Irish Land Purchase Finance: A Criticism

Irish Review (Dublin)

Irish Land Purchase Finance: A CriticismAuthor(s): Justin PhillipsSource: The Irish Review (Dublin), Vol. 3, No. 27 (May, 1913), pp. 120-124Published by: Irish Review (Dublin)Stable URL: http://www.jstor.org/stable/30063261 .

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IRISH LAND PURCHASE FINANCE

A CriticiSm

By JUSTIN PHILLIPS

VERY Irish farmer knows that, should he purchase his farm

E under the Land Purchase Acts, he must continue to pay his

annuity for 68j years if the advance be made under the Act of 1903, and for 654 years if made under the Act of 19o09. He does not worry himself to ascertain exactly how the number of years during which he must repay is arrived at, but it is laid down in sub- sections i and 2 of Section 45 of the Irish Land Act, 1903, that

"every advance shall be repaid in the manner and at the times

prescribed by the Treasury, by means of a purchase annuity calcu- lated at the rate of three pounds five shillings for every hundred

pounds of the advance, and so in proportion for any less sum." "The

purchase annuity shall be paid until the whole of the advance in

respect of which it is payable is ascertained in manner prescribed by the Treasury to have been repaid."

Under the Act of I9go the rate of the purchase annuity has been increased to three pounds ten shillings for every hundred

pounds of the advance, and this increased rate applies to all cases in which proceedings for sale were instituted since the 24th of November, 1908.

The Treasury have, by rules entitled "The Irish Land (Finance) Rules, 1910o," prescribed that " For the purpose of ascertaining the amount repaid in respect of an advance made under the Act of 1903, as amended or extended by the Act of 19o09, the following provisions shall apply :-(i) The sinking fund portion (- per cent.) of each instalment of annuity shall be deemed to be accumulated by half- yearly rests at the appropriate rate of interest.

"The appropriate rate of interest shall be 23 per cent. per annum if the advance is repayable by means of a 34 per cent. annuity, and 3 per cent. per annum if the advance is repayable by means of a 34

120




per cent. annuity, or such other rate as may be for the time being directed by the Treasury, having regard to the rate of interest at which the sinking fund portions of purchase annuities are for the time being invested by the National Debt Commissioners.

" The whole advance shall be deemed to have been repaid when the total amount accumulated in accordance with these Rules is equal to the amount of the advance, or under such other circumstances as the Treasury may hereafter prescribe."

On making the necessary calculations, it is found that where the

sinking fund accumulates at 24 per cent. (advances made under the Act of 1903) the whole advance will have been repaid at the end of 684 years, and where the sinking fund accumulates at 3 per cent.

(advances made under the Act of 19o09) the whole advance will have been repaid at the end of 654 years.

On the face of things, it seems that tenant purchasers could not in justice demand a rate of interest on their sinking fund higher than the rate charged them on the nominal amount of their advances. This is the view held by the Treasury, who accordingly allow the tenants interest on their sinking fund at the same rate as they charge them for the nominal amount of their advances. But in advances there is a marked distinction between nominal and actual values. If under the Act of 1903 an advance of rioo is to be made for a holding, guaranteed Land Stock to the nominal value of s 135 i'as to be issued to procure the necessary cash to pay the landlord. The tenant

purchaser repays, by way of half-yearly instalments, interest at the rate of 2j per cent. and sinking fund at 4 per cent. on Stock of ZIoo nominal value; but the interest and sinking fund on the excess stock issued-/35-is paid by way of deductions from grants in aid of the rates on agricultural land, or else some other subtle means is devised to compel the tenant purchaser to pay the interest and sinking fund on this sum indirectly. Whether directly or indirectly, the tenant

pays interest and sinking fund on the full nominal amount of Stock issued for the purpose of his advance.

Under the Act of 1909, the tenant purchaser pays, directly, interest and sinking fund on the full nominal value of the Stock

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issued to make the advance to his landlord. Consequently there is no loss on flotation, as landlords are paid in stock nominally equal to the amount of the agreed purchase money; but the Stock is worth

only 80 per cent. of its face value, and the tenant purchaser is not

paying interest at the rate of 3 per cent., but interest at the rate of

3 per eighty, or 3- per cent. It is common knowledge that the Irish Land Act of I903 failed

because of the depression of British Government Securities, and the

consequent quotation, on the Stock Exchange, of Land Stock at a discount of 25 per cent. It is now time to inquire how much the National Debt Commissioners are gaining over the general deprecia- tion of Land Stock, having regard to the very high yield per cent. obtained from money invested in this security. To simplify matters, I give the present price of, and the actual yield per cent. on money invested in, Guaranteed Land Stock:

Preent Price. Yield per cent. v s. d.

21 per cent. ... ... 741 4 . 3 14 I 3 per cent ... ... 8 ... 3 14 I

When tenant purchasers pay their half-yearly instalments to the Irish Land Commission, the practice followed is to pay the sinking fund portion of such instalments over to the National Debt Commis- sioners. It is then applied by them to the purchase of Land Stock. Now as this Stock can be purchased at such a considerable discount, the National Debt Commissioners can, with the money at their disposal, buy up an amount of Stock much greater than the amount of sinking fund paid over to them. The result is, that the rate of interest at which the sinking fund portions of the tenants' purchase annuities is

being invested is just 3j per cent., and the tenant purchasers are being allowed interest at the rate of 21 per cent. under the Act of 1903, and 3 per cent. under the Act of Igog.

If the proper rate of interest were allowed to tenant purchasers --i.e., the rate of interest at which the sinking fund portions of their

purchase annuities were being invested by the National Debt Com- 122




missioners-3j per cent.-the accumulated sinking fund would equal the amount of the advance at the end of 57- years from the date of the making of the advance, and the tenants' liability for the payment of annuities would cease at the expiration of that time. Whether the proper rate of interest be allowed or not, the entire advance will have been repaid at the end of 574 years, having regard to the rate of interest at which sinking fund payments are being invested; and for the remaining years during which tenant purchasers pay interest and sinking fund on the total amount of their advances, the entire

payments will be a clear gain to the National Debt Commissioners, as there will no longer be any outstanding advance. Consequently, on an advance of yboo made under the Act of 1903, the National Debt Commissioners will have obtained a profit of p35 I5s. at the date on which the tenant ceases to repay.

Following out these calculations, it is found that when Land Purchase is complete the estimated total sum which will have been advanced under the Acts of 1903, 1909, and subsequent Acts, is

h65,000ooo,o000-8o,ooo,ooo under the Act of 1903, and t85,000,000 under the Act of 19o9 and subsequent Acts. The total annual

payments at the rate of 34 per cent. on u8o,ooo,ooo amount to

n2,6oo,ooo, and as this will be all profit after the lapse of 57o years, and will consequently be reaped for eleven years, the total obtained

will amount to d28,6oo00,000. Similarly, under the Act of 190o9, the tenant must repay for 65j years, and the profit will be reaped for 8

years; and as the total to be advanced under that Act, or subsequent Acts, amounts to e85,ooo,ooo, the annual payments thereon at 34 per cent. amount to f2,975,ooo, and for eight years to g23,800,000o, making a grand total of i52,4oo,o00oo clear gain to the National Debt Com- missioners.

It may seem an exaggeration to state that the National Debt Commissioners will secure a sum of m52,4oo,ooo clear gain over Land

Purchase; but I challenge denial of the accuracy of my statements. It was laid down in the Treasury Rules that regard would be

had to the rate of interest at which the sinking fund portions of tenants' purchase annuities were being invested by the National Debt

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Commissioners, but no regard whatever is being had to the rate of interest secured.

In conclusion, I assert that whereas Irish tenant purchasers are

being allowed interest, at the rate of 24 per cent. under the Act of

I903 and 3 per cent. under the Act of 1909, on their accumulated

sinking fund, the National Debt Commissioners are at the present price of Guaranteed Land Stock securing interest at the rate of 3- per cent on the investment of the accumulated sinking fund; that, at such a rate of interest, the total advance will have been repaid in

57- years; that tenant purchasers are compelled to repay for 68j and 654 years respectively; and that the Irish Land (Finance) Rules have, with complete disregard of justice, been drafted in such a way as to secure that the National Debt Commissioners will profit to the extent of q52,400,ooo

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Irish Land Purchase Finance: A Criticism

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