COMMON-SENSE AND NATIONAL INDEBTEDNESS.
THE discussionof Mr. Lloyd George's Budget for 1 this year, which will have sooner or later to be renewed, turns so much upon the provision made for dealing with the National Debt that it is worth while to examine the whole subject of national indebtedness. That subject necessarily includes not only the debts for which the National Exchequer is liable. but also the debts incurred by local authorities. National and local finance, both on the revenue and on the expenditure side, are now so inextricably mingled that it is quite impossible to ignore the indebtedness of the local authorities in any general review of the indebtedness of the nation.
Dealing first with the debts for which the National Exchequer is liable, we find, according to the latest National Debt return, that the " Aggregate Gross Liabilities of the State',' on March 31st last were £762,000,000. Part of this huge liability was, however, only temporary in character, being due to the postponement of the collection of revenue. On this account £21,000,000 bad to be temporarily borrowed, and this sum will be repaid—if indeed it has not already been repaid—out of the collec- tions that have since been made on account of last year's revenue. We must therefore take the present gross liabilities of the State as £741,000,000.
In order to make this figure intelligible, it must be compared with some previous figure, and the line for all National Debt comparisons ought to be the year 1899, when the Debt reached its lowest point before the additions caused by the South African War began to tell. On. March 31st, 1899, the aggregate gross liabilities of the State were £635,000,000. From that point there was a rise, at first slow and then rapid, till the maximum was reached in 1903 with £798,000,000. Since then there has been a reduction beginning with a few millions, and rapidly increasing in the last few years. We wish at once to say that great credit is due to the Liberal Party for the reductions which they effected from 1906 to 1909. Not only did Mr. Asquith maintain the fixed charge for the Debt at the figure to which it had been raised by Mr. Austen Chamberlain—namely, £28,000,000—but he gradually abandoned, so far as military and naval works were concerned, the practice of borrowing for short loans, and to this extent put a stop to the folly of borrowing with one hand while paying off Debt with the other. The effect of this sound policy was seen in the rapid increase in the amount devoted to the repayment of capital. In the year ending March 31st, 1905, the expenditure charged against the public revenue for the repayment of capital was £8,613,000. This rose in 1908 to £13,208,000, but dropped in 1909 to £12,115,000. The figure for the year ending March 31st, 1910, was of course altogether abnormal.
In considering what is a suitable amount to devote to the reduction of the National Debt it is necessary to take into account the circumstances in which our present Debt was created. The important immediate fact is that the South African War added no less than £159,000,000 to the National Debt. The obligation of paying off that Debt is an obligation primarily resting upon the present generation of taxpayers. War is so serious an enterprise that no nation ought to go into it light-heartedly, and one of the best means of preventing light-heartedness in such a matter is to bring home to the existing generation of taxpayers the responsibility for the cost of the war which they sanctioned. Generally speaking, it is impossible to meet the whole cost of any considerable war out of revenue during the actual year or years that the war continues, but it is possible, and in the present case would have been comparatively easy, to wipe out the whole cost of the war within a few years after its conclusion. This was certainly the intention of Sir Michael Hicks Beach, as it was the intention of Mr. Gladstone with regard to the Crimean War, but the intention has not been carried out. Assuming that all the reductions made in the Debt since it reached its maximum in 1903 are to be credited to the War Debt, we are still left with a surviving War Debt of no less than £102,000,000. A wealthy nation ought not to be satisfied with such a result as this eight years after the conclusion of the war. The country is still paying a charge of £3,000,000 a year for interest alone on debts incurred in South Africa. We hold most strongly that until the whole of the War Debt had been wiped off, no reduction should have been made in the Sinking Fund. Yet Mr. Lloyd George has now without a word of apology fixed the charge for the Debt at £24,500,000, thus reducing the Sinking Fund by £3,500,000.
There is another aspect of Liberal finance in connexion with the Debt to which too little attention has been directed. There was no feature of Unionist finance which the Liberals when in Opposition more vigorously attacked than the principle of borrowing for public works, and Mr. Asquith has partially redeemed the pledges of the Liberal Party by stopping these borrowings, at least for military and naval purposes. But as regards works for civil purposes Mr. Asquith's financial purity seems to have failed him. The Liberal Government have con- tinued to borrow under Unionist Acts for the acquisition of sites for public offices, and for the expenses of building public offices, both in London and in Dublin. They have also under the authority of a new Act passed in 1907 borrowed £6,000,000 for telephone construction. It is absolutely impossible to find any logical justification for the distinction made by Liberal Ministers, if not by Liberal minds, between borrowing for building barracks and borrowing for building Government offices.
With regard to borrowing for telephone construction, there is a plausible distinction, because it may be argued that the telephones will produce a revenue out of which the interest and sinking fund upon the loans for con- struction can be met. This argument depends upon the assumption that the telephones will be profitable ; and though of course every Postmaster-General will proclaim that this is his expectation, the fact that the country is losing over £1,000,000 a year on the telegraphs, which were also officially recommended as a profitable speculation for the State, throws considerable doubt upon the probable yield of the telephones. But whether the telephones show a profit or a loss, we hold with Mr. Gladstone that a great undertaking like the United Kingdom needs no capital account. This £6,000,000 loan for telephones cannot all be spent in one year, and is likely to be spread over at least six years. The aggregate expenditure of the nation has for some time been in the neighbourhood of £150,000,000. It is better finance to add £1,000,000 a year to this total for six years than to borrow £6,000,000. For though every Minister who comes forward to ask for a loan declares that the expenditure for which he requires the money is exceptional in character, the constant repetition of these demands proves that they are not exceptional but normal. The nation has to spend a lump sum on telephones one year, on barracks another year, on prisons a third year, on public offices a fourth year, and so on. Spread over such a large concern as the United Kingdom, these separate charges become in effect a part of our normal national expenditure, and therefore, taking one with the other, it is far better that each should be paid for out of revenue than that the nation should be burdened for many years with an interest charge upon a temporary debt. There is a further consideration in support of this argument which will jump to the minds of our readers,—namely, that if a Minister has to justify expenditure out of revenue he is much more likely to be cautious than if he can come to the House of Commons and ask for a loan which future generations will have to pay. It is, in fact, a truism both of private and public life that borrowers spend more recklessly than people who face their liabilities as they go along. - This general consideration applies quite as much to local authorities as to national, and there is no doubt whatever that the expenditure of local authorities throughout the kingdom has been unduly swollen by the facilities given to them for borrowing. It cannot, however, be urged, as in the case of the national Government, that public authorities ought never to borrow for public works. Take, for example, the case of a rural district which requires a new drainage scheme. If the cost of this scheme were to be paid for out of one year's revenue it might absolutely ruin many of the ratepayers, driving them into bank- ruptcy in order that their successors might have gratuitously the use of an improved system of drainage. This is clearly unjust to the present generation. 'In the case, then, of local authorities the principle must be admitted of borrowing for exceptional expenditure of a permanent character ; but while this principle is admitted, it must be safeguarded by the establishment of a sinking fund which will rapidly pay off the loan. At present we have no hesitation in saying that the sinking funds main- tained by most of the local authorities are altogether in- adequate. Every municipality in the kingdom constantly goes whining to the Local Government Board to extend the period for the repayment of loans, and successive Ministries have weakly yielded to these appeals. The result has been an enormous increase in the total of local indebtedness. On March 31st, 1890, "the aggregate in- debtedness of the local authorities in the United Kingdom was approximately £230,000,000. Ten years later it had risen to £353,000,000. Every one will admit that this was an enormous increase in the short period of ten years, but it is almost insignificant in comparison with the subsequent increases. Figures, unfortunately, are not available up to 1910, but taking the latest available figures, and making a very moderate estimate for the rate of increase as far as it can be deduced from recent years, it may safely be stated that the aggregate liabilities of the local authorities in the United Kingdom are over £600,000,000. Thus we have a National Debt of £741,000,000 and a Local Debt of over £600,000,000.
These are extremely serious facts in view of the constant increase of current expenditure, and in view of the decline of public credit. If any further reason were needed to justify increased provision for the reduction of Debt, both national and local, it is to be found in the present price of Consols. Not only does the low price of Consols furnish an immediate financial argument for devoting large sums to the reduction of the Debt, because it means that each £82 so expended wipes off £100 of Debt, but in addition there is the consideration of the future advantage which the nation will gain by a restoration of its credit. If we were suddenly faced with a great war, we should no longer have that splendid financial margin which was available both in the low rate of taxation and in the high price of Consols before the South African War. We should have to borrow at a much more extravagant rate of interest, and we should have a smaller margin upon which to draw for increased taxation.
To sum up the situation : we contend that as far as the national Government is concerned all borrowings for public works of any kind should cease, that all expenditure in peacetime should be met out of revenue, and that at the same time a large Sinking Fund should be maintained so as to strengthen the financial position of the country in case of war. With regard to local indebtedness, the important point is to diminish the period during which local loans must be paid off, with the double object of reducing local indebtedness as rapidly as possible and of preventing reckless local expenditure.
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