24 APRIL 1920, Page 4



IT is a comfort to feel in times like these that we have at the financial helm so conscientious and so courage- ous a man as Mr. Austen Chamberlain. Whatever we may think of this or that detail in his Budget, the Budget as a whole is a monument to Mr. Chamberlain's integrity. He has not courted popularity ; he has shut his ears to distracting and intimidating whispers ; he has set himself straitly and solidly to do what he thought was the right thing for the nation. He knew that nothing but new and severe taxes would help the country out of its present extremely doubtful position and set the feet of the nation upon the solid highway that leads to success. He has been innocent of the besetting sin of many of his brother-Ministers, which is to keep their ears to the ground, to allow themselves to be awed by rumour, and to prefer the easiest immediate way out of a difficulty to a far- seeing policy, policy, which may indeed incite opposition to begin with but is proved to be in the national interest on the long view. Mr. Chamberlainlas been greatly underrated. We call to mind with more amusement than bitterness now— though they naturally created much resentment at the time—the senseless and rancorous attacks which were made on him when he was appointed Chancellor of the Exchequer by Mr. Lloyd George. He was railed at with venom and ridicule as the most inadequate figure in the Cabinet, a shallow-pated and inexperienced man who had been put in the one position where brilliance and experience were required. Events have shown, as we felt sure they would, that Mr. Lloyd George was per- fectly right. Mr. Chamberlain at the time when he was appointed was one of the most solid characters in a Govern- ment which had a good deal of flightiness and shiftiness, and he has gained much credit since then. He is one of those men who go on developing. There may have been a time when he enjoyed the advantages of his name rather than of his own merits. Naturally as a younger politician he drew advantage from the fact, even while in a sense he may have suffered from it, that he was the son of his father. But year by year Mr. Austen Chamberlain has grown in strength and knowledge, and to-day there is probably no other member of the Government who would have pro- duced a Budget so well calculated to meet the needs of the nation. Moreover, Mr. Chamberlain has inspired confidence among the leaders of commerce and trade. They all know that though he may do something which they do not like, and which indeed they may think positively injurious to their prospects, be will not let them down merely as the result of some hidden political trafficking. When he hits them hard it is because he has come to his decision, right or wrong, in an honest, studious way.

We have summarized the contents of the Budget else- where, and we shall deal here only with its general tendency and with a few major points. One need only look at the huge figures of the Budget—an estimated expenditure of £1,184,102,000—to recognize that taxation had to be on a grand and severe scale if any genuine attempt was to be made to pay off Debt. So far as we have gone, the recovery of the country has been remarkable and most encouraging, but the burden of Debt is a terribly heavy yoke on our necks, and every sensible person knows that the only way to abate inflation, high prices, and all the rest of our troubles is to attack that Debt. No belligerent nation during the war did so much to pay its way as it went along by taxing itself as Great Britain did. The percentage of cost of the war which was paid not out of borrowed money but out of actual revenue was rather higher than any one guessed at the time. Similarly it is true that no other country is making so strenuous an effort to reduce its Debt as Mr. Chamberlain proposes in his Budget. If Mr. Chamberlain had not added a penny to existing taxation, he would, w.ccording to his estimate, be able to reduce the Debt during the coming year by 160 millions. This is not a bad showing compared with the realized actual deficit in the past year of £326,202,000. A less courageous Chancellor of the Exchequer would have been content with this automatic decrease of Debt, and soothed his conscience with the soft assurance that people " simply will not stand any more taxation." Mr. Chamberlain, however, has acted other- wise. He has imposed new taxes which will in a full year bring in nearly 200 millions. Altogether in the coming year he expects to have a surplus of £234,198,000. In order to understand what this means, it is necessary to remember that before the war a 200 million Budget for all purposes was thought to be something staggering. Mr. Chamberlain, that is to say, in order to reduce Debt, aims at a surplus greater than a whole pre-war Budget. It will be possible to begin forthwith to reduce the Floating Debt, which is the most potent present cause of all our abnormal financial phenomena, though only £70,000,000 out of the £234,000,000 will be available to this end.

The greatest surprise of the Budget is of course the increase of the Excess Profits Duty from 40 to 60 per cent. It will be remembered that at the height of the war the Excess Profits Duty was 80 per cent. When Mr. Chamber- lain reduced it to 40 per cent. in his Budget of last year he said : " There are grave objections to this duty. It encourages wasteful expenditure, and has acted as a great deterrent of enterprise and industry. I do not wish to continue the tax a moment beyond what is necessary." This statement, coming from one who weighs his words as carefully as Mr. Chamberlain does, was naturally taken to mean that the Excess Profits Duty would be gradually reduced till it was ultimately extinguished. Certainly no one supposed that with the revenue exceeding expectations the Excess Profits Duty would be increased by 50 per cent. on the figure of last year. It would be superfluous to remind Mr. Chamberlain of all the disadvantages of this tax because he knows them already. It causes manu- facturers to abate their competition because the kind of competition which means falling prices for the consumer becomes for them hardly worth while ; it creates monopo- listic tendencies; it induces manufacturers to go slow in spite of their professional disposition to launch out in new enterprises ; and it has an unfortunate effect in reconciling manufacturers to extravagance in their establishment expenditure and their wages-bill—extravagance which they would not dream of in ordinary circumstances—because they tell themselves that they may just as well consume their margin in this way as hand it over to the Treasury, and incidentally be held up to public odium as " profiteers.' Manufacturers have, we think, a plausible grievance in the fact that a change in the duty has been introduced after they have made all their arrangements for thl coming year, and have issued their price-lists, and so on, in the assurance that the Excess Profits Duty would not be more than 40 per cent. On the other hand, we must not argue this matter as though we were living in a normal year, for that entrancing marsh-light dances airily away from us whenever we step forward to grasp it and say that it is ours. Mr. Chamberlain no doubt feels that he was justified in doing an exceptional thing in these exceptional times, and for our part we have no intention of swelling the chorus which is calling upon him to surrender out of hand. He admits that if he dropped the proposed increase in the Excess Profits Duty he would not lose more than £10,000,000 this year, and of course it is possible that he might recoup himself for a considerable part of that loss by the higher industrial activity which would follow upon the satisfaction of the manufacturers. But Mr. Chamberlain evidently means to stand or fall on this tax, and we say frankly that we prefer keeping him to getting rid of the tax.

Mr. Chamberlain of his own volition has gone so far as to say that he would drop this increased duty if he could substitute for it a tax upon war wealth. We cannot feel that the evidence which has been taken by the Select Committee on the subject of a tax on war wealth has been' very encouraging. Nevertheless we should welcome a practical scheme if it could be produced. It is quite legitimate, in our opinion, to draw a distinct line between the doctrinaire demand of the Labour Party and of some Liberals for a general levy on capital, and the demand for a levy on profits which were demonstrably the result of war conditions and were due to no other cause. But everything must depend on a workable scheme being produced ; it would be worse than useless to accept a scheme that would do as much harm as good merely because one was in love with a principle which is defensible and attractive in itself. Although a tax upon war wealth is the immediate possible alternative to the increased Excess Profits Duty, it must not be forgotten that Mr. Chamberlain has created a new and remarkable tax that in the long run will dispense with the need for either of these temporary expedients. We mean of course what is called the Corporation Tax. This is a tax on the profits of limited companies, and it is evidently a tax which has come to stay. It might be described as a Super Tax for companies ; and it is no more likely to be removed than the Super Tax on the income of individuals.

We must pass over the increased taxes on motor-cars and wine, and the increased cost of postage and telegrams, as being right if not inevitable in the circumstances. Criticism becomes legitimate again when one considers Mr. Chamber- lain's decision to count the 320 millions which will be realized for the sale of war assets as revenue. If Mr. Chamberlain had not done this, there would be a deficit instead of a surplus. According to the proprieties of finance all the proceeds of sales ought of course to go to the paying off of Debt and to no other purpose. The war materials which have been sold and are to be sold were bought out of borrowed money, and strictly it is improper that what we recover should be counted as revenue. But here again the plea of exceptional circumstances comes in any case to Mr. Chamberlain's rescue, and he moreover pleads tradition. He is dealing with abnormal circumstances, and he has so fully implied this by asseverating principles as sound as any which we could propose to him that we confess criticism is almost disarmed.

As regards Income Tax and Super Tax, there was another surprise, though a comparatively mild one, in the decision to make Super Tax begin at incomes of £2,000 a year instead of £2,500 as formerly. Those family men who are affected by this change no doubt took instant alarm when they heard of it, and imagined that Mr. Chamberlain was going to take away from them with one hand all that he had given them with the other. Their first instinct was to think that they had gained nothing by the general adoption of the recommendations of the Royal Commission on the Income Tax, since the grants they would get for wife and children would be taken away from them in the form of Super Tax. But their fears were relieved when they read the Budget in detail. The Super Tax is mildly graduated on the lower incomes, and on the whole the family man with between £2,000 to £3,000 a year will be in a slightly better position this year than he was last year. The suggestions of the Royal Commission were on the whole very good, and we are glad that Mr. Chamberlain has substantially accepted them. It seems to us, however, that unmarried men liable to Super Tax still escape much too easily in com- parison with the married men with families, and their hen-roosts—if the phrase is not too paradoxical—seem positively to invite a raid. Another good point is that Mr. Chamberlain has cut the losses over the Land Values fiasco.

The Budget has of course many enemies, as such a Budget is bound to have, but most of the objurgations showered upon it cancel one another. Mr. C. F. G. Master- man tells us that it is " a rich man's Budget," while the Daily Herald, to our gratification, assures us that it is a brave Budget because Mr. Chamberlain has not feared to tax the rich. It would be profitless to sort out such wildly contradictory criticisms ; the Mastermans may be left to settle their account with the Daily Heralds. When all has been said, Mr. Chamberlain's Budget is likely to do what it is planned to do, and both it and its author may count upon the tests of time for justification and esteem.