BUDGET AND CRISIS
SIR JOHN SIMON'S second Budget has been received with approval but without enthusiasm. Some call it humdrum, others businesslike ; all agree that it is less painful than it might have been. To many, indeed, it seems too good to be true, and the immediate sense of relief may later give way to the feeling that Sir John Simon has not faced the real problems of the present financial situation, and has, even at this critical moment, followed as closely as possible the principle of "business as usual," which is the cautious politician's instinctive response to an emergency. In one sense his Budget statement was the most important that has ever been made in this country. The £1,000,000,000 Budget, which was once the aim of the Socialists and inspired thoughts of economic ruin in the minds of Conservative statesmen, has, under the stress of circumstances, been easily surpassed by the National Government. Expenditure in 1939-1940 will amount, at the lowest estimate, to £1,322,000,000— and there is not even an increase in the income-tax! Defence expenditure is estimated at £630,000,000, or nearly half the total. Revenue is estimated at £940,000,000, and of this £250,000,000 will be devoted to defence, while £380,000,000 will be raised by borrowing. Of the additional £55,000,000 demanded by the expansion of the Territorial Army, £24,000,000 will be provided from revenue, and only to provide this sum has the Chancellor nerved himself to impose increased taxation.
Yet the financial statement was already out of date by the time it was made. The decision to introduce conscription, taken on Budget day, will still further increase defence expenditure, and Sir John was careful not to set any limit to the " peak " of rearmament. The decision to cover the larger proportion of this immense expenditure by borrowing is unavoidable and generally approved. Yet, as Sir John said, it only transfers the burden to the shoulders of a later generation, which must pay heavily for the loans contracted now. For this reason alone, borrowing for defence should be kept to its lowest limit. And, in fact, the cost of borrowing on such a scale cannot merely be transferred. The expenditure of £400,000,000 raised by Government loans will bring us to the brink, if not over the brink, of inflation; unless accompanied by strict measures of control, it will set in motion the vicious circle of rising prices and increased wages, and from this process the most immediate sufferer will be the wage-earner.
Compared with issues of such magnitude, the prob- lems of raising £24,000,000 of additional revenue are of relatively small importance; and it is disappointing that Sir John did not, on this occasion,, expand his Budget statement into a survey of the financial policy the Government has framed to meet the new situation. His statement did not suggest that this policy is far advanced. Five taxes have been selected to provide the additional revenue : An increase of los., or 60 per cent., in the horse-power tax on private motor-cars will yield an additional £6,000,000 this year; id. a lb. on sugar will give £4,000,000 more ; 2S. a lb. on tobacco £7,000,000; higher surtax £4,000,000; higher estate duties £3,000,000. The most severe, and unpopular, of these increases is certainly that in the horse-power tax, which will strike chiefly those in the middle range of incomes; the least justifiable is the increase in the sugar tax. For the additional tax on motor-cars has a justification which is not directly concerned with the Budget; the Chancellor has probably intended deliber- ately to restrict the demand for motor-cars in order to release labour and capital in that industry for the more urgent needs of defence. Sir John has thus recognised the principle that unnecessary consumption must be limited in favour of the demand for arma- ments. But the motor-car owner, who is severely hit, may well, claim that the principle should be pushed farther. He may ask why there is no tax on cosmetics, or on betting, neither of which are of social value ; even more, why is there no increase in the beer tax? In 1933 Mr. Chamberlain reduced the tax by id. a pint, sacrificing, as he said, £14,000,000 of revenue. Since that date consumption and profits have risen, and it is high time that beer rather than revenue should be sacrificed. There appears to be little reason why the Chancellor should not have re- sorted to these methods of increasing revenue.
Even more, the Chancellor has spared the owners of wealth. In his tax increases he claimed to have preserved a proper equality of sacrifice. But the great mass of the population, with medium and low incomes, are asked for £17,000,000, the rich for £7,000,000. The common man may be required to risk his life for his country, and equality of sacrifice demands that wealth should be taxed to the utmost. Estate duties and surtax, with their new increases, are certainly already severe, yet not so severe as to accomplish the mobilisation of wealth which should correspond to the mobilisation of youth and manhood Even if the Government shrinks from the full "conscription of wealth" demanded by many of its supporters, a lowering of the limit of surtax would be a step in the right direction and a check on luxury consumption. How far in fact the Government is from demanding its proper contribution from wealth is shown by the operation of N.D.C. The Chancellor congratulated himself on the " smooth " working of this tax, as he did on the success of his measures against tax evasion. But an estimated contribution of £25,000,000 to the revenue is certainly small in propor- tion to the profits created by Government expenditure, and the still greater profits to be created ; and the loopholes for tax evasion which still exist are greater than those that have been closed.
On one small matter the Chancellor can be whole- heartedly congratulated. The new films tax has allowed him to reduce the entertainment tax on the living theatre ; but this success is small indeed by comparison with what is demanded of Sir John at the present time. He opened his Budget speech with a reference to Mr. Gladstone's £5o,000,000 Budget in 1853, and emphasised the contrast with the huge figures he was dealing with. But the contrast is not or should not be one of size alone, and Sir John differs very little from Mr. Gladstone in his view of the function of the Budget. It is no longer a passive instrument of accountancy, of making ends meet ; by now it is the greatest single instrument the Government possesses for directing and controlling the economic forces of the country, and one which today, consciously and deliberately manipulated, could effect the immensely difficult transition to the new economy which must be adopted in face of the dangers threatening this country. That transition cannot be effected without control of the country's wealth, consumption and production, and the Budget, in this year, should initiate and prepare for such control. Sir John Simon has conspicuously not attempted that task. His Budget is such as might be expected of its author, a lawyer's Budget, clear, conservative, business- like, but without imagination and without foresight. The country may one day have good reason to regret that such qualities were lacking at the present time.
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