FINANCE-PUBLIC AND PRIVATE.
GENOA AND OTHER INFLUENCES.
THE ONLY PRACTICAL COURSE—A CZECHO-SLOVAKIAN LOAN—THE PAST YEAR'S " SURPLUS "—BUDGET PROSPECTS—RISE IN DIVESTMENTS.
[To THE EDITOR or THE " SPECTATOR21 Sin,—I have already expressed in your columns the general views of the City with regard to the impending Conference at Gcnoa, and have stated why the City is against recognition at the present time of the Soviet Government. There is one further point which I would like to make with regard to the Conference. There is, I think, a chance of a certain amount of good resulting if the Delegates decide to eschew all new-fangled schemes and ideas and • simply endeavour to carry out in practical fashion the proposals made by the Brussels Conference some two years ago. Without going into the details of those proposals, which came to be known as the Ter Meulen plan, it will be sufficient to recall that they were founded on the idea of the 'country which received financial aid tandering•to. the lending nations certain definite securities in the way of valuable assets and at the same time giving them also, for a time, a sufficient measure of control to protect the lenders and to ensure the necessary financial. reforms in the borrowing countries without_ whichall i outside assistance must be in vain. No better evidence.of the merits of that scheme could be offered than the fact that its Organizer, Sir D. Drummond Fraser, during his visit to the United States last year, succeeded in impressing upon the banking community of America the conviction that of all the remedial schemes announced the Ter Meulen plan was the most practical and most_ promising. Sir- Drummond Fraser has now retired from the duties of Organizer, but if the Premier and those who accompany him to Genoa are content to carry out those original plans without the introduction of a host of other new grandiose schemes we may at least get a start in the direction of the financial rehabilitation of Europe. Otherwise, and if learned professors are to be allowed. to make Genoa an opportunity for letting off a whole display of economic fireworks, it is quit«S certain that nothing useful will result from the Conference.
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Meanwhile, in considering the European outlook, some significance may perhaps be attached to the -announcement (with every appearance of success) of the new Czecho- Slovakian loan for £10,000,000. Of this total £2,800,000 is being now offered in London and. a _similar amount in New York, while £500,000 is taken by Amsterdam. - The loan carries 8 per cent. interest, the London price being 961. There are one or two points connected with this loan which, I think, are interesting and suggestive. Its sponsorship could not, of course, have been more influential seeing that it comprises the three leading financial houses in London. In the second place, it marks the first sign of readiness on the part of not only this country, but of America and Holland, to make a large advance to a country which has a long history but is under.a new form of Government. The security is good, the chief element of uncertainty or speculation consisting in the fact that the Government is new and that Central .Europe is still a disturbed area: Not only, however, should the loan benefit Czecho-Slovakia, but prosperity in that direction should react upon Austria and neighbouring States, while a point in the loan which created a favourable impressionin the City was the announce- ment that the Czecho-Slovakian Government was prepared to take over the definitive surplus of such proportion of the debts of the former Austro-Hungarian Empire as may be assigned to them by the Reparations Commission. * * * * Since I last wrote there has been issued the full results of the National finances for the past year. While Revenue has been wonderfully well maintained, having regard to the unprecedented trade depression, it can scarcely be said that the figures strengthen the hopes expressed in some quarters of a drastic reduction in Income- tax in the next Budget. Briefly stated, the Revenue shows a decline over the preceding year of £300,000,000, while it is also £92,000,000 below the original estimates of the Chancellor. However, this is mainly due to the fact that Excess Profits Duty Revenue itself _shows a decline of £189,000,000, whereas Sir Robert Horne had expected a shrinkage of only £99,000,000. It will be seen, therefore, that in other directions Revenue has, on balance, been pretty well maintained. Nevertheless, it is unpleasantly suggestive that the Income-tax receipts should have fallen short of the Chancellor's expectations by more than £11,000,000. Hitherto this particular source of Revenue has almost unvaryingly exceeded the Official Estimates year after year, and that it has not done so on the present occasion suggests that the strain of taxation is now beginning to tell, not only upon the taxpayer, but upon the Exchequer Receipts themselves. * * The actual ",Surplus " for the twelve months is £45,693,000, but it is very necessary for readers to know what exactly is meant by a Surplus. In the pre-War days the definition was simple. To the extent to which Ordinary Revenue, exceeded Ordinary Expenditure the balance remaining was a realized surplus and went auto- matically to the reduction of Debt. Moreover, for the reason mentioned later, it is necessary to emphasize the words Ordinary Revenue and Expenditure. Nowadays it seems customary to budget for a huge surplus to allow for all kinds of contingencies, including (unfortunately) gigantic Supplementary Estimates. Last year, for example, when the coal strike was raging, Sir Robert Horne budgeted for a surplus of £177,000,000 so as to provide for the results of the coal strike and the amount of debt which had compulsorily to be redeemed during the year, leaving, however, it was reckoned, a large margin for repaying Floating Debt. Inasmuch as it has been publicly advertised that Treasury Bills during the year have been reduced by £238,000,000, it might at first sight be supposed that the Government had reduced the Floating Debt by that amount and in addition had got a surplus of £46,000,000. Such, however, is far from being the case. The real facts are that when the whole of this Revenue surplus has been brought into the accounts and used for Debt Redemption, the actual net reduction in the Debt for the year is just under £40,000,000. This is due to the fact that during the year the Government has raised fresh money on Treasury Bonds and Savings Certificates to the extent of over £350,000,000.
Turning to the new year and the prospects of taxation reduction, one can state theposition in a very few words. The Official Estimates of Expenditure for the coming year are about E900,000,000, and if the Government could count on a repetition of last year's Revenue of £1,125,000,000, there would, of course, be a huge surplus of over £200,000,000. So far from their being able- to do this, however, we know that E.P.D. receipts promise to be a minus quantity—in other words, to constitute a liability rather than an asset, while Income-tax revenue will also be less. Moreover, while no doubt there will again be large receipts from the realization of War Assets, the Chancellor is not justified in taking those receipts into account when deciding how far ho can relieve taxation. Last year those special receipts amounted to £171,000,000, and if they were to be eliminated in the new accounts there would literally be no surplus for the reduction of Income-tax. There is very little doubt, however, that once again these abnormal and special receipts will be allocated to Revenue and there will probably be a small reduction in Income-tax. Unless, however, unduly opti- mistic estimates of Revenue are formed, or unless unsound schemes for capitalizing pensions are brought forward, the reduction in taxation can scarcely be drastic in the current year.
Meanwhile, prompted in part by hopes of a reduction of ls. in the Income-tax, and by expectations of a con- tinuance of cheap money rates, the investment markets have registered a further advance during the past week. Most of the quotations of Government War Loans have established fresh high records, while Home Railways have been active and strong. As regards these markets, and Government securities in particular, there is nothing fresh to be said. Until trade revives money rates must remain comparatively low, and because the market sees no signs of an immediate revival in trade and is inclined, moreover, to look for official support of Government loans in view of a possible operation, to convert Government bonds maturing this year, the tone is still optimistic at the moment. None the less, as fresh capital issues increase, it is felt that a restraining influence will gradually be imparted to the gilt-edged market and that in several directions prices are getting quite high enough.—I am, Sir, yours faithfully,
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