequences of the Stop were disastrous. Gilbert Burnet 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 Viner, went bankrupt. Danby, the Lord Treasurer, promised them compensation, but this was never forthcoming,

The sealing of the Bank of England Charter (1694)

One important legacy of the Great Stop of Exchequer was the founding of the Bank of England in 1694. The primary purpose of the Bank was to raise and lend money to the State and in consideration of this service it received under its Charter and various Act of Parliament, certain privileges of issuing bank notes. A loan of £1.2m 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 was granted on 27 July through the passage of the Tonnage Act 1694.

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 £4000 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.

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 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 was quite unprepared for the Stop.

The King himself came to regret it as a "false step".

  1. Ferguson, Niall (2008) The Ascent of Money - A Financial History of the World. London:Penguin Books, p.76
  2. London Gazette issue 641, 4 January 1672 (1671 O.S.).
    Reproduced in Andrew Browning (1966)(ed.), English Historical Documents 1660-1714. London: Eyre & Spottiswoode p.342
  3. Burnet, Gilbert (1724), History of His Own Time. Martin Routh edition (1823): vol.1 p. 532; Everyman Abridgement (1979) p.111
  4. "Letter from Richard Langhorne to Lord Hatton on the Stop of the Exchequer, 1672" (6 January 1672). British Library Add MS 29553, fol. 358.
    Reproduced in Andrew Browning (1966)(ed.), English Historical Documents 1660-1714. London: Eyre & Spottiswoode p.344
  5. Horsefield, p.515
  6. Milevsky, p.87
  7. Kenyon, J.P. Stuart England Allen Lane 1978 p.223
  8. Christine Desan (2004), Making Money: Coin, Currency, and the Coming of Capitalism. Oxford University Press. p.281 et seq.
  9. Rigg, James MacMullen, "John Somers", Dictionary of National Biography 1885-1900 Vol. 53 p.224
  10. Horsefield, p.522
  11. Appropriation of Revenue Act 1700 (12 & 13 William III c.12), section XV. Reproduced in Danby Pickering (1764), Statutes at Large, vol 10, pp.395-6. Emphasis added, following Horsefield p.523
  12. National Debt Act 1716 (3 George I c.9), ss. I and XII. Reproduced in Danby Pickering (1764), Statutes at Large, vol 13, p.385 and pp.393-4. Technically the principal was converted into 5% annuities at the rate of 1 for 2.
  13. H. Roseveare, The Financial Revolution 1660–1760 (1991, Longman), pp. 34
  14. Kenyon p.52

Stop of the Exchequer
Stop of the Exchequer Article Talk Language Watch Edit The Great Stop of the Exchequer or Stop of the Exchequer was a repudiation of state debt that occurred in England in 1672 under the reign of Charles II of England Contents 1 The Stop and its causes 1 1 Subsequent developments 2 Effects 3 Further reading 4 ReferencesThe Stop and its causes EditUnder Charles II the state finances were in such a grievous condition that the Crown found itself no longer able to honour its debts 1 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 bankers 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 any warrant securities or orders whether registered or not registered therein and payable within that time excepting only such payments as shall grow due upon orders on the subsidy according to the Act of Parliament and orders and securities upon the fee farm rents both which are to be proceeded upon as if such a stop had never been made 2 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 3 A letter from Richard Langhorne to Lord Hatton on January 6 gives additional background on the causes and effects of the Stop 4 A total 82 ships were to be prepared for sail in the cause of national defense i e to attack the Dutch Republic in the Third Anglo Dutch War 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 3 The outstanding obligations in all were later estimated to come to 1 211 065 5 This was similar in magnitude to the King s entire ordinary revenue for 1671 2 including customs excise and hearth tax but excluding additional special revenues granted by parliament 378 000 in 1671 2 6 Subsequent developments Edit 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 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 and Mary Parliament reallocated the earmarked revenue completely to new debts arising from the Nine Years War 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 7 raising constitutional questions of just what obligations courts could enforce against the Crown 8 The Court of Exchequer gave judgment in 1692 in favour of the bankers but the government immediately appealed to the Court of Exchequer Chamber where in 1696 Lord Somers shortly afterwards to become Lord Chancellor reversed the judgment on technical grounds which left a general feeling that an injustice had been done 9 The case was appealed to the House of Lords which heard it in January 1700 and found for the bankers However the warrant for payment then issued by the Barons of the Exchequer 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 10 in 1701 Parliament legislated a definitive settlement in lieu and discharge of certain perpetual annual payments and of all arrears thereof 11 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 11 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 which absorbed the debt into the general British national debt 12 Effects EditThe short term consequences of the Stop were disastrous Gilbert Burnet wrote that the bankers were broken and multitudes who had put their money in their hands were ruined by this dishonourable and perfidious action 3 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 Viner went bankrupt Danby the Lord Treasurer promised them compensation but this was never forthcoming The sealing of the Bank of England Charter 1694 One important legacy of the Great Stop of Exchequer was the founding of the Bank of England in 1694 The primary purpose of the Bank was to raise and lend money to the State and in consideration of this service it received under its Charter and various Act of Parliament certain privileges of issuing bank notes A loan of 1 2m 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 was granted on 27 July through the passage of the Tonnage Act 1694 13 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 4000 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 1 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 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 was quite unprepared for the Stop 14 The King himself came to regret it as a false step Further reading EditWilliam A Shaw 1908 Calendar of Treasury Books Volume 3 1669 1672 Introduction part 1 part 2 via British History Online Andrew Browning 1930 The Stop of the Exchequer History 14 56 333 337 JSTOR 24400948 Richard David Richards 1929 The Early History of Banking in England London P S King amp Son Chapter III The Stop of the Exchequer OCLC 802047567 Richard David Richards 1930 The Stop of the Exchequer Economic History Supplement to The Economic Journal II 45 62 doi 10 1093 ej 40 Supplement 1 45 J Keith Horsefield 1982 The Stop of the Exchequer Revisited The Economic History Review 35 4 511 528 JSTOR 2595405 Moshe Milevsky 2017 The Day The King Defaulted London Palgrave Macmillan ISBN 3319599879References Edit a b Ferguson Niall 2008 The Ascent of Money A Financial History of the World London Penguin Books p 76 London Gazette issue 641 4 January 1672 1671 O S Reproduced in Andrew Browning 1966 ed English Historical Documents 1660 1714 London Eyre amp Spottiswoode p 342 a b c Burnet Gilbert 1724 History of His Own Time Martin Routh edition 1823 vol 1 p 532 Everyman Abridgement 1979 p 111 Letter from Richard Langhorne to Lord Hatton on the Stop of the Exchequer 1672 6 January 1672 British Library Add MS 29553 fol 358 Reproduced in Andrew Browning 1966 ed English Historical Documents 1660 1714 London Eyre amp Spottiswoode p 344 Horsefield p 515 Milevsky p 87 Kenyon J P Stuart England Allen Lane 1978 p 223 Christine Desan 2004 Making Money Coin Currency and the Coming of Capitalism Oxford University Press p 281 et seq Rigg James MacMullen John Somers Dictionary of National Biography 1885 1900 Vol 53 p 224 Horsefield p 522 a b Appropriation of Revenue Act 1700 12 amp 13 William III c 12 section XV Reproduced in Danby Pickering 1764 Statutes at Large vol 10 pp 395 6 Emphasis added following Horsefield p 523 National Debt Act 1716 3 George I c 9 ss I and XII Reproduced in Danby Pickering 1764 Statutes at Large vol 13 p 385 and pp 393 4 Technically the principal was converted into 5 annuities at the rate of 1 for 2 H Roseveare The Financial Revolution 1660 1760 1991 Longman pp 34 Kenyon p 52 Retrieved from https en wikipedia org w index php title Stop of the Exchequer amp oldid 1028687355, wikipedia, wiki, book,

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