FINANCE-PUBLIC & PRIVATE.
[BY OUR CITY EDITOR.]
THE CITY AND THE BUDGET.
(To the Editor of the SPECTATOR.] SIR,--The City likes the Budget. Bankers approve its soundness ; the Stock Exchange is pleased because it commands confidence in investment markets generally, and business men like it because they think that it will tend to stimulate industrial enterprise. This last view is based both on the general confidence which it is con- sidered the Budget will inspire and also upon the concrete fact of the halving of the Corporation Profits Tax. This, indeed, so far as the City was concerned, was the one small surprise of the Budget, and inasmuch as the remain- ing sixpence will scarcely be worth the expense of collecting it is felt that within another year or so this most mid e- sirable tax will disappear altogether. Satisfaction with the Budget does not, however, rest in the main upon the remission of taxation. The reduction (Continued on page 676.) of sixpence in the Income-tax is exactly in accordance with expectations, and the same may be said of the Beer Duty. As within two years the Income-tax had been re- duced by is. 6d., some concession in indirect taxation was inevitable, and it will be noted that the relief apportioned is from the Exchequer point of view almost equal. The concessions in postal and telephone charges are trifling, but they are all in the direction of stimulating business, while the prospect of the disappearance of the Corporation Profits Tax means that industrial enterprise will be stimulated, because it will be easier for existing or new concerns to raise ordinary capital. Nor is the slight modification of the assessment of life insurance companies for Income-tax, to which I refer elsewhere, an unim- portant matter. The main feature, however, of the Budget—and the one which accounts for its favourable reception in the City—is concerned with the question of Debt redemption. This, as you know, is a point which I have emphasized for some weeks past when referring to Budget prospects, and Mr. Baldwin is to be congratulated upon the courage which he has displayed in facing this great problem of our huge Debt left to us as a legacy from the War. If, following the example of his predecessor, he had continued to suspend all statutory Sinking Funds, it is clear that he would have had many millions more to play with on the present occasion, and might easily have reduced the Income-tax by one shilling in the £. Instead, he has preferred to allocate an extra £40,000,000 to the Debt service for the current year, while he has boldly announced his intention to raise the amount next year to £45,000,000, and in the following year to £50,000,000. Not only is this sound finance, but it is also sound common sense, and the effect upon industry should be as good as though the money were used for the remission of taxation. Its effect, as I have previously pointed out, may not be so immediate, because the Revenue has first to be gathered in ; but ultimately, when Debt is redeemed, the money becomes available for industry, and in the meantime we have the stimulus which always is to be derived from an improve- ment in the national credit itself.
To those who are inclined to assume that an improve- ment in the national credit is something merely academic and without practical interest to the taxpayer, and to others who appear to think that a rise in high-class invest- ment securities is something which merely benefits the holders of those stocks, may I suggest two practical con- siderations ? One is that the only hope of a big reduction in our permanent annual charge on the debt of over £300,000,000 is to be found in Debt redemption, plus an early conversion of outstanding Debt into lower interest- bearing securities, and the latter operation can only become possible when the price of Government loans has risen appreciably in the market. Another point is this. So long as gilt-edged securities stand at a level giving a very high yield to the investor, there will be little disposition to place liquid resources in industrial enterprises. These and other points have been very clearly grasped by the City, and while all markets have tended to improve during the week, a prominent fact has been , the activity and strength of all industrial descriptions. Finally, the City likes the Budget because it is sound, straightforward and calculated to inspire confidence. It is not entirely free from defects, some of which I shall deal with on a subsequent occasion ; but these defects are minor matters when compared with the bed-rock principles of sound finance, which constitute the out- standing feature of Mr. Stanley Baldwin's first Financial Statement. Under any circumstances, it would have com- manded the approval of business men, but I think that its favourable reception has possibly been strengthened by the contrast presented between the principles embodied in the Budget and the sinister suggestions conveyed in the Speech on Budget night by the Leader of the Labour Party. Mr. Ramsay MacDonald used the occa- sion to reaffirm the intention of his Party (given the opportunity) to establish a levy on capital for Debt redemption, while his assertion that the deduction of sixpence in the Income-tax would probably merely stimulate " those luxurious displays which were so detestably prevalent to-day and which were a danger to social stability " disclosed an attitude wholly unworthy of any Party aspiring to the government of this country.- With singular lack of either consistency or humour, Mr. MacDonald in almost the same breath denounced as " perfectly scandalous " the present tax on entertain- ments. Recognition, therefore, of the alternative policy proffered by the strongest Party in the House of Commons next to the Government may well have deepened satis- faction in the City concerning the general soundness of Mr. Baldwin's Budget.—I am, Sir, yours faithfully,
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