21 NOVEMBER 1914, Page 19


MR. LLOYD GEORGE introduced on Tuesday into the House of Commons a greater Budget than any Finance Minister in any country has ever introduced hitherto. The main purpose of the present article is to put on record and to explain as concisely as possible the figures of the problem with which the Chancellor of the Ex- chequer had to deal and the precise means by which he has dealt with it. Quite properly, he began by looking at the problem from the point of view of the current financial year ; but the proposals be made were necessarily concerned with the even larger problem of the probable continuing expense of the war. So far as the current financial year is concerned, the first difficulty, though by no means the most serious, with which Mr. Lloyd George has had to deal is the falling off in the anticipated revenue of the year by a sum of no less than £11,128,000 as the result of the war. If any justification were needed for the imposition of new taxes, this figure alone would provide it, for the most spendthrift of financiers could hardly have proposed to meet a deficiency of revenue of this character by raising a loan.

The second and more serious problem is the anticipated cost of the war up to the end of the financial year. Mr. Lloyd George puts that at £328,443,000, a figure which is necessarily very largely guesswork. If this figure be added to the peace expenditure as estimated before the war —namely, £206,924,000—we get a total of £535,367,000. As against this colossal expenditure there is only an anticipated revenue of £195,796,000. To make good the whole of the deficiency by increased taxation is clearly out of the question. In effect Mr. Lloyd George proposes to raise in the current year by new taxes £15,500,000, to suspend partially the Sinking Fund so as to have available a further sum of £2,750,000, and to meet the cost of the deficiency—namely, £321,321,000—by borrowing. The borrowing consists first of the £90,000,000 of Treasury bills which have already been raised, partly for Ways and Means under the general powers of the Treasury, and partly under the authority of the War Loan Act of 1914, and which will presumably be renewed when they fall due ; and secondly of a new war loan of £350,000,000 stock issued at 95. The cost of floating the loan will be relatively insignificant, so that we may assume that almost the full sum of £332,500,000 will be raised. Added to the £90,000,000 of Treasury bills, this gives £422,500,000, and Mr. Lloyd George hopes that this, with such extra revenue as is raised by taxation, will suffice for the cost of the war up to the end of July.

The new taxes consist, first, of the doubling of the Income Tax and Super Tax ; secondly, of a new duty on

beer at the rate of 17s. 3d. per barrel, which is the approximate trade equivalent of id. per half-pint; thirdly, of an increased Tea Duty of 3d. a pound. The double Income Tax and Super Tax will in the current year only be calculated on the four months December to March. Thus in effect the Income Tax payers will have to pay a third additional to the tax already due from them. Incidentally we may remark that immediate payment of Income Tax even before January 1st is a service to the country quite as great as, indeed slightly greater than, promptitude in subscribing for the war loan. The extra Income Tax is expected to yield for the remainder of the current year £11,000.000. In a full year it will yield £38,750,000. In the same way the extra Super Tax is estimated to yield £1,500,000 for the remainder of the current year, and £6,000,000 next year. The extra Beer Duty, after allowing for the concessions which are to be made on the License Duty, will yield £2,050,000 in this year, and £17,050,000 next year. Finally, the extra 3d. on tea will yield £950,000 this year, and £3,200,000 next year. In the aggregate the new taxation will yield £15,500,000 this year, and £65,000,000 next year.

These proposals have the very great merit of simplicity, and incidentally we should like to compliment the Chancellor of the Exchequer on the lucidity with which he explained his scheme to the House. In his political Budgets he has often been confused when dealing with figures. Faced with a serious financial problem, he has realized that the business of a Chancellor of the Exchequer is to raise money in the most effective manner possible, to explain his proposals to the House of Commons as clearly as can be, and not to pose as a fairy godmother scattering the taxpayer's money among electors who are expected to show their gratitude at the poll.

As regards his actual proposals, one criticism that is likely to be made is that he has hardly succeeded sufficiently in catching the person whom he described as " the elusive teetotaler?' The increase of the Tea Duty from 5d. to 8d. represents a very small contribution from persons who neither drink beer nor pay Income Tax. In some households it will certainly mean a tax of less than 2d. a week, and this is an inadequate contribution from a man earning £3 a week. In this matter Mr. Lloyd George had an excellent precedent before him in the case of the Crimean War, where the Tea Duty was put by Mr. Gladstone at ls. 3d. on the pound. Had this precedent been followed, an additional £10,000,000 of revenue instead of £3,200,000 could have been raised next year without any excessive burden upon poor people, and without any serious reduction in the consumption of tea.

As regards the Income Tax, the burden, although it will be cheerfully faced, falls very heavily on many people, 4,nd especially on those who have given very largely to the numerous funds that have been raised for helping our soldiers and sailors and for relieving distress. The only pity is that in years of peace the Income Tax should have been forced up to what has in previous wars been regarded as a war level. For though the actual payers of Income Tax will not shirk their burden, it is certain that the sudden call for such a heavy tax must in many cases lead to industrial dislocation. Even greater regret will be felt that the Government have failed to take advantage of this opportunity to extend the Income Tax downwards so as to embrace the whole population. Mr. Lloyd George admitted that the matter had been under consideration, and we may safely assume that there has been a difference of opinion in the Cabinet upon it. Evidently the politicians have outvoted the economists. No one, of course, denies that there are administrative difficulties in making everybody liable for a share of direct taxation ; but these difficulties are certainly not insuperable, and the present is an un- rivalled occasion for making an effort to overcome them.

With regard to the Sinking Fund, the arrangement made by Mr. Lloyd George will perhaps appear somewhat intricate to those who are not familiar with the subject. Since the great reform introduced by Sir Stafford Northcote, the principal provision for the reduction of the National Debt has been the difference between the annual fixed charge for the Debt and the annual cost of interest and management. In the current year this difference was estimated at £6,759,000, but as a result of additional borrowings for Ways and Means on account of war expen- diture a further charge of £839.000 for interest and management has been incurred, so that the sum available for capital redemption is reduced to £5,920,000. A con-

siderable portion of this sum consists of capital payments on account of terminable annuities. Some of these

annuities are for life, and represent contracts between the State and individuals, which must of course be maintained. Others are the annuities paid to the Post Office Savings Bank and to the Chancery Funds, and represent only a financial arrangement between two Government Departments. In the case of the Boer War the capital payments on account of these latter annuities were postponed on the broad ground that it was futile to pay off Debt at a time when borrowing was in progress. Mr. Lloyd George has taken the view that, as many of these terminable annuities will shortly run out, it would be a mistake to interrupt them, and therefore the capital payments on this account will be continued. He also, very wisely we think, declines to interrupt the arrangement under which a million out of the Sinking Fund falls due to be paid next April as the final instalment of redemption of a South African War loan of £10,000,000. As a result, the avail- able portion of the Sinking Fund is only £2,750,000. That will be suspended, and applied towards meeting the cost of the new Debt that has been and is to be incurred. It will not, however, suffice for this purpose, for, according to the Treasury estimate, £3,413,000 will be required before the end of the financial year to meet the cost of interest and management on the loan of £350,000,000, and upon those Treasury bills which were raised under the authority of the War Loans Act of 1914. To this must be added the sum of £839,000 mentioned above as coming out of the fixed Debt charge, making a total charge of £4,282,000 in the current year for the cost of war Debt. There is also, as mentioned at the beginning of this article, an estimated loss of revenue amounting to £11,128,000. Adding these figures, we get £15,410,000. Clearly the whole ef this ought to be met out of the revenue of the year, and it will be so met. But there is very little balance over, for the new taxes only bring in this year £15,500,000, leaving over the miserable sum of £90,000 as the whole contribution out of new revenue to the direct cost of the war, plus the sum of £2,750,000 taken from the Sinking Fund.

These figures will suffice to show that the financial proposals of the Chancellor of the Exchequer do not err on the side of heroism. They certainly compare badly with the efforts made by Pitt in the Napoleonic Wars, and with the principles laid down and acted upon by Mr. Gladstone in the Crimean War. These figures, moreover, should help to bring home to the taxpayer the mischief which has been done to our financial system, not only by the excessive peace taxation imposed by Mr. Lloyd George for the purposes of so-called social reform, but also by his successive raids upon the Sinking Fund. If the fixed Debt charge had been maintained con- tinuously at the figure of £28,000,000 a year at which Mr. Austen Chamberlain left it in 1905, there would now be avail- able for the immediate expenses of the war, without extra taxation, a revenue of nearly £7,500,000 a year, as com- pared with the £2,750,000 which Mr. Lloyd George has in hand. The country is now paying the price of the political finance of the past few years.

With regard to the war loan itself, Mr. Lloyd George has very wisely acted upon the expert advice tendered to him by responsible people in the City of London. A loan issued below par with a guarantee of repayment at par is always attractive to bankers and financiers, who are com- pelled to keep their capital intact as far as possible. It also appeals to a very large class of prudent investors. Moreover, the undertaking of the Government to repay at par not later than 1928 has enabled the Bank of England to make an extremely bold offer, which will have the effect of making the loan even more attractive to the investing classes. The Bank undertakes during the next three years to lend money at one per cent. below the current Bank Rate against deposits of the new war loan stock at the price of issue without margin and without collateral

security. This generous offer would, of course, be impossible unless the Bank were secured against ultimate loss by the certainty of repayment at par in 1928.