14 FEBRUARY 1936, Page 40

Finance

The National Accounts

FROM What foilsiirs in this article it must not be. inferred,- that the. City lr in diSatreepagit With the'4Government • with regard to : the large shins which necessity seems; to compel us to expend in the near future upon the National Ddences. Far from it. The City believes I hat the expenditure is imperative and is fully prepared to take its part in shoulderingllie,Durden.,. At tksame _ time, I think, it is .yery.,necessary, even before" ware put in possesSiOn of the Governinent's actual. Estimites of future tipenditfire and the Nays ormeeting them, • that we should recognise, first, that the Chancellor of the Exchequer seems likely to be confronted with a somewhat formidable task and, second, that we should not forget how much of the improvement in home trade (luring the past few years has been connected with con- fidence in the conduct of the National Finances and with the practical certainty of balanced Budgets.

BUDGET PROSPECTS.

Fortunately, the expenditure' during the last few weeks seems to have been held back a little and I might present a hopeful picture by saying that on February 8th I he Deficit in the National Accounts of about £44,000,000 was less than the Deficit on the corresponding date of last year, when it will be remembered that the National Accounts finally closed with the fairly substantial surplus of £7,500,000. I am very far from suggesting, therefore, that the present year will not close with a surplus, but, nevertheless, the difficulty of Budget-making for the new financial year must not be overlooked. For what- ever may be done in the way of meeting increased Defence expenditure by loan, there is little doubt that estimates of ordinary expenditure for 1936-37 will show a material increase over the preceding year, even when all -allowance is made for the smaller amount which presumably should be required for meeting the needs of unemployment; Even apart from the unknown extent of new expenditure, the fact has to be noted that whereas the taxation changes in the last Budget involved an estimated loss to the Exchequer for the current year of £5,580,000, the loss-fOr a full year—that is next year—was estimated at £11,330,000. It follows, therefore, that to meet the expected increase in expenditure for the next financial year, the Chancellor of the Exchequer has largely to rely upon the resiliency of the ordinary revenue.

Room FOR ECONOMY.

To some extent, no doubt, the anticipated Government expenditure will in itself have the effect of providing more employment, and, therefore, bringing about an increase in spending power with an effect upon trade generally which, it may be hoped, will mean additional revenue for the Exchequer. This, however, is very different from an ordinary and normal expansion in trade resulting from a broadening out of international trade with a consequent increase in our exports, while it remains to be seen whether, as the strengthening of our national Defences proceeds, there will, or will not be, a greater feeling of confidence in the maintenance of inter- national peace.. hope I shall not be accused of an anti- social policy if I say that the situation, is essentially one where the gravity of the position shsiuld„he..recognised. We are already enduring direct taxation on a war basis, and if the situation is one which- does • not perinit any relief of its burden, but rather demands a further increase in the national expenditure for Defence, then, surely, the position scarcely permits enlarged expenditure for purely social purposes, however desirable such expendi- ture might be in circumstances different from those now prevailing. :That, at all events, is. the feeling in the City at the moment with regard to the national finances. FINANCING DEFENCE. '- As to the means which should be employed for meeting the expected enlargement of expenditure, the City has an open mind. In ordinary circumstances, bankers and (A:hers would be very insistent upon the expenditure for Defence being met; as it nearly always has been met, out of Revenue. It is recognised, however, that the circumstances are very exceptional not merely as regards the amount to be expended, but by reason of the fact that thgmagnitu e of the sum is really an 'expresSien of a*WrieOhie$ 7 to& made up: -= 'Conse- quently, ifIlie-poveTtime- ere to -decide to meet a large part" of the expenditure lcian, r do not 'Junk that in the most cOnservatie financialquarters there 'would be undue criticism. At the same time, it is recognised that only a certain amount of work can be put through within a given period of time. In other words, there would seem scarcely to be adequate reason for-any gigantic loan such that' which has.spenetimes been mentioned, for the simple 'reason that the_ money. could not be spent within any short period. Mk Only' -so, but while we are still awaiting the official White Paper, the suggestion has been put out in more than one quarter that, given some im- provement in the international political outlook, the total of expenditure might itself be modified. In good quarters of the city, therefore,It is thought that having regard to the present cheapness of money, the Government might well meet some of the initial outlays through the issue of Treasury Bills,on which the Government is able to borrow at the present time at just over per cent. per annum. At the same time, it is, of course, also recognised that floating debts in the shape of bills can become unwieldy and the same argument, namely, that of .cheap money, applies also to a longer dated loan. In other words, if the Government were to finance the whole of the extra expen- diture on National Defences out of Treasury Bills, we should have an unwieldy Floating Debt and the effect on the National Credit would be injurious, thereby making it difficult to raise a longer term loan at the rates which would be possible at the present time. Consequently, the preponderance of opinion in the City at the moment, I think favours the raising of extra money both by Treasury Bills and a longer dated loan, with, if possible, some restoration of Sinking Funds.

All .this, however, is largely in the nature of surmise and I have -Only' raised the point' this week by way of reminder that if the sound conduct of the National Finances is to be a stimulus to business as it has been during the last three years, exceptional skill will have to be shown by those responsible for its continuance.

• - ARTHUR W. KIDDY.