THE SINKING FUND.
IN view of Mr. Lloyd George's threatened raid upon the Sinking Fund, it is worth while to consider in some detail upon what principles the maintenance of a Sinking Fund depends, and what are the actual facts with regard to the Sinking Fund 'now in existence in this country. The' maintenance Of a' Sinking Fund may be said to depend both on moral and on prudential considerations. There is a moral obligation on the taxpayers of to-day to contribute to the paying off of debts, which they have incurred or inherited, so as to dimiuish the burden on their descendants. The prudential consideration is at least equally important. A Sinking Fund in time, of peace is one of the best provisions that a nation can make against the dangers of war. In no war of recent date has it been possible to meet out of taxation the daily expendi- ture incurred. War must involve borrowing, and future wars, since they will be even more expensive than past wars, will involve an even greater percentage of borrowing. For this reason it is of the utmost importance now to maintain a large Sinking Fuud. By so doing, not'ouly do we tend to restore the national credit, but also we have available a sum which can immediately be used for meeting war expenditure.' For of course during a war the Sinking Fund is necessarily suspended, and the millions composing it are available for war purposes.
Looking at all the risks of the future, no statesman can honestly say that our present financial position is satisfactory. Console, which before the South African War touched 114, are now down to 84. The difference in the rate of interest which we should have to pay on a. new War Debt is something between per cent. and 11- per cent., and this difference, small as it seems, is of tremendous importance when hundreds of millions may have to be borrowed.
Nor can it be said that we have yet adequately discharged our moral obligation to pay off the debts we have ourselves incurred in connexion with the South African War. Mr. Asquith in his last Budget speech took great credit to himself and his Government for the reductioue they had effected in the National Debt ; and in order to demonstrate how much had been done, he compared the probable amount of the dead-weight Debt on March 31st, 1909, with the figure at which that Debt. stood in 1889, and showed that the amounts were practically the same. Mr. 'Asquith did not, of course, intend to deceive the House of Cumulous and the country, but nevertheless by this comparison he created an entirely false impression. Pew of those who heard the speech, and perhaps fewer of those who read it, noticed that the year 1889 was ten years before the war. The year he ought to have started from was 1899, when our Debt reached its minimum. But had Mr. Asquith started from this year he .would have drawn no cheers with his statement. In 1899 what is called the "dead-weight Debt" stood at £628,000,000. According to Mr. Asquifh's calculations, the same Debt in 1909 will be £697,000,000, showing an increase of .20,000,000. This calculation leaves out of account the " Other Capital Liabilities " of the State, to which we will refer presently. It is more important for the moment, however, to confine our attention to the dead-weight Debt, and especially to that portion of it incurred in consequence of the South African War. In round figures, the new Debt created for the purposes of the South African War was £159,000,000, and in consequence of these borrowings our dead-weight „Debt reached its maximum during the present.century on March 31st, 1903, when it stood at .2771,000,000. On .March 31st, 1908, the corresponding figure was just under £712,000,000. Comparing these two figures, we find a reduction of £59,000,000. In other words, no less than £100,000,000 of the War Debt still remained a charge 13.pon the nation on March 31st last.
This is the great moral .fact which the present genera- tion of taxpayers has to face. They are personally responsible for this Debt, and it is their business to pay it off as rapidly as possible.. To devote £10,000,000 a year, which is approximately the amount of the present Sinking Fund, to this purpose is certainly not an excessive display of financial virtue, for it must be remembered that until this War Debt is wiped off we shall be doing nothing whatever to contribute towards the reduction of the ancient Debt which we have inherited. Looked at from another point of view, wo may fairly ask why £28,000,000 a year should be considered an excessive sum for this generation to pay for the interest and reduction of the National Debt. The figure was origin- ally fixed by Sir. Stafford Northcoto in the year 1875, and he selected that sum on the specified grouud that up to 1860 the annual charge for the Debt had not fallen below £28,0.00,000. He argued that the nation, in . view of itr steadily increasing wealth, could well afford to spend at least as much, every year on the service of the Debt as it spent when the country was poorer. The same argument nut only holds good to-day, but has been greatly strengthened. Our national.revenue is now nearly double what it was when Sir Stafford Nortlicote fixed the annual charge at .218,000,000. If his generation could afford 'this charge, a fortiori our generation can, and we should : be guilty of a grave disregard of our duty to posterity if we shirked this moral obligation.
• Let us now turn our attention to the " Other Capital Liabilities" of the State. These consist of loans for a specified period created for specified purposes, mainly military and naval works and telegraph extensions. The interest and Sicking Fund upon them are charged upon the votes of the Army and Navy and Post Office, and for . this reason it is convenient to look at them separately, because they have their own special Sinking Funds alto- gether apart from the Sinking Fund of the dead-weight Debt, which is included in the fixed annual charge. . There are a good many plausible arguments in favour of this system of borrowing money for fixed periods for special purposes, and setting aside a special Sinking Fund to Wipe off the loan ; but no system of finance has excited so much criticism from the Liberal Party as this device, which the country owes to the late Lord Goschen. The great danger underlying it is that the country may overlook the fact that it is adding to its Debt, while at the same time the Government may be tempted by the ease of borrowing to be less careful about spending. As a matter of fact, these special loans have gone on rapidly mounting up, sometimes actually adding to the gross liabilities of the State more rapidly than the dead-weight Debt was being reduced by the operation of the Sinking Fund. Between 1898 and 1908 the " Other Capital Liabilities" of the State increased from £3,747,000 to the enormous sum of £50,850,000. It is important also to notice that, in spite of all that ,.the Liberals have said with regard to this risky system of finance, they are themselves almost as great sinners as their . predecessors. They have indeed reduced the capital expendi- ture on military, and naval works, though they have not entirely stopped it,but simultaneously they have very greatly increased the expenditure on civil works. Two years ago Mr. Sydney Buxton came to the House of Commons for power to borrow no less than £6,000,000 to be spent on telephone development. Some Liberals will doubtless argue that telephone's are a profitable investment, and military works are not. Even if a money profit from the State management of telephones were certain, we should still dispute that such an investment of money was neces- sarily more profitable to the nation than an expenditure upon docks and barracks essential to our national safety. As a matter of fact, however, there is every reason to fear that the millions now being spent out of borrowed money upon telephones will go the way of the millions previously spent by the same Department on telegraphs, and that instead of a profit the nation will be faced with a new annual loss in addition to the loss ou telegraphs, which already reaches over £1,000,000 a year.
In another direction the present Government have shown their marvellous capacity for disregarding in practice the principles winch they have preached ou the housetops. Next to the fixed annual charge, invented by Sir Stafford Nortlicote, the most important provision fin. the reduction of the Debt is the rule that any accrued surplus in any financial year shall automatically go to the reduction of the Debt. This provision was laid down by the House. of Commons as early as 1828, and constitutes what is known as the Old Sinkiug Fund. Surely this, at any rate, ought to be sacred to Ministers who profess their passion for sound finance; yet twice the present Government have raided this Old Sinking Fund. In March, 1907, Mr. Haldane laid hands—of course, with the assent of his colleagues—upon a sum of £459,000, and in February, 1908, he again seized a sum of £358,000, making altogether a total of £817,000 diverted from the reduction of the Debt to provide for military expenditure. If the Tories had done this, the whOle Liberal Opposition would have been in full cry.
To sum up, we hold that a fixed charge of X28,000,000 for the service of the National Debt is not too much for this generation to bear, and that the.sum of X10,000,900 involved in that charge as a Sinking Fund is the very minimum that this generation ought to spend until the War Debt is entirely wiped off. To do less than this would be not only to neglect a moral duty, but also to risk the financial safety of the country if war were to ciine upon us. There are reasons of a purely economic character for an even larger expenditure upon Debt reduction. The great need of the country at dal; present time for .the development of its industries and for the employment of its people is cheaper capital. Dear capital blocks the way to employment, blocks the way to improved housing, and diminishes the share of the wealth of the world which the manual workers can oommand. Yet at the very moment when the Government are, in effect, telling the poor that they need not save for their old age, they are also proposing to tell the nation that it need no longer make serious efforts to pay off its old or its new debts.
Finally, let us remember the great influence exerted by the Sinking Fund on the price of Consols. If it is a good thing for Government stock, and therefore for Govern- ment credit, to stand high, then it must be a grievous error to deplete the Sinking Fund. We believe that the chief reason why even new the price of Consols is higher, in view of the lower interest paid, than French or. German stock, is the Sinking Fuud. No one thinks those States to be less solvent in the abstract than Britain. Periodic Government buying, and the consequent periodic shrinktge, of the stock which occur under the operation of a Sinking Fund must tend to keep up the price. Halve Govern- ment buyings and cancellations, as is now proposed, and the price, is sure to be affected. That is ,bad in itself, but remember that in addition the Government are, through their savings-banks policy, in a position analogous to that of holders of their own securities. Hence any depreciation in the price of Government stock means a loss to the State which, though it may be concealed in the national audit, is none the less real. A well-endowed Sinking Fund is the sheet-anchor of sound national finance. On that point there can be no question whatever.
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