Finance--Public and Private
An Industrial Budget
MR. WINSTON CHURCHILL'S fourth Budget is likely to be a fruitful topic of conversation in industrial and financial circles for some time to come, and, writing, as I am doing, within an hour or two of hearing the speech, I can do little more than touch upon one or two of its main points and endeavour, perhaps, to explain some of the more technical points of the Chancellor's Financial Statement.
CORRECT DIAGNOSIS.
Making all allowances for mere oratorical effects, I think that most of those who were present in the House on Tuesday were impressed by a conviction, first, that the Government had correctly diagnosed the present situation by concentrating upon the depression in our key industries, and, second, that in the proposed reform of local ratings as affecting certain industries, an earnest attempt was being made to grapple with a most difficult and complex problem. Primarily, of course, the Budget was more industrial than financial. That is to say, while the Chancellor had in his Budget to provide the necessary funds required for the schemes for relieving industry, it was upon the schemes -th-emselveS and their possible effect upon industry that attention was chiefly fastened. In fact, there was a tendency for this part of his speech to divert attention from the ordinary financial provisions of the Budget. AIDING INDUSTRY.
Briefly, the proposals of relief are along the lines of all industries concerned in production being relieved of some three-fourths of the rates levied upon them, while in the case of the agricultural industry it would seem that complete relief is to be afforded. This relief is apparently to come in the form of rebates ; that is to say, nothing is done directly to affect the local rates themselves, the industry presumably paying the charge and getting the rebate back from the Treasury. It is in that coqnexion, of course, that large sums are required, or rather will be required-by 'October of next year.
PROBLEM OF TRANSPORT.
One particular form of industry, however, that of transport, receives its relief under somewhat exceptional conditions, though, of course, they are quite logical and are a part of the whole scheme. Thus, in the case of the railways, and presumably in the case of other transport concerns, the rebate is to be given solely on the under- taking that a corresponding reduction is made in freight rates on particular classes of goods scheduled by the Government. The idea, of course, is that the railways, which come under the head of a " sheltered " industry, shall neither gain nor lose under the Government scheme other than such gain as should arise from an expansion in traffic, but-that the industries, and certain industries in particular, shall benefit both by their own rebates in the matter of local rates and also in the matter of freight charges on goods carried. Needless to say that coal is among the articles to be scheduled.
A BIG PROSPECTIVE SURPLUS.
To this subject of rating reforms and the general industrial aspects of the Budget I shall hope to make some further reference next week. Meanwhile, sight must not be lost of the more directly financial aspects of the Budget. The first point which is worthy of atten- tion is the fact that whether guided by ordinary dictates of prudence or by -a special consideration of next Budget Day coming very -near to General Election time, there is no doubt that Mr. Churchill has been careful to ensure a substantial surplus a year hence. To obtain the funds for his rating reform scheme, he is raising by a special tax on oils £14,200,000 in the presentyear and £16,800,000 in a full year. Other s additions to taxation are imposed, but on the other hand the increased relief for children, in the matter, of Income Tax rebates, means a loss to the Revenue in the present year. of £2,100,000, and 14,500,000 in: a full .years 'flia.new__Tax. Revenue, however, combined with reduced expenditure, is expected to yield a surplus for the year of £14,502,000, in addition to which last year's surplus of £4,289,000 is carried forward, giving _ a total estimated surplus for the new year of £18,741-,000, which is to be available both for Budget contingencies during the year and for funds for the rating relief scheme. Inasmuch, however, as the scheme :will-.not really become operative until October of next year, it looks as though Mr. Churchill might have a good deal of money to play with when the next Budget Day arrives, especially as he has pitched his estimates of Tax Revenue fairly low.
SINKING FUNDS.
Another interesting point in the Budget, and one of particular interest to the City, is the plan for dealing with debt redemption. Instead of deciding from year to year what is to be the amount of Sinking Fund applied within that year, it has been decided to restore the old pre-War system of .a fixed amount for the service of the debt to include the Sinking Fund, the new total being £855,000,000. So far as the -system itself is concerned' the alteration is a good one. It provides for a definite fixed amount which cannot be altered, and the effect, of course; is to make the Sinking Fund itself become automatically more effective with each year that passes. A certain amount of debt is redeemed, and consequently in each successive year the amount available for debt redemption is larger and the amount of debt to be dealt with is smaller. In fact, the Chancellor estimated that in the absence of unforeseen additions to our obligations, the National Debt should be wiped out within fifty years. Unfortunately, however, the effect of Mr. Churchill's proposals in this respect was rather spoiled by the fact that for some few years the portion of the debt service available for debt redemption will be considerably beloW the recent figure of £65,000,000. Moreover, the Chancellor made rather a bad beginning by appearing to make up a £65,000,000 Sinking Fund for the present year by including on the Revenue side of his final Balance Sheet not only the £18,200,000 at present in the Currency Note Department of the Government, but also the realized surplus of last year, which, of course, according to o14 custom, should in any case go automatically to debt redemption.
FUSION OF NOTE ISSUE.
The explanation of the Chancellor bringing in to his Revenue receipts an item of £18.200,000 from Currency Note assets is explained by the announcement made in the course of the Budget that it has been decided to bring in a special Bill having for its object the fusion of the Bank of England and Treasury notes. This is point which gives satisfaction to the City, because it Consummates and rounds off the gold standard system to which we returned in 1925. That system can never be quite effectively worked so long 'as there is a dual control of the currency, such as that which has existed from the very commencement of the War period. I must reserve, however, for another occasion a fuller explanation of what will be involved in this fusion of the Bank of England and the Treasury notes.
NEW FORM OF ACCOUNTS.
Finally, it should be noted that the Financial Accounts are to be presented in a new and, in some respects, a simpler form. In the past it has been customary to publish on the respective sides of the Balance Sheet Receipts and Expenditure connected with the Revenu4 departments such as the Postal and Telegraph Services, Now, however, in the official final Balance Sheet there is simply entered the net Revenue anticipated from those departments, and this, of course, has the effect of materially reducing the total in the Balance Sheet. Thete is a good deal to be said for the change, but I would caution those who are concerned with the question of national economy to visualize carefully the new totals ill their old form, for .otherwise we shall be running away with the idea that the growth in post-war expenditure is not as great as we had thought. For example, the pre-War Budget for 1914 represented a total of •I•ofighly 1200,000;000, and working on the same basis, our estimated expenditure for the current year is £805,195,000. On the new Balance Sheet principle, however, it appears as
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