No More Champagne

by David Lough

  But the cost of renting Lullenden from his father’s trust and the drop in his income were gradually squeezing Churchill’s finances: including the Lullenden loan from his father’s trust, he was paying almost £1,000 in interest each year. Within three months of asking for his last loan, Churchill returned to his new bank manager William Bernau*8 for yet another £2,000 to pay urgent bills. This took his bank loans up to £14,690.34 When Bernau politely asked for the transfer to the bank of £3,000-worth of ‘South African’ investments that Churchill mentioned during their meeting, it was left to Eddie Marsh to break the news to Bernau that they were actually worth only £2,000.35

  Something had to give and Lullenden was the obvious candidate. Churchill covered three sheets of paper trying to work out whether he could buy the property from his trustees by selling £5,500 worth of investments and finding another £1,300 from the bank, but his arithmetic was flawed: he recorded his bank loans at £12,500 rather than £14,690, and even then he came up £3,000 short.36

  Desperate to hold on to Lullenden if possible, he asked Nicholl, Manisty & Co. whether he could use his marriage settlement’s life policy as additional security for a loan, but their reply was no. He asked Bernau whether the bank could lend against the security of Lullenden itself, but was told that the bank did not lend on mortgages. Time was running out. Soon he was due to make expensive life insurance payments underpinning £4,000 of wartime loans guaranteed by Freddie Guest. Churchill finally came up with the idea of reducing his loans by selling shares, but Bernau told him dustily that he had already pledged the proceeds from his shares to reducing his separate overdraft, which now stood at £2,276.37

  Late in August 1918 another nasty shock came: Churchill was faced with a tax payment of £476 against his earnings from journalism in 1916 and 1917. He questioned the figure, only to be told that the amount was not only correct but already overdue. He had to ask Bernau to delay paying the insurance renewals until the insurers’ thirty days’ grace period had expired, a request that rang alarm bells at the bank. Bernau sent a summary of Churchill’s £16,000 debts to his senior partner Reginald Cox and asked whether the facilities should be renewed. Cox knew that rumours about his bank’s health were already circulating in government quarters, so he decided not to risk a battle: the bank would renew for twelve more months, provided Captain Guest would reconfirm his guarantee.38 Three days later Eddie Marsh assured Sir Reginald that Churchill ‘has seen Capt. Guest who is willing to undertake the responsibility which he discussed with you’.39 It had been a close shave and the fate of Lullenden was still undecided as six weeks later the couple’s fourth child Marigold was born.

  When the war drew to a close in November 1918 Churchill was not alone in surveying the damage to his finances. The wartime suspension of the gold standard, which had fixed the value of sterling against gold since 1819, and the debts taken on to fund five years of fighting, had sapped Britain’s pre-eminent position in the world’s financial order. Jack had lost his job: his stockbroking firm had collapsed. Even the duke of Westminster looked at the grand houses on his Mayfair estate and wondered aloud whether the wealthy would ever again be able to afford them.

  *1 British Consols fell from 74 to 69.5 between 18 July and 1 August, before trading was suspended in most capitals; Russian government bond prices fell by 8.7 per cent; French bonds by 7.8 per cent; German bonds by 4 per cent. See Niall Ferguson, The Rothschilds, p. 963.

  *2 Sir Archibald Sinclair, Bt. (1890–1970), son of an American mother and a Scottish landowner; first met Churchill at the home of actress Maxine Elliott; joined Life Guards 1910; personal military secretary to secretary of state for war (Churchill) 1919–21; private secretary to secretary of state for colonies (Churchill) 1921–2; MP 1922–45; secretary of state for Scotland 1931–2; Liberal Party leader 1935–45; secretary of state for air 1940–45; baronet 1912, Viscount Thurso 1952.

  *3 James Masterton-Smith (1878–1938), joined the Admiralty 1901. Private secretary to the Second Sea Lord 1904–8, to the permanent secretary 1908–10 and to successive First Lords of the Admiralty 1910–17; he served Churchill again as permanent under-secretary of state for the colonies 1921–4.

  *4 Payment of MPs was introduced in 1911.

  *5 A major general earned £1,000 a year; a colonel £500, a major £420.

  *6 Max Aitken (1879–1964), born in Canada; MP 1910–16; minister of information and Chancellor of the Duchy of Lancaster 1918; acquired control of Daily Express 1916, later the Sunday Express and Evening Standard; minister for aircraft production 1940–41, supply 1941–2, war production 1942, Lord Privy Seal 1943–5; knighted 1911, Lord Beaverbrook 1917.

  *7 Founded in March 1915; Sunday newspapers started during the Boer War (1899–1900) as a response to the thirst for news of the war. The Sunday Pictorial’s circulation rose by 400,000 to 2,500,000 copies during Churchill’s series.

  *8 William Bernau (1870–1937), banker; Churchill’s manager at Cox & Co., then Lloyds Bank 1919–33.

  9

  ‘It is like floating in a bath of cream’

  A Timely Train Crash, 1918–21

  Exchange rate $5 = £1

  Inflation multiples: US x 13; UK x 40

  THE AFTERMATH OF the Great War proved disorientating for many members of the Edwardian élite. ‘Ladies who came to lunch with my mother deplored Modern Times,’ Loelia, duchess of Westminster remembered. ‘They said how crippling the taxes were, how dreadful the housing shortage, how expensive the shops, how high the wages, how spoilt the children.’ Above all, they complained about the cost of servants: ‘Cooks were offered £35 to £65 a year; Nannies round about £50. Actually we all continued to live with what now seems a vast quantity of servants. If one had a servant at all one did not even pull a curtain or open the front door when the bell rang.’1

  Taxes had risen, but the Government had financed three-quarters of the cost of the war by borrowing.*1 The City lobbied for government spending cuts to balance the books and to allow for a return to the pre-war fixed parity between sterling and gold. However, politicians, including Churchill, worried more about deflation and its social consequences, ever conscious of the spread of Bolshevism to Britain’s workers. Commitments to social welfare spending could not easily be cut; meanwhile several million servicemen had to be fed and paid until they were demobilized, and a million had been kept under arms to occupy the parts of Europe, the Middle East and Africa that Britain had agreed to police in the aftermath of war.

  Demobilizing the army became Churchill’s primary challenge when in January 1919 he was appointed to the combined posts of secretary of state for war and air – ‘of course there will be but one salary!’ Lloyd George had enjoyed adding to his letter when he made the appointment.2 Neither post carried a London residence, so Churchill sold £400-worth of shares to furnish a house which he leased close to the Houses of Parliament in Dean Trench Street. Despite the burden of more than £20,000 borrowed from family trusts and the bank, he resisted selling any more of his remaining £10,000-worth of shares while the stock markets enjoyed a post-war boom.3

  Although restored to its pre-war level of £5,000, Churchill’s ministerial salary still fell at least £300 short of his spending each month.4 As a result he found himself in breach of his £3,000 bank overdraft limit by March 1919. He had to argue for an increase on the strength of higher share prices. ‘He is about to sell his Cassels shares*2 to reduce overdraft but will wait for them to rise further,’ his bank manager William Bernau noted. ‘Mr A. C. C[ox] agrees and has marked yellow strip for £500.’5

  Lullenden remained at the heart of Churchill’s difficulties, as he confessed to weekend visitors to the house, his old army friend General Sir Ian Hamilton and his independently wealthy wife Jean. At the time the Hamiltons were frustrated in their own search for a country seat; a few days after their visit Sir Ian wrote to suggest that they could rent the main house of Lullenden from Churchill for a year, leaving the lodge and farm to the current owners. Chu
rchill suggested a rent of £500 a year for three years, adding that he would complete the En-Tout-Cas tennis court (at a cost of £200) provided the Hamiltons rented the court for an additional £10 a year.6 ‘I love it and want it for my own, and would like to plunge in and buy it,’ Lady Jean Hamilton recorded in her diary during April. ‘It’s the sort of romantic place I long to have – it’s a snuggy place with rocks, pools, trees and streams such as my childish soul loved and still loves.’7

  Churchill was busy at the time trying to persuade his cabinet colleagues to recognize the White Russian movement of General Kolchak,*3 but he realized that the scheme to split up the house from the lodge and the farm in this way was too complicated. Reluctantly, he decided that he would have to sell Lullenden in its entirety. The Hamiltons eased the pain of the decision by allowing the Churchills and their young family to enjoy one final summer at the property.

  ‘The great pleasure Jean and I do feel at the idea of possessing Lullenden is very much tempered by our regret that you should have to leave it,’ Sir Ian wrote. ‘I simply hate the idea that you should loose [sic] this pleasure and Diana and Randolph, I am afraid, will never forgive us.’8

  Churchill was lucky. Sir Ian left his wife to settle on a price for Lullenden and he was astonished to discover that she paid £10,000, adding a further £1,885 for what Churchill called ‘commodities’.9 ‘The purchase of Lullenden by my wife from Mr Winston Churchill was entirely unbusinesslike and had no relation to any real value,’ he wrote four years later. ‘Had Lullenden belonged to anyone else but Mr Churchill or some of the two or three equally great friends I have, I would have waited for the auction and bought it, very likely, for £3,000.’10

  Nicholl, Manisty & Co. relieved the pressure on Churchill’s finances further by ruling that Lord Randolph’s trust’s £3,000 profit on the Lullenden sale could go to him, as he had carried out many of the improvements.11 They also agreed that the Churchills could look for a new London home using the £7,000 returned to the trust, while they ‘perched’ for the time being in another Guest family property near Richmond Park.

  A London architect and developer, Frederick Foster, showed Churchill a four-storey house at Hyde Park Gate leased by the duke of Wellington’s younger son Lord Gerald Wellesley. The lease was on offer for £2,300, a low price that might have given a more cautious buyer pause for thought. Churchill agreed to buy it on the spot, without asking for a survey or mentioning that his father’s trust would be the buyer rather than himself. When the trust’s lawyers insisted on a survey it revealed that expensive repairs were needed. Churchill immediately withdrew his bid, offering to reimburse any costs incurred by Lord Wellesley.

  Lord Wellesley’s lawyers wrote to Churchill to say that his lordship had been ‘taken by surprise when he heard that Mr Winston Churchill was inclined to repudiate arrangements made by the correspondence which we are advised contains all the essential terms of an enforceable Contract’.12 Churchill commissioned an expensive legal opinion as to whether the contract was binding, but it was not clear-cut in his favour. When Lord Wellesley signalled that he intended to press his point by switching to expensive London lawyers, Churchill made as graceful a retreat as possible to protect his reputation: he altered the draft of his lawyers’ letter to remove a reference to ‘financial reasons’ as the motive for his original withdrawal.13

  Lord Wellesley raised no objection to Churchill re-advertising the property before his purchase was due to complete at Christmas. Meanwhile, he still needed a suitable home. Foster suggested another tall house overlooking Hyde Park, this time on the less expensive north side. The architect had already bought 2 Sussex Square for development, but offered to sell it on to the Churchill trust for £4,750 on condition that his business carried out the modernization. Nicholl, Manisty also agreed that the trust could fund the renovation up to a limit of £2,250.14

  By early October, post-war inflation had helped to increase the value of Churchill’s South African shares by £4,500.15 However, his overdraft had risen to £5,500, taking the total he owed his bank to more than £22,000. Anxious, nevertheless, not to miss out on the boom, Churchill asked Cox & Co. for another £2,000 to buy more shares. Bernau relayed three conditions from the bank: (1) that Churchill transfer all his share certificates to Cox & Co., (2) that he use the Lullenden money to reduce his overdraft, and (3) that he renew his promise to reduce his loan balance by the end of the year.16 Churchill agreed, but two weeks later17 when he produced the Lullenden money he diverted it to invest in more shares recommended by Sir Abe Bailey and his brother’s new firm of London stockbrokers, Vickers da Costa.18

  Halfway through December Churchill’s solicitors suddenly reminded him that he had to pay Lord Gerald Wellesley £2,300 on Christmas Eve, because no replacement buyer for his house had come forward.19 Churchill could not approach either his bank or his father’s trust, having exhausted his credit with both of them. Still anxious not to sell any investments while the market was booming, he visited Sir Ernest Cassel at his Park Lane home. The ailing financier produced a cheque made out to Churchill, accompanied by a carefully worded note: ‘My dear Winston: I enclose my cheque for £2,300 in payment for the lease of 2, Hyde Park Street, secured by you on my behalf.’ Churchill was equally precise when he sent the cheque to his bank manager: ‘Sir Ernest Cassel has now paid me the £2,300 I disbursed on his account for 2 Hyde Park Street.’20

  The prime minister Lloyd George summoned Churchill and other British ministers in January 1920 to Versailles, where he was taking part in negotiations to establish a peace treaty between the Allied powers and Germany. As Lloyd George convened a series of emergency cabinet meetings to discuss a response to the military reverses suffered by White Russian forces at the hands of the Bolshevik army, share prices began to fall. Early in February Churchill worked out that his own portfolio of some £20,00021 had dropped in value by 5 per cent, but he was too caught up in the Russian crisis to heed Bernau’s warning about the dangers of remaining so fully invested on borrowed money.

  Churchill remained pre-occupied for most of the summer with cabinet battles over policy towards Russia, Poland, Egypt and Ulster. He did get away for three weeks’ holiday at the duke of Westminster’s hunting lodge in France, but on his return to London in September he found a summons from Bernau. Further falls in share prices had left the bank distinctly unhappy with its security on his loans of £22,000.22

  Churchill had to meet his bank manager twice on consecutive days. He had no more shares that he could offer to transfer into the bank’s name, so Bernau asked him to take out additional life insurance. ‘WSC seen 20/9/20 & 21/9/20... No more securities to come at present,’ Bernau noted. He also recorded Churchill’s insistence that more money was about to arrive in his account: ‘£1500 expected from trustees for Current a/c but £400 to be pd. for In. Tax + various other cheques say £1500 in all, leaving a/c about £2000 Dr [overdrawn].’23

  Churchill had to change his tune the next day after reminding himself that the trustees would not be contributing so much as he expected towards the building works at Sussex Square, which had exceeded the trust’s budget as early as April. Churchill had originally offered to fund the excess himself, but had taken fright in August after paying an extra £1,750 during June and July. He had asked Nicholl, Manisty whether the trust could cover all remaining bills, but the solicitors insisted on obtaining a professional opinion from a firm of surveyors. It recommended that the trust pay no more than an extra £500, leaving Churchill seriously short of the contribution which he had told the bank to expect.24

  Unabashed, he suggested a different solution to Bernau: ‘I expect now to receive from £400–600 for the reproduction of my articles in a book form, wh[ich] sh’d be received in a month or two,’25 he wrote two days after their second meeting. ‘If in these circumstances you wish to take up one of the £2000 policies please let me know, but I daresay you will not consider this necessary.’26 Bernau went to the top for a decision. ‘Advise him we w
ill leave it for now,’ Reginald Cox decided, still not keen on a confrontation between his weakened bank and a senior politician.27

  More falls in mining shares followed in November 1920. However, Churchill was able to turn to his friend Sir Abe Bailey to save him from further embarrassment. Sir Abe offered a personal guarantee ‘against any loss on all shares purchased on my advice’; this was immediately accepted by the bank.

  Churchill recognized that he had to find a way of supplementing his ministerial earnings if he was to reduce his debts. Inspired by a conversation with General Rawlinson, his fellow veteran at Omdurman who had commanded British forces on the Somme, Churchill had started to think seriously of writing his own account of the Dardanelles campaign. In March he visited Sir Frederick Macmillan, the publisher of Lord Randolph Churchill. ‘We shall be very pleased to put into type the Memoranda and Minutes written while you were away at the Admiralty which you wish to have ready for publication at some future time,’ Sir Frederick wrote to him. ‘I will see that it is printed in a satisfactory form and with all proper regard to secrecy.’28

  By October 1920 a short book about the Dardanelles had grown into an ambitious history of the First World War that would be called The World Crisis. Rather than publish through Macmillan, Churchill decided to employ a literary agent. Frank Harris was now living in America, so Churchill drove a hard bargain with a new agency set up during the war by an American journalist in London called Albert Curtis Brown.*4 It was agreed that Curtis Brown would earn his 10 per cent commission only if royalties exceeded £15,000. Churchill, for his part, undertook to produce the first volume of The World Crisis by the end of 1922 and the second a year later, while still holding down his position as secretary of state for war.29