FINANCE—PUBLIC AND PRIVATE.

BUDGET PROSPECTS.

(To THE EDITOR. OF THE " Srecreroa."] Sia,—There are two matters upon which the City has concentrated a good deal of attention during the past week. One of them is the financial aspect of the unemployment problem, and the other is the heavy fall which has taken place in some of the currencies of foreign countries, including the German mark. Although the two matters are appa- rently as widely separated as the Poles, there is really a close connexion between them—a connexion which I may perhaps elaborate on a subsequent occasion. For the moment, however, I will deal only with the financial aspects of the unemployment problem from the standpoint of the national accounts themselves, and will make some very brief comments upon the debacle in the German mark.

As you are aware, all kinds of fairy stories have emanated from the Gairloch district with regard to fanciful schemes for solving the unemployment problem. Pictures have been drawn of glorious garden cities to be constructed within the area of the outer radius of London, and these wonderful stones have also been accompanied by a kind of captious criticism of the backwardness of our banks. which have not ere this hastened to accelerate these social dreams by some system of liberal overdrafts. I do not propose, however, at this point to spend any time in criticizing these fanciful ideas, because, until we have had official evidence to the contrary, I prefer to regard them as having originated in the brains of imaginative journalists stimulated by the inspiring air of the Highlands rather than from the Prime Minister or other members of the Cabinet, resourceful as those gentlemen may be in all that pertains to expenditure on social reforms. One thing, however, is clear—namely, that some scheme for financing unemployment relief, in other words a stretching of credit, is contemplated—and it may be useful, therefore, if at this juncture I draw your attention to the present position of the national finances, so that at any rate we may see how further outlays from the Treasury are likely to affect the financial situation as ex- pressed in the balance-sheet at the end of the year.

At the moment of writing the first half of the current fiscal year has not been reached, but although before this letter appears in print slightly more up-to-date figures to September 30th will have been issued by the Treasury, those issued to September 24th are sufficient to indicate the financial position. It may be recalled that in his Budget of six months ago Sir Robert Home hoped for a total surplus of £177,000,000, this surplus to be attained by a Revenue showing a shrinkage compared with the preceding year of £209,000,000, and by a decrease in Expenditure of £144,000,000.

The City was not at all enthusiastic with regard to the anticipated surplus, because no provision was made in the Budget (other than this expected surplus) for meeting the involuntary payment of debt through the tendering of Government bonds in payment of taxes. Judging from the previous year's experience, the City deemed it probable that this debt redemption would call for a pay- ment of fully over one hundred millions, thus vastly reducing the possible amount available for reduction in the Floating Debt. Moreover, it was felt that the Chancellor had been over-optimistic and that there would be disappoint- ment both as regards Revenue and Expenditure estimates.

Unfortunately, these forebodings have up to the present been amply fulfilled. The coal strike lasted longer than the Government expected, and the effect has been seen upon Public Revenue. Here, for example, is a comparison of the actual results for the first half of the year (short of one week) as compared with the Chancellor's estimates for the entire year :—

crease for Year.

0 months to Sept. 24th.

a

Customs •• •• ••

— 7,203,000

• •

— 5,041,000 Excise .. • • — 3,582,000

• •

+ 4,487,000 Motor Vehicle Duty + 1,927,000

+ 2,488,000 Estate Duties 271,000

— 1,668,000 Stamps.. — 5,591,000

• •

— 5,463,000 Land and House Duty .. — 50,000

• •

+ 30,000 Income and Super Tax .. +16,334,000

• •

+13,010,000 Excess Profits Duty —99,181,000

• •

—79,950,000 Corporation Tax .. +29,350,000

• •

± 5,460,000 Post Office and Telephones.. +10,500,000

• •

No change Crown Lauds .. — 10,000

• •

+ 80,000 Interest on Sundry Loans .. —18,771,000

• •

— 1,680,281 Miscellaneous Ordinary Re- ceipts — 3,889,000

+ 519,127 Miscellaneous Special Receipts —129,440,000 .. —92,593,639 Total .. • . —209,335,000 .. —160,321,793

From the foregoing it will be seen that already for the first half of the year there is a decline in the total revenue of £160,000,000, as compared with an expected fall for the twelve months of £209,000,000 ; and although it may be hoped that in some directions there will be a little recovery in the final months, it is to be feared that in two directions at least—namely, in Excess Profits Duty and in the sales of Government assets—the revenue will fall considerably short of the original estimates. Then on the expenditure side of the balance-sheet there is still greater cause for disappointment. As agroist the expected decrease for the year of £144,000,000, the decline to date is only £35,000,000, and Supplementary Estimates since the Budget have already raised the original official estimates over revenue by fully £100,000,000. Some savings may, of course, be prompted by a recognition of the seriousness of the position, but it looks as though instead of there being any surplus to apply to the redemp- tion of Floating Debt, which is already £49,000,000 greater than at the beginning of the present fiscal year, the Govern- ment would have difficulty in obtaining a surplus to meet the involuntary redemption of debt already referred to and would be driven to fresh borrowing. This view is now strengthened by the idea that large sums may be expended in unemployment relief, while it is probable that large payments to railways and to agricultural interests have yet to appear on the Expenditure. It must not be supposed that in citing these figures I am expressing any view with regard to the justification or desirability of the further disbursement by the Treasury of public money in connexion with unemployment relief Original Esti- mate of In- crease or De-

Actual In- crease or De- crease for first

schemes. My only object is to demonstrate • that such disbursements, if they occur, must inevitably mean fresh borrowing either in the shape . of a -direct loan from .the public or in the shape of Ways and Means Advances at the Bank of England—a process involving great credit expansion. Moreover, I think that the other point to be gathered from an examination of the national accounts . is that, whatever may or may.not be_necessary. in connexion with expenditure for unemployment relief schemes, the imperative need for drastic economy in all ordinary. civil expenditure is clearer than ever. _ The other -point .on which interest has centred during the past week has been the slump in German currency, so that.the mark, -which previous to the war-was valued at about tenpence as expressed in English money, is now rather less than one halfpenny. That the fall in the mark may have been accentuated by the pressure of reparation payments combined with huge international speculation in exchanges is probable enough, but it is sometimes well to turn aside from abnormal influences to the deeper and more natural causes, especially when they offer in them- selves. an almost adequate explanation of the position. When the war was in progress it was apparent that Germany would have to pay heavily some day for the extent to which she was financing the war through inflating her internal currency ; and when the one point is recalled that the Reichsbank note circulation now stands at over 81,000,000,000 marks as compared with a little over 2,000,000,000 marks previous to the war, we have the main explanation of the present position of the exchange. During the war, however, the effect of this watering of the currency upon exchange was obscured for the very reason that, because of the blockade of the Allies, Germany was unable to import, and had therefore no foreign payments to make. When the war was over we know that it only required the removal of the artificial support which had previously been given to sterling in New York to send even our own exchange, . as measured in American currency, to a remarkably lOiy level. 'When, therefore, it is remembered that even since the war Germany has gone on expanding her internal currency, and in addition has been importing enormously from abroad, it is really not difficult to under- stand why the mark is at its .present level, even apart from reparation payments • and gambling. transactions, although these- last two factors-have doubtless accelerated the slump.-----/ am, Sir, yours faithfully, The City, Se.pteniber 28th. ARTHUR W. KIDDY.