THE WAR DEBT.*
A NATIONAL Debt of about £8,000,000,000 is the governing fact of our political and economic situation at the close of the war. Few people give heed to it. Our politicians and our Trade Unionist leaders ignore it. Nor indeed is it easy for any one to realize the meaning of a Debt the interest on which is twice as large as the whole revenue of the State before the war. The public seems to accept the fact in much the some philosophic vein as the spendthrift who takes a pride in having run through a fortune. We have raised the money somehow and spent it, and only.a very great country could have incurred such a Debt. It is time, however, that we began to consider the matter soberly, and to adjust our national policy to our very lean national purse. Mr. Allen's little book, a model of lucid statement and sane argument, comes opportunely to make people think. He shows that many of our troubles arise from the reluctance of Mr. Asquith and Mr. Lloyd George to impose heavy war taxes dining the first year of the war. They chose the seemingly easier way, which was also the German way, of financing the war from loans, which, it was comfortably assumed, posterity would pay. Unfortunately, as it has turned out, the real burden has not been shifted from the back of the present genera- tion. The taxpayers, during the first year of the war, spent their surplus income on non-essentials instead of being required to give it to the Government. The armies of munition-workers received high wages, out of borrowed money, and spent them freely in competition with the wealthier classes. AS the pro- duction of goods for the home market could not be increased, in view of the Government's immense demands on behalf of the Navy and Army, prices naturally rose rapidly after October, 1014. It was to be expected that foodstuffs and other necessaries would become dearer, as the fighting ern had to be supplied. But prices generally need not have risen if the consumption of non-essentials had been discouraged by heavy taxation.. As it was, prices went up higher and higher, wages rose in proportion, the State had to pay far more for everything than it need have done, and the taxpayer, while apparently escaping from war taxes for the time being, was assuming far greater liabilities than he dreamed of. The " profiteering," of which there has been and still is much random talk, was in the first place the natural result of a mistaken financial policy and of the crazy motto "Business as usual" during the early months of the war. When Mr. McKenna succeeded Mr. Lloyd George as Chancellor of the Exchequer and began seriously to increase taxation in September, 1915, it was too late to repair the fatal error of the preceding year.
Mr. Allen disproves the current assertion that " the propertied
• The War PM and How b !fed it By I. London: Methuen.
• [5, net.! classes " have profited by the war. The manufacturers working for the Government, and of course the munition-workers, miners, and others, have profited greatly. "The War Debt has been incurred mainly in order to pay inflated rates to the wage- earners, not to pay inflated profits to the owners of property." Owners of land and houses seem to have gained a little, in so far that the money value of their property is larger than before. But those whose savings were invested in gilt-edged securities have lost about half what they possessed in 191-1, apart altogether from the heavy Income Tax and Super Tax, which have hit them very hard. Money, through excessive inflation by the issue of paper, now has little more than half its pre-war value as expresses] in goods. The war has in fact made a silent but most drastic "levy on capitA" Tit:- suggestion that the netionsl wealth has increased front 136,009,000,000 to £20,000,000,000 during the war, and that the excess could be applied to the reduction of the Debt, is and must be misleading. A moment's reflection will show that a country engaged in a world-w-a• involving an expenditure of millions a day could not possibly grow richer in the process. if that were so, Germany and Austria, besides ourselves, ought to be exceedingly prosperous just now. Indeed, If war were a short eat to national wealth, the task of the League of Nations would be hopeless at the outset. What- has happened is that the British paper sovereign hoe come to be worth ten shillings, at the old peace standard, and the " propertied classes" accordingly have lost half their capital. Mr. Allen supports his argument by reference to the Super Tax return of October last, which shows, if allowance be made for higher Income Tax and reduced purchasing-power, that the net income of Super Tax payers with over £3,000 a year declined from L207,000,000 in 1914-15 to £114,000,000 in 191647. The Bankca Maga:jug list of three hundred and eighty-seven select securities for the same date showed a decline in the market value from £3,370,709,000 in July, 1914, to £2,794,542,000, which, allowing only a third for the fall in the value of money, represented an actual loss of nearly half the total. Capital has not benefited by the war. The proposed "levy on capital" is objectionable for many reasons. Mr. Allen at any rate shows that it cannot be supported on the ground that the capitalist has profited by the conflict that has cost us so much.
There is only one safe way of dealing with the Debt. That is to increase the taxes and to work harder in order to pay them. Mr. Allen, who, as Honorary Secretary of the Committee op- pointed by the Economic Section of the British Association, has given much time to the study of war finance since 1915, is not content to criticize, but puts forward a noises for an improved Income Tax. He rightly maintains that every citizen ought to pay a direct tax, and that it is an undemocratic system under which only the minority pays. He starts from the minimum of £75 a year on which a single man can live, and would tax all incomes above that level, allowing the abatement of £75 to every taxpayer. He would give a further abatement of £50 to the married man, with an abatement of £25 for each child or dependant. With these deductions, he would tax the that £500 of all incomes at a uniform rate of Is. in the pound, and the second £500 at a uniform rate of Gs. in the pound, with a gradu- ated increase on incomes over £1,000. The plan has merits, especially in its comprehensiveness, its elasticity, and its very just discrimination in favour of the man with a wife and tastily. Mr. Allen is inclined to disapprove of the distinction between " earned " and "unearned" incomes, but he suggests that rho rate for " earned " income should be a fifth less than for "un- earned." The reform of the Income Tax is long overdue, and must soon be taken into serious consideration. Homo such plan as Mr. Allen's would distribute the burden more fairly, though we should add that he contemplatea a heavier tax than that which is now in operation, yielding nearly £500,000,000 a year, or a sixth of the whole national income.
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