Finance—Public & Private
The City and the Budget
AT a moment when so many fanciful and even, perhaps, picturesque views are promulgated concerning the forth- coming Budget, I am afraid that the opinions held in the City with regard to the national finances and the forth- coming Budget may seem to be terribly prosaic. Never- theless, and because I know that The Spectator welcomes views from all standpoints, I shall venture to express very briefly some of the views held in financial circles with regard to the very difficult task which the Chancellor of the Exchequer will face on the 25th of this month.
Before, however, dealing with prospects for the forth- coming Budget, one word must be said with regard to the results for the past financial year which closed on March 31st. The Chancellor of the Exchequer, it may be remembered, had made no allowance in his Budget for any payments by us during the year on the American War Debt, and on the other hand had also made no allowance for payments on the War Debts due to us by our Allies. It is, however, a matter of history that the United States insisted on the payment of the War Debt instalment due last December, and the amount in our case was just under £29,000,000 on the rate of exchange ruling at the time. But while we made this payment we exacted nothing from our Allies, adhering to the friendly arrangement reached at the Lausanne Conference. Mainly in consequence of this payment to America the year closed with a deficit of £32,279,000. Deducting the War Debt payments the deficit would have been £3,322,000. Moreover, the Government was undoubtedly justified in pointing out that if' all the payments normally due to • this country on War Debts during the period July 1st, 1932 to March 31st, 1933, had been received in full the national accounts, even allowing for the payment on the American Debt, would have balanced with a surplus of over £5,000,000. However, this must be regarded as among the " might have beens," and of this actual deficit of £32,000,000 odd about £15,000,000 was met out of the Sinking Fund and the balance by borrowing.
FALL IN INCOME TAX.
As regards the revenue for the past year, the two dominating features were the heavy fall in Income and Surtax revenue and the great increase in Customs receipts. The Chancellor had estimated for a total shrinkage under the head of Income and Surtax of about £38,000,000, but the results show that he had over-estimated the receipts by nearly £14,000,000; the actual shrinkage was nearly £52,000,000 ; thus testifying to the severity of trade depression and also, perhaps, to the injurious effects of high taxation. The big increase of £31,000,000 under the head of Customs was, of course, entirely due to the imposition of the new duties and even so the amount received was under the Chancellor's estimate to the extent of about £7;1:100,000.
As compared with the original estimates, supply expenditure increased considerably 'owing to the extra provision which had to be made for unemployment benefits, but compared with the 'final revised estimates, including the supplementaries, there was a saving of about £10,000,000.
FUTURE PROSPECTS.
Such is the brief summary of the main features of last year's accounts, and it must be admitted they do not afford a very hopeful basis for estimating Budget prospects. Whether 111.r. Chamberlain will include in his new Budget provision for the American Debt payment remains to be seen, but even without claims in that direction it is quite clear that the Chancellor will have great difficulty in obtaining a surplus. As the result of last year's Debt Conversion he will probably have achieved savings amounting to at least £30,000,000 on the Debt Service, and it is also likely that having regard to the present abnormal coi3ditions he will not hesitate to use the Sinking Fund of about £32,000,000. But, even granting these possibilities, which together involve a total of between £60,000,000 and £70,000,000, there can be little doubt there will be a still further reduction in the coming year under the head of Income and Surtax. Indeed, unless there should be some great improvement in trade in the meantime, or unless there should be some vast sums of uncollected arrears for the past year, there may easily be a further falling off of £30,000,000 is that direction. -• Given a•rontinuance of very cheap money it is possible that there. may be some still further saving in the Interest'charge " on the Debt, but it is very difficult to see how Mr.- Chamberlain can visualise more than a moderate surplus of £15,000,000 to 120,000,000, which would be insufficient to effect a reduction of even 6d. in the Inconie Tax, unless, of course, he made the reduced tax applicable only in the second instalment, in which case, of course, the revenue for 1933-4 would not suffer. '
SUGGESTED WINDFALLS.
One has even heard the suggestion that, should there be some early plan for stabilizing the currency at a devalued level, the writing . up of our stores . of gold would .give -the Government a profit which might be regarded as a " windfall." That suggestion, however, I must decline to entertain at the Moment, first, because I .cannot believe. that the Government would allow any plans for devaluation and stabilization to be hastened by the exigencies of the Budget, while, in the second place, if and whenever such stabilization and writing up of gold ,.occurred, there could, of course, be only one object to which the "profit " could be assigned, namely, Debt redemptions -
THE BUDGET MUST BALANCE.
In the City there is considerable sympathy with the Chancellor in the difficult task- which lies before him. Moreover, its difficulty is not lessened by the varied character of the gratuitous suggestions which are being made. The financial purist would adjure him to balance the Budget at all costs and not even to lay a hand on the Sinking Fund. At the other extreme we have some of our modern economists practically telling him to never mind about the Budget, but to give the nation a tonic in the shape of a remission of taxation at whatever cost, the idea apparently being that this tonic will in some remarkable way cause people to spend more and thereby stimulate the national revenues. I cannot help thinking, however, that these optimists, quite apart from the unsoundness of their 'suggestions, leave out of account a very important factor,. namely, the psychological. It is quite true that reduced taxation cart, have a " tonieky " effect and can even stimulate spending power on the part of the individual,. but -I suggest that this stimulus comes not merely from the actual reduction in taxation, but from the assurance that the cause of reduction is a sound and prosperous Budget, thereby making the taxpayer feel that the remission is a real one and not likely to be followed at some comparatively near date by a re-imposition of the tax. If, therefore, the , Chancellor were at the Cost of an unsound Budget to remit taxation, the City believes—and, I think, correctly that the net result would be unfavourable to the National Credit and even to public confidence _itself. The City, therefore, while prepared to admit the justification for using the Sinking Fund for one year, believes that at all costs the Budget must be -balanced, and- whether it can be done by some reduction in possible wasteful expen- diture, or by fresh taxation of a kind least likelY_tci affect purchasing power, remains to be seen.
ARTHUR W. KIDDY.
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